CHAPTER-WISE MARKS DISTRIBUTION
S. No. Chapter Name201720182019 202120222023Average JDJDJDDDJ 1.Introduction to Cost Accounting 20171720161652310 16 2.Material Costs 111271441581510 10.67 3.Employee Costs 10310213391012 8 4.Direct Expenses 6------12 1 5.Overheads 813891661018 8.78 6.Cost Accounting Standards -10999861010 7.89 7.Cost Book Keeping 1141112101214910 10.33 8.Job Costing 1-1111111 0.89 9.Batch Costing 9911--2-7 3.22 10.Contract Costing 87888161187 9 11.Process Costing 1098108101479 9.44 12.Operating Costing 9788871188 8.22 13.Marginal Costing 231718171817111916 17.33 14.Standard Costing & Variance Analysis 10910910101598 10 15.Budget & Budgetary Control 9814151414131412 12.56 J: June; D: December I-5 TAXMANN ®
PREVIOUS EXAMS TREND ANALYSIS
YearQuestion No. Compulsory Chapter NameMarksCategory July 2023 [Syllabus 2022] 1(a)YesDirect Expenses1Theory Introduction to Cost Accounting2Theory Employee Costs2Theory Cost Accounting Standards1Theory Cost Book Keeping1Theory Job Costing1Theory Process Costing1Theory Standard Costing & Variance Analysis 1Practical Marginal Costing1Theory Budget & Budgetary Control1Theory 1(b)YesIntroduction to Cost Accounting1Theory Material Costs2Theory Direct Expenses1Theory Employee Costs1Theory Budget & Budgetary Control1Theory Process Costing1Theory 1(c)YesOperating Costing1Theory Employee Costs1Theory Overheads1Theory Cost Accounting Standards1Theory Introduction to Cost Accounting1Theory Cost Book Keeping1Theory 2(a)Introduction to Cost Accounting7Practical 2(b)Cost Accounting Standards8Theory
I-7 TAXMANN ®
YearQuestion No. Compulsory Chapter NameMarksCategory 3(a)Material Costs5Practical Material Costs2Theory 3(b)Employee Costs8Practical 4(a)Overheads7Practical 4(b)Cost Book Keeping8Practical 5(a)Batch Costing7Practical 5(b)Contract Costing8Practical 6(a)Process Costing7Practical 6(b)Operating Costing8Practical 7(a)Marginal Costing7Practical 7(b)Marginal Costing8Practical 8(a)Standard Costing & Variance Analysis 7Practical 8(b)Budget & Budgetary Control8Practical July 2023 [Syllabus 2016] 1(a)YesIntroduction to Cost Accounting1Theory Employee Costs1Theory Cost Accounting Standards1Theory Cost Book Keeping1Theory Job Costing1Theory Process Costing2Theory & Practical Standard Costing & Variance Analysis 1Practical Marginal Costing1Practical Budget & Budgetary Control1Theory 1(b)YesIntroduction to Cost Accounting1Theory Overheads1Theory Direct Expenses1Theory Employee Costs1Theory Budget & Budgetary Control1Theory 1(c)YesMaterial Costs2Theory Employee Costs1Theory Introduction to Cost Accounting1Theory Cost Book Keeping1Theory 1(d)YesMarginal Costing1Theory
TAXMANN ®
I-8 PREVIOUS EXAMS TREND ANALYSIS
YearQuestion No. Compulsory Chapter NameMarksCategory Cost Accounting Standards2Theory Budget & Budgetary Control1Theory Process Costing1 Theory 2(a)Employee Costs8Practical 2(b)Overheads7Practical 3(a)Cost Accounting Standards6Theory 3(b)Cost Book Keeping9Practical 4(a)Introduction to Cost Accounting8Practical 4(b)Process Costing7Practical 5(a)Operating Costing8Practical 5(b)Contract Costing7Practical 6(a)Marginal Costing8Practical 6(b)Marginal Costing7Practical 7(a)Standard Costing & Variance Analysis 8Practical 7(b)Budget & Budgetary Control7Practical 8(a)Introduction to Cost Accounting5Theory 8(b)Introduction to Cost Accounting5Theory 8(c)Material Costs5Theory 8(d)Budget & Budgetary Control5Theory Dec. 2022 [Syllabus 2016] 1(a)YesIntroduction to Cost Accounting2Theory Direct Expenses1Practical Employee Costs1Theory Cost Accounting Standards1Theory Cost Book Keeping1Practical Job Costing1Theory Contract Costing1Theory Standard Costing & Variance Analysis 1Practical Marginal Costing1Practical 1(b)YesIntroduction to Cost Accounting1Theory Marginal Costing1Theory Cost Accounting Standards1Theory Employee Costs1Theory Budget & Budgetary Control1Theory PREVIOUS EXAMS TREND ANALYSIS I-9 TAXMANN ®
I-10 PREVIOUS EXAMS TREND ANALYSIS
YearQuestion No. Compulsory Chapter NameMarksCategory 1(c)YesMaterial Costs1Theory Employee Costs1Theory Introduction to Cost Accounting2Theory Marginal Costing1Theory 1(d)YesMarginal Costing1Theory Cost Accounting Standards1Theory Budget & Budgetary Control1Theory Material Costs1 Theory Introduction to Cost Accounting1Theory 2(a)Material Costs8Practical 2(b)Overheads7Practical 3(a)Cost Accounting Standards7Theory 3(b)Cost Book Keeping8Practical 4(a)Introduction to Cost Accounting8Practical 4(b)Process Costing7Practical 5(a)Operating Costing8Practical 5(b)Contract Costing7Practical 6(a)Standard Costing & Variance Analysis 8Practical 6(b)Budget & Budgetary Control7Practical 7(a)Marginal Costing8Practical 7(b)Marginal Costing7Practical 8(a)Introduction to Cost Accounting5Theory 8(b)Material Costs5Theory 8(c)Budget & Budgetary Control5Theory 8(d)Introduction to Cost Accounting5Theory
TAXMANN ®
CHAPTER-WISE COMPARISON WITH STUDY MATERIAL
