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.