Contract Accounting Practical Problems and Solutions

Problem No. 1

The Contract Ledger of a company showed the following particulars in respect of Contract No. 50 which was commenced on 1st April 2019:

Contract Accounting Problems and Solutions

The contract was completed by 31st March 2020 and the contract price was $2,00,000. The value of materials and plant returned to store on 31st March 2020 was $6,000 and $12,000 respectively. The contract price was received in full on 31st March.

Required:

Prepare Contract Account and Contractee’s Personal Account.

Solution

Contract Accounting Problem No. 1 Solution

Problem No. 1

Problem No. 2

The following is the summarised record as on 31st March 2019, relating to Contract No. 414 completed during the year.

Problem No. 2

Required:

Prepare the Contract Account from the above particulars.

Solution

Problem No.2 Solution

Problem No. 3

(How to find the tender price from Contractee’s Account?)

From the following particulars, write up the Contract No. 5 Account and find out the value of the tender (contracted) price.

Problem No. 3 - Contract Account

Provide 60% on productive wages for works overheads and 12.5% on works cost for office overhead. Profit to be realized 15% on the tender price.

Solution

Problem No. 3 Solution

Problem No. 4

Work in Progress Account

On 1st April, 2019 Contractors Ltd. commenced to build a cinema hall, the contract price being $6,00,000. During the year ended 31st March 2020, they incurred the following expenses:

Problem No. 4

Work to the value of $1,20,000 had been certified on 31st March 2020 of which 75% had been received in Cash. Cost of work completed but not certified was $10,500. Materials valued at $5,000 were on hand at site.

Required

After allowing depreciation @ 20% p.a. on plant, prepare an account showing the profit earned to date and the amount of profit for which company may take credit in its accounts on 31st March, 2020. Also prepare Work in Progress Account.

Solution

Problem No.4 Solution

Problem No.4 Work-in-Progress

Note: Since the value of Work Certified ($1,20,000) has been less than 1/4th of the total contract price, the entire notional profit of $28,500 has been kept as a reserve for contingencies.

Incomplete Contracts: When work certified is 1/4 or more than 1/4 of the contract price but less than 1/2 of the contract price.

Problem No.5

The following particulars relate to a contract undertaken by a firm of contractors:

Problem No.5

The contract price has been agreed at $2,50,000. Cash received from contractee was $1,80,000.

Required:

You are required to prepare Contract Account, Contractee’s Account and to show suitable items in the Balance Sheet of the contractors as on 31st March.

Solution

Problem No. 5 Solution

Problem No.5 Work-in-progress account

Problem No. 5 Balance Sheet

7 thoughts on “Contract Accounting Practical Problems and Solutions”

  1. thank you for the wide clarification of contract accounting. it has been of positive impact on my knowledge of contract costing. I’m looking forward to learning more new things concerning accounting. thank you

    Reply
  2. Can you please help me solve this question?? The total contract price in respect of a contract was Rs. 20 lacs. On 31st March, 2018, the value of work certified was Rs. 15 lacs, and the total cost incurred was Rs. 11 lacs. Out of the total cost incurred, the work costing Rs. 50000 remained uncertified as on 31st March, 2018. The cash received was Rs. 10 lacs. You are required to compute amount of profit to be transferred to P&L A/c.

    Reply

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