Chapter No. Name of Chapter Study Material Module 1. Introduction to Cost AccountingModule 1 2. Material CostsModule 2 3. Employee CostsModule 2 4. Direct ExpensesModule 2 5. OverheadsModule 2 6. Cost Accounting StandardsModule 3 7. Cost Book KeepingModule 4 8. Job CostingModule 5 9. Batch CostingModule 5 10. Contract CostingModule 5 11. Process CostingModule 5 12. Operating CostingModule 5 13. Marginal CostingModule 6 14. Standard Costing & Variance AnalysisModule 6 15. Budget & Budgetary ControlModule 6 I-11 TAXMANN ®
Chapter-wise Marks Distribution I-5 Previous Exams Trend Analysis I-7 Chapter-wise Comparison with Study Material I-11 Chapter 1 INTRODUCTION TO COST ACCOUNTING 1.1 Chapter 2 MATERIAL COSTS 2.1 Chapter 3 EMPLOYEE COSTS 3.1 Chapter 4 DIRECT EXPENSES 4.1 Chapter 5 OVERHEADS 5.1 Chapter 6 COST ACCOUNTING STANDARDS 6.1 Chapter 7 COST BOOK KEEPING 7.1 Chapter 8 JOB COSTING 8.1 Chapter 9 BATCH COSTING 9.1 Contents PAGE I-13 TAXMANN ®
Chapter 10 CONTRACT COSTING 10.1 Chapter 11 PROCESS COSTING 11.1 Chapter 12 OPERATING OF COSTING 12.1 Chapter 13 MARGINAL COSTING 13.1 Chapter 14 STANDARD COSTING AND VARIANCE ANALYSIS 14.1 Chapter 15 BUDGET AND BUDGETARY CONTROL 15.1 PAGE I-14 CONTENTS TAXMANN ®
10
CHAPTER
A Quick Review
Contract Costing is a form of specific order costing where costs are attributed to contracts.
Essential features of contract costing:
(a)A formal contract is made between customer and supplier.
(
b)Work is undertaken to customers’ special requirements.
(c)The work is for a relatively long duration.
(
d)The work is frequently constructional in nature.
(
e)The method of costing is similar to job costing.
(
f)The work is frequently based on site.
(g)It is not unusual for a site to have its own cashier and time-keeper.
Types of Contracts:
(1)Cost-Plus Contracts: Cost-plus contract is a contract where the value of the contract is determined by adding an agreed percentage of profit to the total cost. These types of contracts are entered into when it is not possible to estimate the contract cost with reasonable accuracy due to unstable condition of factors that affect the cost of material, employees, etc.
(2)Target-price contracts: In such cases, the contractor receives an agreed sum of profit over his pre-determined costs. In addition, a figure is agreed as the target figure and if actual costs are below this target, the contractor is eligible for bonus for the savings.
IMPORTANT DEFINITIONS
Cost of Work Certified or Value of Work Certified: A contract is a continuous process and to know the cost or value of the work completed as on a particular date; assessment of the completion of work is carried out by an expert (it may be any professional like surveyor, architect, engineer etc.). The expert, based on his assessment, certifies the work completion in terms of percentage of total work. The cost or value of certified portion is calculated and is known as Cost of work certified or Value of work certified respectively. Payment is made on the basis of work certified.
10.1
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Cost of Work Uncertified: It represents the cost of the work which has been carried out by the contractor but has not been certified by the expert. It is always shown at cost price. There is no role of work uncertified in payment.
Work-in-Progress: It costing refers to the work which is not complete on the reporting date.
Value of the work-in-progress = the cost of work completed, both certified and uncertified + the cost of work not yet completed + amount of estimated/notional profit (reserve for contingencies). [amount received from the contractee is subtracted from the WIP in the Balance Sheet]
Retention Money: In a contract, a contractee generally keeps some amount payable to contractor with himself as security deposit. To ensure that the work carried out by the contractor is as per the plan and specifications, it is monitored periodically by the contractee. This security money upheld by the contractee is known as retention money.
Retention money = Value of work certified- Payment made to contractor.
Notional Profit: It represents the difference between the value of work certified and cost of work certified.
Estimated Profit: It is the excess of the contract price over the estimated total cost of the contract. [can be calculated and feasible to calculate only in case of contracts whose end is near].
Escalation Clause: In order to protect the contractor from the rise in the price, an escalation clause may be inserted in the contract. Escalation clause in a contract empowers a contractor to revise the price of the contract in case of increase in the prices of inputs due to some macro-economic or other agreed reasons. As per this clause, the contract price is increased proportionately if there is a rise in input costs like material, labour or overheads.
IMPORTANT FORMULAS
Degree of completion of the contract (%) = Work Certified × 100/Contract Price
Formulas for transfer of Profit/Loss to Profit and Loss Account
If the contract is in its early stages: No profit should be credited to Profit and Loss Account.
As a general rule, no profit should be recognised unless a contract is at least 25% complete.
