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Q1:- The following expenses were incurred on a contract:

Materials purchased 6,00,000

Materials drawn from stores 1,00,000
Wages 2,25,000
Plant issued 75,000
Chargeable expenses 75,000
Apportioned indirect expenses 25,000

The contract was for Rs. 20,00,000 and it commenced on January 1, 1998. The value of the work
completed and certified upto 30th November, 1998 was Rs. 13,00,000 of which Rs. 10,40,000 was received
in cash, The balance being held back as retention money by the contractee. The value of work completed
subsequent to the architect’s certificate but before 31st December, 1998 was Rs. 60,000. There were also
lying on the site materials of the value of Rs. 40,000. It was estimated that the value of plant as at 31st
December, 1998 was Rs. 30,000.

Q2:- A contractor prepares his accounts for the year ending 31st December each year. He commenced a contract
on 1st April, 1998.
The following information relates to the contract as on 31st December, 1998:

Materials issued 2,51,000

Labour charges 5,65,600
Salary to foreman 81,300

A machine costing Rs. 2,60,000 has been on the site for 146 days, its working life is estimated at 7 years
and final scrap value at Rs. 15,000.
A supervisor, who is paid Rs. 8,000 p.m. has devoted one-half of his time to this contract.
All other expenses and administration charges amount to Rs. 1,36,500.
Materials in hand at site costs Rs. 35,400 on 31st December, 1998.
The contract price is Rs. 20,00,000. On 31st December, 1998 two-third of the contract was completed. The
architect issued certificates covering 50% of the contract price, and the contractor had been paid Rs.
7,50,000 on account.
Prepare contract Account and show how much profit 7 loss should be included in financial accounts to 31st
December, 1998.

Q3:- M/s Bansal Construction Company Ltd. Took a contract for Rs. 60,00,000 expected to be completed in
three years. The following particulars relating to the contract are available:
1996 1997 1998
Rs. Rs. Rs.
Materials 6,75,000 10,50,000 9,00,000
Wages 6,20,000 9,00,000 7,50,000
Cartage 30,000 90,000 75,000
Other expenses 30,000 75,000 24,000
Cumulative work certified 13,50,000 45,00,000 60,00,000
Cumulative work uncertified 15,000 75,000 -

Plant costing Rs. 3,00,000 was bought at the commencement of the contract. Depreciation was to be
charged at 25% per annum, on the written down value method. The contractee pays 75 % of the value
Of work certified as and when certified,and makes the final payment on completion of the contract.

You are required to make a contract account and contractee account as they would appear in each of the
three years. Also show how the work-in-progress and other items should appear in the balance sheet.
Q.4:- Compute a conservative estimate of profit on a contract ( which has been 90% complete) from the following
particulars. Calculate the proportion of profit to be taken to profit & loss account under various methods and
give your recommendation.
Total expenditure to-date 4,50,000
Estimated further expenditure to complete
The contract (including contingencies) 25,000
Contract price 6,12,000
Work certified 5,50,800
Work uncertified 34,000
Cash received 4,40,640

Q.5 A contractor has entered into a long term contract at an agreed price of Rs.1,75,000 subject to an escalation
clause for materials and wages as spelt out in the contract and corresponding actual are as follows:-

Standard Actual

Materials Qty.(tones) Rate (Rs.) Qty.(tones) Rate(Rs.)

A 5,000 5 5,050 4.80

B 3,500 8 3,450 7.90

C 2,500 6 2,600 6.60

Labour Hours Hourly rate (Rs.) Hours Hourly Rate(Rs.)

X 2,000 7.00 2,100 7.20

Y 2,500 7.50 2,450 7.50

Z 3,000 6.50 3,100 6.60

Reckoning the full actual consumption of material and wages the company has claimed a final price of
Rs.1.77,360/-. Give your analysis of admissible escalation claim and indicate the final price payable.
Q.NO.6:- Deluxe Limited undertook a contract for Rs. 5,00,000 on 1st July 1996. On 30th june 1987 when the
accounts were closed the following details about the contract were gathered:-
Materials purchased 1,00,000
Wages paid 45,000
General expenses 10,000
Plant purchased 50,000
Materials on hand 30-06-1997 25,000
Wages accrued 5,000
Work certified 2,00,000
Cash received 1,50,000
Work uncertified 15,000
Depreciation of plant 5,000
The above contract contained an escalation clause which read as follows:
In the event of prices 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 singing the agreement the prices of materials and wage rates increased
by 25%. The value of the work certified does not take into account the effect of the above clause.
Prepare the contract account. Working should form part of the answer.
Ans.:- Profit-Rs. 20,000, Reserve- Rs.60,000, WIP-Rs. 1,85,000.
Q.NO.7:- Discuss briefly the principle to be followed while taking credit for profit on in completed.
Rex Limited Commenced a contract on 1.7.1998. The total contract price was Rs. 5,00,000 but Rex
Limited accept the same for Rs. 4,50,000. It was decided to estimate total profit and to take to the credit
of profit & loss account that proportion of estimated profit on cash basis which the work completed
before to the total contract. Actual Expenditure till 31.12.1998 and estimated expenditure in 1999 are
given below:

