Contract Costing
Easy to understand “ job order costing on larger scale”. For construction of building and other large scale wok which take considerable period of time to complete ,it is not possible to account for by job costing method so contract costing is used.
CONTRACT A/C XXX
|
Material issued from stores
Direct wages
Book value of plant used on site
Overheads
|
X
X
X
X |
Sale of materials on site
TOTAL COST(balancing figure) |
X
X |
| XXX | XXX |
Cost of Work Uncertified= Total Cost to date – Cost of work Certified – Material In hand – Plant at site
Retention Money = Value of Work Certified – Progress Payments
Work Certified =Progress Payment + Retention Money
Notional Profit Income till date(i.e Value of WC + Cost of work uncertified) – Expenditure till date (total cost on contract after netting off material at site,WDV of plant at site,Prepaid/Accrued expenses etc)
Percentage of Completion Profits to be Recognised
Below 25% Nil
25% – 50% 1/3rd * Notional Profits * Cash Received / Work Certified
50% – 90% 2/3rd * Notional Profits * Cash Received / Work Certified
90% – 99% Profits is estimated on basis of Estimated total Profits
100% Notional Profits * Cash Received / Work Certified