Shree Construction Co.undertook a contract on 1 January 2009 for construction of a farm house with an escalation clause which provides that if material prices and wage rates increase by more than 12%, then the contractor gets a compensation for 35%of such rise in the cost of material and wages beyond 12%. It was agreed that since the signing of the agreement the material prices and wages rates have gone up by 42%on an average. The value of work certified does not take into account the effect of escalation clause.

The following are the details relating to the contract for the year that ended on 31 December 2009.

Contract price

15,00,000

Materials issued

3,00,000

Wages

4,00,000

Overheads

25,000

Plant installed at site

50,000

Material in hand as on 31

25,000

December 2009

Work certified

10,00,000

Cash received

8,00,000

Work done but uncertified

25,000

Depreciate plant @ 10% p.a.

Prepare a contract account and show the profit that is to be taken to P&L A/c.