Excel Ltd. undertook a contract for Rs. 10,00,000 on 1 February 2009. On 31 January 2010, when the accounts were closed, the following details about the contract gathered:
|
Materials purchased |
2,00,000 |
|
Wages paid |
90,000 |
|
General expenses |
20,000 |
|
Plant purchased |
1,00,000 |
|
Materials on hand on 31 January 2010 |
50,000 |
|
Wages accrued on 31 January 2010 |
10,000 |
|
Work certified |
4,00,000 |
|
Cash received |
3,00,000 |
|
Work uncertified |
30,000 |
|
Depreciation of plant |
10,000 |
The above contract contained an escalation clause which reads as follows:
“In the event of prices of materials and rates of wages increase by more than 5%of the contract price, then the prices will be increased accordingly by 25%of the rise in the cost of materials and wages beyond 5%in each case”.
It was found that since the date of signing the agreement the prices of materials and wage rates increased by 25%. The value of work certified does not take into account the effect of the above clause. Now prepare the contract account.