(a) Prepare a contract account for each of the three contracts for the previous year and show the cost of the work completed at the year end. (b) (i) Recommend how much profit or loss should be taken, for each contract, for the previous year. (ii) Explain the reasons for each of your recommendations in (b) (i) above.
QUESTION FOUR
A construction company is currently undertaking three separate contracts and
information relating to these contracts for the previous year, together with other
relevant data, is shown below.
Construction
services
Contract Contract Contract dept
MNO PQR STU
(000) (000) (000) (000s)
Contract price 800 675 1100
Balances brought forward
at beginning of year:
Cost of work completed — 190 370 —
Material on site — — 25 —
Written-down value of
plant and machinery — 35 170 12
Wages accrued — 2 — —
Profit previously transferred
to profit/loss a/c — — 15 —
Transactions during year:
Material delivered to site 40 99 180 —
Wages paid 20 47 110 8
Payments to subcontractors — — 35 —
Salaries and other costs 6 20 25 21
Written down value of plant:
issued to sites 90 15 — —
transferred from sites — 8 — —
Balances carried forward at
the end of year:
Material on site 8 — — —
Written-down value of
plant and machinery 70 — 110 5
Wages accrued — 5 — —
Pre-payments to
Subcontractors — — 15 —
Value of work certified
at end of year 90 390 950 —
Cost of work not certified
at end of year — — 26 —
The cost of operating the construction services department, which provides technical advice to each of the contracts, is apportioned over the contracts in proportion to wages incurred. Contract STU is scheduled for handing over to the contractee in the near future and the site engineer estimates that the extra costs required to complete the contract in addition to those tabulated above, will total £138 000. This amount includes an allowance for plant
Required:
(a) Prepare a contract account for each of the three contracts for the previous year
and show the cost of the work completed at the year end.
(b) (i) Recommend how much profit or loss should be taken, for each contract, for
the previous year.
(ii) Explain the reasons for each of your recommendations in (b) (i) above.
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