If the contract is reasonably advanced:
In this case the portion of notional profit to be transferred to Profit & Loss Account is based on the degree of completion of the contract.
1. If the degree of completion of work is above 25% but less than 50% of total work
1/3 × Notional Profit × Cash Received/Work Certified
10.2 CH. 10 : CONTRACT COSTING
TAXMANN ®
2. If the degree of completion of work is more than or equal to 50% of the total work but less than 90%,
2/3 × Notional Profit × Cash Received/Work Certified
If the contract is almost complete (Degree of composition is 90% or more):
1. Estimated Profit × Work Certified/Contract Price
2. Estimated Profit × Work Certified/Contract Price × Cash Received/Work Certified
3. Estimated Profit × Total Cost to date/Estimated Total Cost
4. Estimated Profit × Total Cost to date/Estimated Total Cost × Cash Received/ Work Certified
When an incomplete contract reveals a loss:
The whole amount of the loss must be charged to the profit and loss account of the accounting year.
PAST EXAMINATION QUESTIONS
OBJECTIVE QUESTIONS
Q.1. Fill in the blanks:
WIP appears on the credit side of the contract account when the contract is ……………… at end of the accounting period. [Dec. 2013, 1 Mark]
Ans. Incomplete
Q.2. A JBC machine was used on a contract site for the period of 7 months and depreciation on it was charged to the contract ` 78,750. If the working life of the machine is 5(five) years and salvage value is ` 25,000, then the cost of JBC machine will be:
(A) ` 7,00,000
(B) ` 4,18,750
(C) ` 6,75,000
(D) ` 3,93,750 [Dec. 2014, June 2015, 1 Mark]
Ans. (A) ` 7,00,000
Working Note:
Depreciation for one year 78,750 × 12/7 = ` 1,35,000
Depreciation for 5 years 1,35,000 × 5 = ` 6,75,000
Cost of Machine = Total Depreciation plus salvage value ` 6,75,000 + 25,000 = ` 7,00,000
CH. 10 : CONTRACT COSTING 10.3
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Q.3. Match the items in Column I with the most appropriate items in Column II. State the item No. only:
Ans. (B) Contract Costing
Q.4. A contract is expected to be 80% complete in its first year of construction, as certified. The Contractee pays 75% of the work certified as and when certified and makes final payment on the completion of the Contract. The following information is available for the first year:
As the Contract is 80% complete, 2/3rd of Notional Profit on Cash basis has been transferred to P/L A/C in the 1st year of the contract. Thus, amount transferred to P/L A/C = 2/3 × Notional Profit × % of cash received Or, ` 60,000 = 2/3 × Notional Profit × 75% Or, Notional Profit = 60,000 × (3/2) × (100/75) = ` 1,20,000
Q.5. Match the items in Column I with the most appropriate items in Column II. State the item no. only
Ans. (B) Notional Profit
2017, 1 Mark]
Q.6. In the context of Contract a/c, work completed and not yet certified will be shown
(A) at cost plus + 2/3rd of the notional profit under ‘Completed Work’.
(B) at cost plus notional profit less retention money under ‘Completed Work’.
10.4 CH. 10 : CONTRACT COSTING
ItemColumn IItemColumn II
i)Escalation Clause(A)Operating Costing
B)Contract Costing
2015,
2019,
(
(
[June
Dec. 2018, Dec.
Dec. 2021, 1 Mark]
(`) Cost of Work uncertified 80,000 Profit transferred to Profit and Loss Account at the end of year 1 on incomplete contract 60,000 Cost of Work to date 8,80,000 Compute the Notional Profit. [Dec. 2015,
2 Marks] Ans.
IItemColumn
(
)Actual
Profit
ItemColumn
II (i)Profit earned on a contract Account
A
profit (B)Notional
[June
TAXMANN ®
(C) at cost under ‘Completed Work’.
(D) at cost under WIP a/c. [June 2017, Dec. 2021, 1 Mark]
Ans. (D) at cost under WIP a/c
Q.8. _______ is to provide for any future decrease in price etc., so that the benefit may be passed on to the contractee.
(A) Reserve Clause
(B) Escalation Clause
(C) Contract clause
(D) Retrospective Clause [Dec. 2017, 1 Mark]
Ans. (B) Escalation Clause
Q.9 Contract Costing is often termed as a variant of the Job Costing System. [True/False] [Dec. 2017, 1 Mark]
Ans. True
Q.10 In contract costing, the cost unit is ________________. [June 2019, 1 Mark]
Ans. Per Contract
Q.11. Cost plus contract is usually entered into those cases where:
(A) Cost of certified and uncertified work
(B) Cost can be easily estimated
(C) Cost of certified work
(D) None of the above [Dec. 2022, 1 Mark]
Ans. (D) None of the above
THEORY QUESTIONS
Q.1. Explain the treatment of profits on incomplete work in contract accounts. [June 2013, 5 Marks]
Ans.
Treatment of profits on incomplete work in contract accounts:
(i) In case of contracts which are less than 25% complete, on profits should be taken into consideration and consequently no credit should be taken to Profit and Loss Account.
(ii) In case of contracts which are more than 25% complete, but less than 50% complete, the following method should be used for computing the profit to be credited to the Profit and Loss Account:-1/3 x Notional Profit x Cash Received/ Work Certified.
CH. 10 : CONTRACT COSTING 10.5
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Notional Profit is the difference between the value of work certified and cost of work certified. It is computed in the following manner. Notional Profit = Value of work certified – [cost of work to date – cost of work completed but not certified].
