Oman College of Management and Technology,
Department of Administrative and Financial Sciences:
Cost Accounting -2 (203305)
Chapter- 2 Contract costing:
Exercises:
1. The following are the details of expenditure on a contract for RO 600,000 commenced in
January 2013.
Materials- RO.120, 000; Wages- RO.164,000; Plant – RO.20,000; Business Charges – RO.
8,600. Cash received on account to 31st December, 2013 amounted to RO 240,000 being 80% of
work certified; the value of materials in hand on 31-12-2013 was RO.10, 000.Prepare Contract
Account for 2013 showing the profit to be credited to the year’s profit and loss account. Plant is
to be depreciated at 10%.
2. An expenditure of RO. 192,000 has been incurred on a contract up to the end 31st March 2013.
The value of work done and certified is RO. 210,000. The cost of work done but not yet certified
is RO. 12,000. It is estimated that the contract will be completed by 30th June, 2013 and an
additional expenditure of RO 18,000 will have to be incurred to complete the contract. The total
estimated expenditure on the contract is to include a provision of 12.5% for contingencies. The
contract price is RO 280,000 and RO 168,000 has been realized in cash up to 31 st March, 2013.
Calculate the proportion of profit to be taken to profit and loss account as on 31st March 2013
under different under different methods.
3. A company undertook a contract for construction of a large building complex. The
construction work commenced on 1st April, 2012 and the following data are available for the
year ended 31st March, 2013:
Details
Amount (RO)
Contract Price
35,000
Work certified
20,000
Progress payment received
15,000
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Materials issued to site
7,500
Planning and estimation cost
1,000
Direct wages paid
4,000
Materials returned from site
Plant hire charges
250
1,750
Wages related to cost
500
Site office costs
678
Head office expenses apportioned
375
Site expenses incurred
902
Work not certified
149
Contractors own a plant which originally costs RO 2,000,000 has been continuously in use in
this contract throughout the year. The residual value of the plant after 5 years of life is expected
to be RO. 500,000. Straight line method of depreciation is in use.
As on 31st March, 2013, the direct wages due and payable amounted to RO 270 and the material
at site were estimated at RO. 200.
Required:
(1) Prepare the contract account for the year ended 31st March, 2013;
(2) Show the calculation of profit to be taken to the profit and loss account of the year ;
(3) Show the reliance balance sheet entries.
4. Muscat Construction Co. LLC with a paid up capital of RO 5,000,000 undertook a contract to
construct a large apartment. The work commenced on the contract on 1-4-2012. The contract
price was RO.6, 000,000. Cash received on account of the contract up to 31-3-2013 was
1,800,000 (being 90% of the work certified). Work completed but not certified was estimated at
RO. 100,000. As on 31-3-2013, materials at site was estimated at RO 30,000, machinery at site
costing RO 200,000 was returned to stores and wages outstanding were RO. 5000. The following
are the ledger balances as on 31-3-2013:
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Details
Amount (RO)
Land and building
2,300,000
Plant and machinery (60% at site)
2,500,000
Furniture
60,000
Materials
1,400,000
Fuel and power
125,000
Site expenses
5,000
Office expenses
12,000
Rates and taxes
15,000
Cash at bank
133,000
Wages
250,000
Prepare Contract Account and Balance Sheet
5. Oman Construction Company is engaged on two contracts A and B during the year 2013. The
following particulars are obtained on 31-12-2013:
Contract A (April,1)
Contract B (Sept, 1)
Contract Price
600,000
500,000
Materials issued
160,000
60,000
4,000
2,000
22,000
8,000
Direct Labour
150,000
42,000
Site expenses
66,000
35,000
Establishment expenses
25,000
7,000
Plant installed at site
80,000
70,000
Value of plant (December, 31)
65,000
64,000
Cost of contract not yet certified
23,000
10,000
Value of contract certified
420,000
135,000
Cash received from contractees
378,000
125,000
2,000
1,000
Materials returned
Materials at site (December, 31)
Architect’s fees
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During the period materials amounting to RO. 9,000 have been transfs rred from contract A to
Contract B. You are required to show (a) Contract Accounts; (b) Contractees’ accounts, and (c)
Extract from balance sheet as on December 31, clearly showing the calculation of works-inprogress
6. Mr. Ahmed undertook a contract for RO. 1,500,000 on an arrangement that 80% of the value
of the work done as certified by the architect of the contractee should be paid immediately and
the remaining 20% be realized until the contract was completed.
In 2010, the amounts spent were – materials RO 220,000; wages RO. 230,000; carriage RO.
6,000; cartage RO. 1,000; sundry expenses RO.3,000. The work was certified for RO 375,000
and 80% of this paid as agreed.
In 2011, the amount spent were – materials RO 220,000; wages RO 230,000; carriage RO.
23,000; carriage RO. 2,000; Sundry expenses RO 4,000. Three-fourth of the contract was
certified as done by 31-12-2011 and 80% of the amount was received accordingly. The value of
work uncertified was ascertained at RO. 20,000.
In 2013, the amounts expended were – materials RO. 126,000; wages RO. 170,000; carriage
RO.6, 000; sundry expenses RO. 3,000 and on 30th June the whole contract was completed.
Prepare contract account, contractee’s account and balance sheet (only assets side) as would
appear each of these years in the books of the contractor assuming that the balance due to him
was received on completion of the contract.
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