Deluxe Ltd. undertook a contract for Rs.5,00,000 as on 1st July 2006. On 30th June 2007, when the accounts were closed, the following details about the contract were gathered.
|
Particulars |
Amount |
|
|
Rs.’000s |
|
Materials purchased |
100 |
|
Wages paid |
45 |
|
General expenses |
10 |
|
Plant purchased |
50 |
|
Materials on hand on 30th June 2007 |
25 |
|
Wages accrued on 30th June 2007 |
5 |
|
Work certified |
200 |
|
Cash received |
150 |
|
Work uncertified |
15 |
|
Depreciation of plant |
5 |
The above contract contained an escalation clause which read as follows.
‘In the event of materials and rates of wages increase by more than 5% the contract price would 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 effects of the above clause. Prepare Contract Account. Working should form part of your answer.