Expenses Actual Estimated

Till 31.12.1998 for 1999
Rs. Rs.
Materials 75,000 1,30,000
Labour 55,000 60,000
Plant purchased (original cost) 40,000 ------
Misc. Expenses 20,000 35,500
Plant returned to stores on 31.12..98 at
Original cost 10,000 25,000
(as at 30.09.99)
Materials at site 5,000 Nil
Work certified 2,00,000 Full
Work uncertified 7,500 Nil
Cash Received 1,80,000 Full

The plant is subject to annual depreciation @ 20% of original cost. The contract is likely to be
completed on 30.09.1999.
You are required to prepare the contract account for the year ended 31/12/1998. Working should be
clearly given.
It is policy of the company to charge depreciation on time basis.
Ans.:- Profit transferred to P/L Rs. 26,400, Profit in reserve Rs. 32,100.
Q.NO.8:- A contractor who prepares his account on 31st December each year commenced a contract on 1st April
1999. The costing records concerning the said contract reveal the following on 31st December 1999:-
Materials charged to site 2,58,100
Labour engaged 5,60,500
Foremen’s salary 79,300
Plants costing Rs. 2,60,000 has been on site for 146 days. Their working life estimated at 7 years and
their final scrap value at Rs. 15,000. A supervisor who is paid Rs. 4,000 p.m. has devoted approximately
three fourths of his time to this contract. The administrative and other expenses amount to Rs. 1,40,000.
Materials in hand at site on 31st December 1999 cost Rs. 25,400. Some of the materials costing Rs. 4,500
was found unsuitable and was sold for Rs. 4,000 and a part of the plant costing Rs. 5,500 (on 31.12.99)
unsuited to the contract was sold at a profit of Rs. 1,000. The contract price was Rs. 22,00,000 but it was
accepted by the contract for Rs. 20,00,000. On 31st December 1999 two third of the contract was
completed. Architect’s certificate had been issued covering 50% of the contract price and Rs. 7,50,000
had so far been paid on account. Prepare contract account and state how much profit or loss should be
included in the financial accounts to 31st December 1999. Working should be clearly given. Depreciation
is charged on time basis.
Also prepare the contractee’s account and show how these accounts would appear in the Balance Sheet
as on 31st December 1999.
Ans.:- Profit transferred to P/L A/c Rs. 1,06,625.
Q.NO.9:- Buildwell Ltd. commenced a contract on Jan. 2004. The total contract was for Rs. 10,00,000 (estimated
by the contractee) and was accepted by Buildwell Ltd. At 10% less. It was decided to estimate the total
profit and to take to the credit of P & L A/c that proportion of estimated profit on cash basis which the
work completed before to the total contract. Actual expenditure in 2004 and estimated expenditure in
2005 are given below:
2004 (Actual) 2005 (Estimate)
Rs. Rs.
Materials 1,50,000 2,60,000
Labour: Paid 1,00,000 1,20,000
Accrued 10,000 -----
Plant purchased 80,000 -----
Expenses 40,000 71,000
Plant returned to store on (cost) 20,000 50,000
(31st Dec.) (on 30/09/2005)
Materials at data site 10,000 -----
Work certified 4,00,000 Full
Work uncertified 15,000 -----
Cash received 3,00,000 Full
The plant is subject to annual depreciation @ 20% of cost. The contract is likely to be completed on 30th
Sep., 2005. Prepare the contract Account.
Ans.:- Profit transferred to P & L A/c –Rs. 44,667 to Reserve –Rs. 64,333
Estimated profit –Rs. 1,34,000.
Q.NO.10:-The following figures are extracted from the books of Ram Dass, a contractor, for the year ending 31st
Dec., 2004:
Rs. Rs.
Work-in-progress on 31st Dec., 2004 17,00,000
Less: Advances from contractee’s 11,00,000 6,00,000