(iii) In case of contracts complete between 50% and 90% [more than 50% but less than 90%] the following method is used for computing the profit to be credited to the Profit and Loss Account:- 2/3 × Notional Profit × Cash Received/Work Certified.
(iv) In case of contracts completed 90% or more than that, it is considered to be almost complete. In such cases, the estimated total profit is first determined by deducting the total costs to date and additional expenditure necessary to complete the contract from the contract price.
The portion of profit so arrived is credited to the Profit and Loss Account by suing any of the following formula:—
Method I – Estimated Profit × Work Certified/Contract Price
Method II – Estimated Profit × Work Certified/Contract Price × Cash Received/ Work Certified or Estimated profit × Cash Received/Contract Price
Q.2. What are the advantages of cost plus contract? [June 2014, 5 Marks]
Ans. Advantages of Cost Plus contract:
The advantages of cost plus contract are discussed below: —
(a) It protects the contractor from the risk of fluctuation of price of factor of production.
(b) Reasonable profit of the contractor is ensured as such profit is added to the actual cost incurred by him to determine the price of the contract.
(
c) The contractor pay a fair price for the work as price is based on actual cost which can be verified by the contractee from the books and documents of the contractor.
(d) At the time of unstable conditions this type of contract is most advantageous both to the contractor and the contractee.
Q.3. Write short note on Retention money in contract costing [June 2014, 5 Marks]
Ans.
Usually the contractee stipulates in the contract deed that he would withhold a part of the contract price to be paid at a later stage after completion of the contract.
This is to make sure that the contractor has performed all work relating to contract on the most satisfactory manner and that no repair work arises within a prescribed time limit.
The amount so withheld by the contractee is known as retention money.
It safeguards the interest of the contractee against the contractor, who may at time perform sub-standard work and gain there from.
10.6 CH. 10 : CONTRACT COSTING
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This is done on the value of contract completed and certified by the architect/ surveyor appointed by the contractee.
The retention money will be paid once the contract is completed to the customer’s satisfaction.
The main advantage of Retention Money is safe-guarding the contractee against the default risk of contract.
Q.4. Write Short Note on Cost Plus Contract
[Dec. 2014, 5 Marks; Dec. 2021, 3 Marks] Ans.
In this type of contracts the contractor is usually entitled to a stipulated amount of profit in addition to actual cost of the service.
The amount of profit to be added to the actual cost of contract may be in the form of fixed amount on a percentage on actual cost.
This type of contract is generally entered into for executing special type of work which is not usually undertaken by the contractor.
Examples of this type of contracts are construction work during war, production of newly designed ship, etc. This type of contract is advantageous both to the contractor and the contractee.
Contractor generally receives a reasonable profit. He is protected from any loss or unusual risk.
Contractee can ensure a fair price of the contract because the contractee is entitled to verify the books of contractor.
NUMERICAL PROBLEMS
Q.1. Compute a conservative estimate of profit on a contract (which has been 90% complete) from the following particulars. Also calculate the proportion of profit to be taken to Profit & Loss Account under any three methods.
CH. 10 : CONTRACT COSTING 10.7
` 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 not certified 34,000 Cash received 4,40,640 [Dec. 2013, 5 Marks] TAXMANN ®
Ans. Computation of estimated Profit
ParticularsAmount (`)
Contract Price6,12,000
Cost till date(4,50,000)
Further estimated cost(25,000) Estimated profit1,37,000
Computation of PROFIT to be transferred to profit & Loss Account under different Methods:
(i) Estd. Profit × Work certified/contract price = 1,37,000 × 5,50,800/6,12,000 = ` 1,23,300.
(ii) Estd. Profit × [Work certified/contract price] × [cash received/work certified] = 1,37,000 × [5,50,800/6,12,000] × [4,40,640/5,50,800] = ` 98,640.
(iii) Estd. Profit × Cost of work to date/Estd. Total cost = 1,37,000 × 4,50,000/4,75,000 = ` 1,29,789.47
(iv) Estd. Profit × [cost of work to date/Estd. Total cost] × [cash received/work certified] = 1,37,000 ×
Q.2. BATRON LTD., a contractor commences the contract No. HB-108 on 1st July, 2013. The details about the contract for the year ending 31st March, 2014 were following:
Material costing ` 15,000 was sold for ` 11,000 and plant costing ` 80,000 returned to stores on 31st December, 2013.
A crane costing ` 2,000,000 has been on the contract site for 73 days. Its working life is estimated at 6 years and its scrap value at ` 110,000. Depreciation on plant is to be charged @15% per annum. Up to 31st March, 2014, 3/4 (Three-fourth) of the contract was completed but architect’s certificate has been issued covering 2/3 of the contract price and 15,00,000 had been received in cash on account.
Required:
(a) Prepare the Contract No. HB-108 Account for the year ended March 31, 2014.
10.8 CH. 10 : CONTRACT COSTING
[4,50,000/4,75,000] × [4,40,640/5,50,800] =` 1,03,831.58
(`) Contract Price 3,000,000 Materials issued 800,000 Material transferred from contract
50,000 Wages paid 631,000 Wages outstanding 35,000 Supervisor’s Salary 180,000 Establishment Exp. 41,000 Plant Issued 1,000,000
no. 101
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(b) State as to how much Profit should be credited to Profit and Loss Account for the year ended March 31, 2014. [Dec. 2014, 10 Marks]
BATRON LTD.
Contract No. HB-108 Account for the year ended March 31, 2014
CH. 10 : CONTRACT COSTING 10.9
Ans.
