CONTRACT COSTING

By: Nitin Pandita

Roll No-38 Class- (B.com Hons)

Contract Costing defined:

Method where each contract is treated as cost unit and Profit & Loss is ascertained separately.

Employed by undertakings engaged in building, road & bridge construction, ship building, etc.

Roll No-38 Class- (B.com Hons)

Features of Contract Costing:

Large in size and takes more than one year for completion Involves two parties viz. Contractor and Contractee Contract executed for a price termed as Contract Price Each contract is a cost unit; expenses get separately recorded and profit too is separately ascertained

Expenses are chargeable directly to contract account

Specialist sub-contracts may be employed
Roll No-38 Class- (B.com Hons)

Contd.
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Contd.

Plant may be purchased or hired especially for the contract Employed by undertakings engaged in building, road & bridge construction, ship building, etc.

Work carried out at site and not in factory premises

Payments made based on stages of completion and depends on Architects Certificate May contain Escalation Clause and Penalty Clause
Roll No-38 Class- (B.com Hons)

Concepts relating to Contract Accounts:

Contractor:

Person who undertakes the task of doing the job

Contractee: Person on whose behalf the task is being done Contract Price: Value for which the contract is undertaken Work certified: Part of the total contract price which is has been completed and approved by the architect
Roll No-38 Class- (B.com Hons)

Concepts relating.
Uncertified Work: Part of the task done but not approved by the architect of the Contractee

Cash Paid: Part of the work certified that is paid by the Contractee
Retention Money:

Part of the work certified that is held back by the Contractee

Roll No-38 Class- (B.com Hons)

Notional Profit:
Difference between the value of work certified and uncertified less the cost of work done to date

Value of work certified Add Value of work not yet certified Less Cost of work to date

Estimated Profit:
Excess of the contract price over the estimated total cost of the contract Contract Price Less Total cost already incurred Less Estimated additional cost required to complete the contract
Roll No-38 Class- (B.com Hons)

Profit on Incomplete Contracts:

(a) When work certified is less than 25% complete
No profit or Loss be accounted for

(b) When work certified is 25 % or more but less than 50% Notional Profit X 1/3 X Cash received -------------------Work Certified

Roll No-38 Class- (B.com Hons)

Profit on Incomplete Contracts:

(c) When work certified is the 50% or more but less than 90% Notional Profit X 2/3 X Cash received -------------------Work Certified

(b) When the contract is 25 % or more but less than 50%

Estimated Profit X Work Certified --------------------Contract Price

Roll No-38 Class- (B.com Hons)

ANY QUESTIONS PLEASE ????

Roll No-38 Class- (B.com Hons)

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THANK YOU
Roll No-38 Class- (B.com Hons)

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