Question:
MNP Construction Ltd commenced a contract on April 1, 2004. The total contract was for Rs.17,50,000/-. It was decided to estimate the total profit and to take to the credit of P&L a/c the proportion of estimated profit on cash basis which work completed bore to the total contract. Actual expenditure in 2004-05 and estimated expenditure in 2005-06 are given below:
|
|
2004-05 (Actual) |
2005-06 (Estimated) |
|
Materials Issued |
3,00,000 |
5,50,000 |
|
Labour: Paid |
2,00,000 |
2,50,000 |
|
Outstanding Labour |
20,000 |
30,000 |
|
Plant Purchased |
1,50,000 |
- |
|
Expenses: Paid |
75,000 |
1,50,000 |
|
: Prepaid at end |
15,000 |
- |
|
Plant returns to store (historical Cost) |
50,000 |
1,00,000 |
|
|
(On Dec 31, 2005) |
|
|
Material at site |
20,000 |
50,000 |
|
Work Certified |
8,00,000 |
Full |
|
Work Uncertified |
25,000 |
NIL |
|
Cash Received |
6,00,000 |
Full |
The Plant is subject to annual depreciation @ 25% of WDV Cost. The contract is likely to be completed on Dec 31, 2005. Prepare the contract a/c. Determine the profit on the contract for the year 2004-05 on prudent basis, which has to be credited to P&L a/c.
Solution (As per ICAI Study Material):
Contract a/c (1st Apr, 2004 to 31st March, 2005)
|
|
|
|
|
|
Materials |
3,00,000 |
By plant returned |
37,500 |
|
Labour: paid |
2,00,000 |
By materials at site |
20,000 |
|
:Outstanding |
20,000 |
By work certified |
8,00,000 |
|
To plant purchased |
1,50,000 |
By work uncertified |
25,000 |
|
To expenses |
60,000 |
By plant at site |
75,000 |
|
To notional profit c/d |
2,27,500 |
|
|
|
|
9,57,500 |
|
9,57,500 |
|
To P&L a/c |
66,321.43 |
By notional profit |
2,27,500 |
|
To Work in progress a/c |
1,61,178.57 |
|
|
|
|
2,27,500 |
|
2,27,500 |
Contract a/c for computing estimated profit (1st Apr, 2004 to 31st Dec, 2005)
|
|
|
|
|
|
Materials (3,00,000+5,50,000) |
8,50,000 |
By plant returned on 31st mar, 05 |
37,500 |
|
Labour: paid(2,00,000+2,30,000+ 30,000) |
4,80,000 |
By materials at site |
50,000 |
|
|
|
By plant returned on 31st dec, 05 |
60,937.50 |
|
To plant purchased |
1,50,000 |
By contractee a/c |
17,50,000 |
|
To expenses(60,000+165,000) |
2,25,000 |
|
|
|
To estimated profit |
1,93,437.5 |
|
|
|
|
18,98437.50 |
|
18,98437.50 |
Estimated profit * Cash received / Contract price
= 1,93,437.5*6,00,000/17,50,000
= 66,321.43
Solution as per my classroom :
Calculation of estimated profit as per my classroom notes:
Estimated profit = contract price – Total cost
Total Cost:
Cost incurred to date = 8,25,000 – 2,27,500 = 5,97,500
Estimated Cost to complete contract:
Material = 5,50,000-50,000 = 5,00,000
Labour = 2,50,000-20,000+ 30,000 = 2,60,000
Expenses paid = 1,50,000 – 15,000 = 1,65,000
Depreciation on plant: 75,000*25%*9/12 = 14,063
15,36,563
Estimated profit = 17,50,000-15,36,563 = 2,13,437
Which procedure is correct to approach estimated profit ? Is it ICAI Study material or my classroom notes ? and which answer is correct from the above ?
CAclubindia