Materials supplied to contract direct 1,20,000

Materials issued from store 2,10,000
Wages 1,70,000
Working expenses 30,000
Materials returned to store 11,000
Contracts finished 4,50,000
Work certified 3,00,000
Profit taken to P & L upon contracts completed 2,30,000
Administration expenses (of which Rs. 5,000 is chargeable to P & L A/c) 25,000
Plant issued 50,000
Material returned from contracts direct to suppliers 9,000
Advances from contracts 8,00,000
Plant at site 40,000
Prepare the Contract Ledger Control A/c as in General ledger and Total Contract A/c. Show also how the
work-in-progress would appear in the Balance Sheet as on 31st December, 2004.
Ans.:- Profit –Rs. 2,30,000; Work uncertified –Rs. 17,20,000.
Q.NO.11:- Three contracts A,B and C commenced on 1st Jan., 1st July and 1st Oct. 1998 respectively were
undertaken by the Bharat contractors Ltd. And their accounts on 31st Dec. 1998 showed the following
Contract Contract Contract
Contract price 8,00,000 5,40,000 6,00,000
Raw Materials 1,44,000 1,16,000 40,000
Wages paid 2,20,000 2,24,000 28,000
General charges 8,000 5,600 2,000
Plant installed 40,000 32,000 24,000
Materials in hand 8,000 8,000 4,000
Wages accrued 8,000 8,000 3,600
Work certified 4,00,000 3,20,000 72,000
Work finished but not certified 12,000 16,000 4,200
Cash received in respect of
Work certified 3,00,000 2,40,000 54,000

The plant was installed on the date of commencement of each contract, depreciation is to be taken at
10% per annum.
Prepare contract account and balance sheet as on 31st Dec. 1998

Ans.:- Profit Rs. 18,000 contract A

Profit Rs. 6,000 Contract C
Balance Sheet Rs. 2,06,200.

Q.NO.12:- Two contract A and B commenced on 1st January and 1st July 1991 respectively were undertaken by a
contractor and their accounts on 31st Dec. 1991 showed the following position :-
Contract A Contract B
Contract price 40,000 27,000
Expenditure :
Materials 7,200 5,800
Wages paid 11,000 11,240
General charges 400 280
Plant installed 2,000 1,600
Materials on hand 400 400
Wages accrued 400 400
Work certified 20,000 16,000
Cash received in report 15,000 12,000
Cost of work done but not yet certified 600 800

Plants were installed on the date of commencement of each contract. Depreciation is chargeable @ 10%
p.a. Prepare contract accounts in columnar form showing the profit or loss be transferred to P/L A/c for
the year ended 31st Dec. 1991.

Ans.:- A=900 B=600

Q.NO.13:- A company undertook a contract for construction of a large building complex. The construction work
commenced on 1st April 1993 and the following data are available for the year ended 31st March 1994.
Contract price 35,000
Work certified 20,000
Progress payment received 15,000
Materials issued to site 7,500

Planning & estimating costs 1,000

Direct wages paid 4,000
Materials returned from site 250
Plant hire charges 1,750
Wage related cost 500
Site office costs 678
Head office expenses apportioned 375
Direct expenses incurred 902
Work not certified 149
The contractors own plant which originally cost Rs. 20 Lacs has been continuously in use in this
contract through out the year. The residual value of the plant after 5 years of life is expected to be Rs. 5
lacs. Straight line method of depreciation is in use.

As on 31st March 1994 the direct wages due and payable amounted to Rs. 2,70,000 and the materials at
site were estimated at Rs. 2,00,000.

Ans.:- Profit Rs. 1,662.

Q.NO.14:- The following Trial balance was extracted on 31st December, 1994 from the Books of Swastik Co. Ltd.
Rs. Rs.
Share capital: shares of Rs. 10 each 3,51,800
Profit & Loss A/c on 1st Jan. 1994 25,000
Provision for depreciation of machinery 63,000
Cash received on account: contract 7 12,80,000
Creditors 81,200
Land & Building (cost) 74,000
Machinery (cost) 52,000
Bank 45,000
Contract 7:
Materials 6,00,000
Direct labour 8,30,000
Expenses 40,000
Machinery on site (cost) 1,60,000

18,01,000 18,01,000

Contract 7 was begun on 1st Jan. 1994. The contract price is Rs. 24,00,000 and the customer has so far
paid Rs. 12,80,000 being 80% of the work certified. The cost of the work done since certification is
estimated at Rs. 16,000. On 31st December, 1994, after the above Trial Balance was extracted,
machinery costing Rs. 42,000 was returned to stores, and materials then on site were valued at Rs.
27,000. Provision is to be made for direct labour accrued Rs. 6,000 and for depreciation of all machinery
at 12.5% on cost. You are required to prepare (a) The contract account (b) a statement of profit, if any, to
be properly credited to profit & loss A/c for 1994 and (c) the balance sheet of swastik co. ltd. As on 31st
December, 1994.

Ans.:- Total profit Rs. 1,47,000. Profit credited to P & L Rs. 78,400. Balance Sheet Total Rs.
6,25,400 ( Provision for depreciation if shown on liabilities side).