Particulars ` Particulars ` To Material Issued8,00,000By Bank A/c (Material Sold) 11,000 To Material Transferred from contract no. 101 50,000By Profit & Loss A/c (loss on sale of material) 4,000 To Wages Paid6,31,000By Plant returned74,000 To Wages Outstanding35,000By Plant at site8,16,500 To Supervisor’s salary1,80,000By Work in Progress: To Establishment Expenses 41,000Work Certified20,00,000 To Plant Issued10,00,000Work uncertified1,57,875 To Crane Depreciation63,000 To Notional Profit c/d2,63,375 30,63,37530,63,375 To Profit & Loss A/c1,31,687By Notional Profit b/d2,63,375 To WIP A/c (Reserve)1,31,688 2,63,3752,63,375 Working Notes: (i) Cranes depreciation = [ (2000000 – 110000)/6] × 73/365 = ` 63000 (ii) Value of the plant returned to store on 31st December, 2013: Cost of plant returned on 1/7/13 ` 80,000 Less: Depreciation from 1/7/13 to 31/12/13 = (80000 × 15/100) × 6/12 ` 6,000 ` 74,000 (iii) Plant at site on 31/3/14 = 10,00,000 – 80,000 = 9,20,000 – Dep. 9,20,000 × 15/100 × 9/12 = 9,20,000 – 1,03,500 = ` 8,16,500 (iv) Value of work certified = 30,00,000 × 2/3 = ` 20,00,000 (v) Cost of work uncertified: Total cost upto 31/3/14 = 8,00,000 + 50,000 + 6,31,000 + 35,000 + 1,80,000 + 41,000 + 10,00,000 + 63,000 – 11,000 – 4,000 – 74,000 – 8,16,500 = ` 18,94,500 Work completed upto 31/3/14 = ¾ but work certified = 2/3 So, work uncertified = 3/4 – 2/3= (9 – 8)/12 = 1/12 Hence, cost of work uncertified = 18,94,500 × 1/12 = ` 1,57,875 TAXMANN ®
(vi) Since, work certified is 50% or above, Profit transferred to P/L A/c = Notional profit × 2/3 × (cash received/work certified) = ` 2,63,375 × 2/3 × (15,00,000/20,00,000) = ` 1,31,687
Q.3. A company undertook a contract for construction of a large building complex. The construction work commenced on 1st April 2016 and the following data are available for the year ended 31st March 2017:
The contractor owns a plant which originally cost ` 20 lakhs and has been continuously in use only in this contract throughout the year. The residual value of the plant after 5 years of life is expected to be ` 5 lakhs. Straight line method of depreciation is in use.
As on 31st March 2017, the direct wages due and payable amounted to ` 2,70,000 and the materials at site were estimated at ` 2,00,000.
(i) Prepare the contract account for the year ended 31st March 2017. Present figures in (` ’000)
(ii) Compute the amount of profit/loss to be taken to the profit and loss account of the year ending 31-3-2017. [June 2017, 7 Marks]
Ans.
Contract Account for the year ended March 31, 2017
Particulars ` ’000 Particulars ` ’000 To Material Issued7,500By Material returned to stores 250
To Direct Wages Paid and accrued 4,270By Material at site200
To Wage related costs500By Work-in-progress:
To Direct Expenses902Work Certified20,000
10.10 CH. 10 : CONTRACT COSTING
Particulars (` ’000) Contract price 35,000 Work certified 20,000 Progress payments received 15,000 Materials issued to site 7,500 Planning and estimating costs 1,000 Direct wages paid 4,000 Materials returned from site 250 Equipment hire charges 1,750 Wage related costs 500 Site office costs 678 Head office expenses apportioned 375 Direct expenses incurred 902 Work not certified 149
TAXMANN ®
% of Work Certified: (20,000/35,000) × 100 = 57.14%
Profit to be taken to Profit & loss Account = 2/3rd Notional Profit × Cash received/ Work certified = 2/3 × 3,324 × 15,000/20,000 = ` 1,662
Q.4. A contractor has undertaken a construction work at a price of ` 5,00,000 and begun the execution of work on 1st January, 2016. The following are the particulars of the contract up to 31st December, 2016.
It was decided that the profit made on the contract in the year should be arrived at by deducting the cost of work certified from the total value of the architect’s certificate, that 1/3 of the profit so arrived at should be regarded as a provision against contingencies and that such provision should be increased by taking to the credit of Profit and Loss Account only such portion of the 2/3rd profit, as the cash received to the work certified. Prepare the Contract Account showing the profit on the Contract.
CH. 10 : CONTRACT COSTING 10.11 Particulars ` ’000 Particulars ` ’000 To Equipment Hire Charges 1,750Work Uncertified149 To Planning and estimation cost 1,000 To Site office Costs678 To HO Expenses (Apportioned) 375 To Depreciation (2000500)/5 300 To Notional Profit c/d3,324 20,59920,599 To Profit & Loss A/c1662By Notional Profit b/d3324 To WIP A/c (Reserve)1662 33243324
Particulars Amount (`)Particulars Amount (`) Machinery 30,000 Overheads 8,252 Materials 1,70,698 Materials returned 3,098 Wages 1,48,750 Work certified 3,90,000 Direct expenses 6,334 Cash received 3,60,000 Uncertified work 9,000 Materials on 31-12-2016 3,766 Wages outstanding 5,380 Value of plant on 31-12-2016 23,000
[Dec.
TAXMANN ®
2017, 7 Marks]
Contract Account for the year ended December 31, 2016
% of Work completed:(3,90,000/5,00,000) × 100 = 78% Profit
2/3rd Notional Profit × Cash
Work certified = 2/3 × 59,450 × 3,60,000/3,90,000 = ` 36,585.
