# Contract Accounting: Practical Problems and Solutions

### Reviewed by Subject Matter Experts

Updated on April 11, 2023

## Problem 1

A company's contract ledger shows the following details in respect of Contract No. 50, which commenced on 1 April 2019.

The contract was completed by 31 March 2020 at a contract price of \$200,000.

The values of the materials and plant returned to store on 31 March 2020 were \$6,000 and \$12,000, respectively. The contract price was received in full on 31 March 2020.

Required: Prepare a contract account and contractee's personal account.

## Problem 2

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

Required: Prepare the contract account from the above particulars.

## Problem 3

How to find the tender price from a contractee's account

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

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

## Problem 4

Work in Progress Account

On 1 April 2019, Contractors Ltd. started building a cinema hall at a contract price of \$600,000. During the year ended 31 March 2020, they incurred the following expenses:

Work to the value of \$120,000 had been certified on 31 March 2020, of which 75% had been received in cash.

The cost of work completed but not certified was \$10,500. Materials valued at \$5,000 were on hand at site.

Required: After allowing for depreciation @ 20% p.a. on plant, prepare an account showing the profit earned to date and the amount of profit in the company's accounts on 31 March 2020. Also, prepare a work in progress account.

### Solution

Note: Since the value of work certified (\$120,000) was less than one-quarter 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 5

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

The contract price was agreed at \$250,000. Cash received from contractee was \$180,000.

Required: You are required to prepare a contract account, contractee's account, and show suitable items in the balance sheet of the contractors as on 31 March.