Prabhu Builders Ltd. commenced work on 1st April 2005 on a contract of which the agreed price was Rs. 5 lakhs. The following expenditure was incurred during the year up to 31st March 2006.
|
Particulars |
Amount Rs. |
|
Wages |
1, 40, 000 |
|
Plant |
35, 000 |
|
Materials |
1, 05, 000 |
|
Head office expenses |
12, 500 |
Materials costing Rs.10, 000 proved unsuitable and were sold for Rs.11, 500 and a part of plant was scrapped and sold for Rs.1, 700. Of the contract price Rs.2, 40, 000 representing 80% of work certified had been received by 31st March 2006 and on that date the value of the plant on the job was Rs.8, 000 and the value of materials was Rs. 3, 000. The cost of work done but not certified was Rs.25, 000. It was decided to [a] Estimate what further expenditure would be incurred in completing the contract.
[b] Compute from the estimate and the expenditure already incurred, the total profit that would be made on the contract and [c] Ascertain the amount of profit to be taken to the credit of Profit and Loss Account for the year ending on 31st March 2006. While taking profit to the credit of Profit and Loss A/c, that portion of the total profit should be taken which the value of work certified bears to the contract price. Details of the estimates are given below.
i. That the contract would be completed by 30th September 2006
ii. The wages to complete would amount Rs.84, 750
iii. That materials in addition to those in stock on 31st March 2006 would cost Rs.50, 000
iv. That further Rs.15, 000 would have to be spent on plant and the residual value of the plant on 30th September 2006 would be Rs.6, 000
v. The head office expenses to the contract would be at the same annual rate as in 2005 06.
vi. That claims, temporary maintenance and contingencies would require Rs.9, 000
Prepare contract account for the year ended 31st March 2006 and show your calculations of the sum to be credited to Profit and Loss A/c for the year.