Q.5. A contractor, who prepares his accounts on 31st March each year, commenced a Contract No. 220 on 1st July, 2016. The following information is revealed from his costing records on 31st March, 2017:
salary
81,300
A machine costing ` 2,60,000 remained in use on site for 146 days. Its working life is estimated at 7 years and final scrap value at ` 15,000. A supervisor is paid ` 8,000 per month and has devoted one half of his time on the contract. All other expenses amount to ` 1,36,500. Materials at site on 31st March, 2017 cost ` 35,400. The contract price is ` 20,00,000. On 31st March, 2017 two-third of the contract was completed, however, the architect gave certificate only for 50% of the contract price and ` 7,50,000 had so far been paid on account. Prepare Contract Account and state how much profit or loss should be included on 31st March, 2017 in financial accounts. [June 2018, 7 Marks]
Ans.
Contract Account for the year ended March 31, 2017
Particulars `
To Foreman’s Salary81,300By Work-in-progress:
10.12 CH. 10 : CONTRACT COSTING
Ans.
Particulars ` Particulars ` To Material Issued1,70,698By Material returned 3,098 To Wages Paid and accrued1,54,130By Material at site3,766 To Machinery30,000By Work-in-progress: To Direct Expenses6,334Work Certified3,90,000 To Overheads8,252Work Uncertified9,000 To Notional Profit c/d59,450By Machinery23,000 4,28,8644,28,864 To Profit & Loss A/c36,585By Notional Profit b/d59,450 To WIP A/c (Reserve)22,865 59,45059,450
to be taken to Profit & loss Account =
received/
Particulars (`) Materials sent to site 2,51,000 Labour5,65,600 Foreman’s
Particulars
To Material 2,51,000By Material at site 35,400
`
To Labour5,65,600
TAXMANN ®
(ii) Calculation of Cost of Work Uncertified:
(iii) Since more than 50% work is certified, Profit
Account
Q.6. OMEGA LTD. undertook a contract for ` 5,00,000 on 1st January, 2017. The company furnishes the following details for the year ended 31st December, 2017:
CH. 10 : CONTRACT COSTING 10.13 Particulars ` Particulars ` To Supervisor’s Salary (` 8000 × 9 × 1/2) 36,000Work Certified10,00,000 To Depreciation14,000Work Uncertified2,62,250 To Other Expenses1,36,500 To Notional Profit c/d2,13,250 12,97,65012,97,650 To Profit & Loss A/c1,06,625By Notional Profit b/d2,13,250 To WIP A/c (Reserve)1,06,625 2,13,2502,13,250
Notes:
i
Cost of Machine ` 2,60,000 Less: Scrap Value ` 15,000 Cost of Machine to be written off ` 2,45,000 Depreciation of 1 Year = ` 2,45,000/7 =
35,000 Depreciation for 146 days =
35,000 (146/365) = ` 14,000
Working
(
) Calculation of Depreciation on Machine:
`
`
Cost of 2/3rd completed work
10,49,000 Total Cost of completed Contract = ` 10,49,000 × 3/2 = ` 15,73,500 Part of uncertified work = 2/3 – ½ = 1/6 Therefore, Cost of uncertified work = ` 15,73,500 × 1/6 = ` 2,62,250
= `
2/3rd
2,13,250 × 2/3 × 7,50,000/10,00,000 = ` 1,06,625
Transferred to Profit and Loss
=
Notional Profit × Cash received/Work certified
Materials consumed 1,65,000 Direct Expenses 5,000 Wages 30,000 Materials returned to stores 5,000 Materials stolen from site 10,000 TAXMANN ®
useful life is 5 years.
` 60,000 with a scrap value of ` 10,000
plant was used on the contract for 146 days. Required: Prepare Contract Account showing therein the cost of materials issued to site and the amount of profit or loss to be transferred to the Profit & Loss Account. [Dec. 2018, 7 Marks; July 2023, 7 Marks]
Contract Account for the year ended December 31, 2017
10.14 CH. 10 : CONTRACT COSTING Insurance claim admitted 6,000 Works expenses @ 20% on wages Office expenses @ 10% on works cost Materials in hand on 31-12-2017 15,000 Cash received to the extent of 90% of works certified 2,70,000 Cost of work uncertified 11,000 Plant sent to site costing
Ans.
and its
The
Particulars ` Particulars ` To Material issued to site 1,95,000By Material returned to stores 5,000 To Direct Expenses5,000By insurance Claim A/c6,000 To Wages30,000By Profit & loss A/c (Loss =10,000-6000) 4,000 To Work expenses (20% of wages) 6,000By Material in Hand15,000 To Office expenses (10% of works cost) 21,000By Work-in-progress: To Depreciation4000Work Certified3,00,000 To Notional Profit c/d80,000Work Uncertified11,000 3,41,0003,41,000 To Profit & Loss A/c48,000By Notional Profit b/d80,000 To WIP A/c (Reserve)32,000 80,00080,000 Working Notes: 1. Calculation of Cost of Materials issued to site: Materials consumed 1,65,000 Add: Material Stolen10,000 Materials returned to stores 5,000 Materials in hand (31-12-2017) 15,000 1,95,000 2. Calculation of works cost: Materials consumed Add: Direct Wages Direct Expenses 1,65,000 30,000 5,000 TAXMANN ®
3. Calculation of Depreciation on Plant = (60,000-10,000)/5 × 146/365 = ` 4,000
4. % Work Certified = 3,00,000 × 100/5,00,000 = 60%
5. Since more than 50% work is certified, Profit Transferred to Profit and Loss Account = 2/3rd Notional Profit × Cash received/Work certified = 80,000 × 2/3 × 2,70,000/3,00,000 = ` 48,000
Q.7. NIRVANA LTD. undertook a contract for ` 50,00,000 on 1st April, 2018. On 31st March, 2019 when the accounts of the company were closed, the following details about the contract were gathered:
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 signing the agreement, the price of materials and wage rates increased by 25%. The value of work certified does not take into account the effect of the above clause.
Required: Prepare Contract Account of the company as on 31st March, 2019. [June 2019, 7 Marks; Dec. 2021, 6 Marks]
CH. 10 : CONTRACT COSTING 10.15 Prime Cost 2,00,000 Add: Works expenses Deprecation 6,000 4,000 2,10,000
Particulars Amount (`) Materials purchased 10,00,000 Wages paid 4,50,000 General expenses 1,00,000 Plant purchased 5,00,000 Materials on hand on 31-03-2019 2,50,000 Wages accrued on 31-03-2019 50,000 Work certified 20,00,000 Cash received 15,00,000 Work uncertified 1,50,000 Depreciation of plant 50,000
TAXMANN ®
Ans.
Contract Account for the year ended March 31, 2019
Working Notes:
(i) Calculation of Escalation Amount:
Cost of Materials and Wages incurred = ` 10,00,000 + 4,50,000 + 50,000 –2,50,000= ` 12,50,000
Cost of Materials and Wages before increase in prices = (` 12,50,000 × 100)/125= ` 10,00,000
Therefore, increase in Contract Price = 25% × [`12,50,000 – {(10,00,000 × 105)/100}] = ` 50,000
(ii) % work certified = 20,50,000 × 100/50,50,000 = 40.59%
% work certified is less than 50%, hence Profit to be credited to P&L A/c = Notional Profit × {(1/3) × (cash received/work certified)}
= ` 8,00,000 × {(1/3) × (15,00,000/20,50,000)} = ` 1,95,122
Q.8. OMEGA LTD undertook a contract for the construction of a building at a contract price of ` 45,00,000. During the first year, the following amounts were spent against which a sum of ` 16,87,500 (representing 90% of the work certified) was received by the contractor:
During the second year, the contractor spent the following amounts:
In the second year, the contract was completed and a sum of ` 26,25,000 was received by the contractor.
You are required to prepare the Contract Account and the Contractee Account for both the years and determine the profits. [Dec. 2019, 8 Marks]
10.16 CH. 10 : CONTRACT COSTING
Particulars
Particulars ` To Material 10,00,000By
To
To Wages
20,50,000
Uncertified1,50,000 To Notional Profit
24,50,00024,50,000 To
To
A/c
8,00,0008,00,000
`
Material in hand2,50,000
General Expenses1,00,000By Work-in-progress:
Paid and accrued5,00,000Work Certified (including escalation)
To Depreciation on Plant50,000Work
c/d8,00,000
Profit & Loss A/c1,95,122By Notional Profit b/d8,00,000
WIP
(Reserve)6,04,878
Materials used 7,87,500 Wages paid to the workers 4,50,000 Overhead expenses 1,12,500
Materials used 11,25,000 Wages paid to the workers 9,00,000 Overhead expenses 2,25,000
TAXMANN ®
(
certified is less than 50%, hence Profit to be credited to P&L
= Notional Profit × {(1/3) × (cash received/work certified)}
(ii) Since contract is completed in 2nd year, entire profit is transferred to Profit & loss
CH. 10 : CONTRACT COSTING 10.17 Ans. Contract Account for the 1st Year Particulars ` Particulars ` To Material 7,87,500By Work-in-progress: To Wages paid4,50,000Work Certified (16,87,500/90%) 18,75,000 To Overhead expenses1,12,500 To Notional Profit c/d5,25,000 18,75,00018,75,000 To Profit & Loss A/c1,57,500By Notional Profit b/d5,25,000 To WIP A/c (Reserve)3,67,500 5,25,0005,25,000 Contractee Account for the 1st Year Particulars ` Particulars ` To Balance c/d16,87,500By Bank16,87,500 16,87,50016,87,500 Contract Account for
Particulars ` Particulars ` To Work in Progress: Work Certified18,75,000 By Work in progress: Reserve3,67,500 To Material 11,25,000By Contractee A/c45,00,000 To Wages paid9,00,000 To Overhead expenses2,25,000 To Profit & Loss A/c7,42,500 48,67,50048,67,500 Contractee Account for the 2nd Year Particulars ` Particulars ` To Contract A/c45,000,000By Balance b/d16,87,500 By Bank26,25,000 By Balance c/d1,87,500 45,00,00045,00,000 Working Notes:
the 2nd Year (Contract Completed)
% work
1st
% work
= ` 5,25,000 ×
(16,87,500/18,75,000)}
1,57,500
i)
certified during
Year = 18,75,000 × 100/45,00,000 = 41.67%
A/c
{(1/3) ×
= `
TAXMANN ®
A/c.
Q.9. Monteck Ltd., a construction company with a paid-up share capital of 50 lakhs undertook a contract to construct LIG house. The contract work commenced on 1st April, 2021 and the contract price was 50 lakhs. Cash received on account of the contract on 31-3-2022 was 18 lakh (90% of the work certified). Work completed but not certified was estimated at ` 1,00,000. As on 31-3-2022 material at the site was estimated at 30,000 and machinery at the site costing 2,00,000 was returned to stores. Plant and machinery at the site is to be depreciated at 5%. Wages outstanding on 31-03-2022 was 5,000.
(
10.18 CH. 10 : CONTRACT COSTING
Particulars ` Land & Building15,00,000 Plant & Machinery at cost (60% at site)25,00,000 Lorries and other vehicles8,00,000 Furniture50,000 Office Equipment10,000 Materials sent to site14,00,000 Fuel and power1,25,000 Site Expenses5,000 Postage and telegrams4,000 Office expenses8,000 Rates and taxes15,000 Cash at bank1,33,000 Wages2,50,000 Required:
Contract
(i) Prepare
Accounts to ascertain the profit from the contract.
Sheet.
2022,
Marks] Ans. Contract Account for the year ended March 31, 2022 Particulars ` Particulars ` To Material sent to site14,00,000By Material in hand30,000 To Fuel and power1,25,000By Work-in-progress: To Site Expenses5,000Work Certified 18,00,000/90% 20,00,000 To Depreciation on Plant & Machinery (25,00,000 × 60% × 5%) 75,000Work Uncertified1,00,000 To Postage and telegram4,000 To Office Expenses8,000 To Rates and taxes15,000 To Wages including outstanding 2,55,000 TAXMANN ®
ii) Calculate the value of WIP A/c to be shown in the Balance
[Dec.
7
(ii) Value of Work in Progress A/c to be shown in Balance Sheet = Work Certified + Work Uncertified – Reserve = 20,00,000 + 1,00,000 – 1,70,100 = 19,29,900
Working Notes:
(i) % work certified = 20,00,000 × 100/50,00,000 = 40% % work certified is less than 50%, hence Profit to be credited to P&L A/c = Notional Profit × {(1/3) × (cash received/work certified)} = ` 2,43,000 × {(1/3) × 90% = ` 72,900
Q.10. M/s. Goyal Brothers accepted a contract for the construction of a building for ` 10,00,000. Construction work started on 1st July, 2022 and the firm usually closes its books of account for the year on 31st March of each year. The contractee agreed to pay 90% of work certified as certified by the architect. During the first year, the amount spent was as follows:
Further Information:
(i) Materials costing ` 6,000 was damaged during the year.
(ii) A Supervisor who devotes one-half of his time on the contract has an outstanding salary for 2 months. He is paid @ ` 4,000 per month.
(iii) A special machine was hired for the contract for 4 months @ ` 500 per month.
Required: Prepare Contract Account in the books of the firm. Also show the amount of profit that can be transferred reasonably to the profit and loss account. [July 2023, 7 Marks]
CH. 10 : CONTRACT COSTING 10.19 Particulars ` Particulars ` To Notional Profit c/d2,43,000 21,30,00021,30,000 To Profit & Loss A/c72,900By Notional Profit b/d2,43,000 To WIP A/c (Reserve)1,70,100 2,43,0002,43,000
Particulars ` Material and stores Labour charges Plant issued Salaries and other expenses Plant at site (Year-end) Material at site (Year-end) Work certified Work uncertified 1,20,000 1,50,000 30,000 90,000 20,000 5,000 4,00,000 15,000
TAXMANN ®
10.20 CH. 10 : CONTRACT COSTING Ans. Contract Account for the year ended March 31, 2023 Particulars ` Particulars ` To Material and Stores1,20,000By Material at site5,000 To Labour Charges1,50,000By Work-in-progress: To Depreciation (30,000 –20,000) 10,000Work Certified4,00,000 To Salary and other Expenses 90,000Work Uncertified15,000 To Machine Hire Charges (500 × 4) 2,000By Profit & Loss A/c (Material Damaged) 6,000 To Outstanding Salary of Supervisor (4,000 × 2 × 1/2) 4,000 To Notional Profit c/d50,000 4,26,0004,26,000 To Profit & Loss A/c15,000By Notional Profit b/d50,000 To WIP A/c (Reserve)35,000 33243324 % of Work Certified: (4,00,000/10,00,000) × 100 = 40% Profit to be taken to Profit & loss Account = 1/3rd Notional Profit × Cash received/ Work certified = 1/3 × 50,000 × 90% = ` 15,000 TAXMANN ®
Cost Accounting (CA) | CRACKER
AUTHOR : TARUN AGARWAL
PUBLISHER : TAXMANN
DATE OF PUBLICATION : AUGUST 2023
EDITION : 2023 EDITION
ISBN NO : 9789357781954
NO. OF PAGES : 468
BINDING TYPE : PAPERBACK
Description
This book is prepared exclusively for the Intermediate Level of Cost & Management Accountancy Examination requirement. It covers the past exam questions & answers as per the syllabus of ICMAI.
The Present Publication is the latest 2023 Edition for CMA Intermediate | Dec. 2023 Exam. This book is authored by CA Tarun Agarwal, with the following noteworthy features:
Strictly as per the Syllabus of ICMAI
Coverage of the book concludes:
[Past Exam Questions] till CMA-Intermediate July 2023 Exam
Part I – Objective Questions [MCQs, Blanks, True/False, Match and Short Sums]
Part II – Descriptive Question
Part III – Numerical Problems
[Introduction] to each Chapter covering:
Important Definitions
Concepts
Formulas
[Sample Questions] for Topics newly introduced in the syllabus
[ Marks Distribution ] is given Module-wise from June 2017 onwards
[ Previous Exam Trend Analysis ] is provided in this book
[ ICMAI Study-Material Comparison ] is also given module-wise ORDER
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