1

A
PROJECT REPORT
ON
“CONTRACT COSTING”
FOR
ARK ASSOCIATES ENGINEERS CONTRACTORS, AHMEDNAGAR

IN PARTIAL FULFILLMENT OF THE

MASTER OF COMMERCE
M.COM II
SUBMITED TO
UNIVERSITY OF PUNE

UNDER THE GUIDANCE OF

MRS.PRIYA SARDA MAM

SUBMITED BY
MISS. POKHARNA NIKITA MAHAVIR
PEMRAJ SARDA COLLEGE
AHMEDNAGAR
2022-23
 2

DECLARATION

I, MISS. POKHARNA NIKITA MAHAVIR, hereby declare that the

projects entitled ’’CONTRACT COSTING’’ submitted by me in
partial fulfillment for the degree in master of commerce is the
original work carried on by me during my course study for the
period 2015-2016. Under cheerful guidance of MRS. PRIYA SARDA
MAM and has not formed the based for the reword or for any
degree, diploma, association, fellowship, titled in this or any other
university or other institution.
This project completed and written by me has not been
previously formed on the basis for the award of post graduate
degree.
I further declare that the material obtained by me from
the other sources have been acknowledged in this project.

MISS. NIKITA MAHAVIR POKHARNA

(M.COM-PART-II SEM-IV)
 3

Acknowledgement

Project being the important of many persons and it becomes a

pleasant duty in expressing my gratitude towards them. It is a
moment of great pleasure for me I returning out this project report
to Pemraj Sarda college, ahmednagar.
At very first, I would like to express my gratitude to our principal
without whom this project would not be possible and all the vice-
principals for their inspirations, support and motivation. It could
not have been complete or fulfilled my project if there is no such
helping hand behind me, our guide for the project vice-principal Dr.
V. D.BARVE, thank you sir. Without your help this project had no
dimension.

MISS.NIKITA MAHAVIR POKHARNA

(M.COM-PART-II SEM-IV)
 4

GUIDE CERTIFICATE

This is to certify that work incorporated in the project

of
“CONTRACT COSTING” submitted by
POKHARNA NIKITA MAHAVIR.
Was carried out by the candidate under my supervision
and guidance.
Such material as has been obtained from other sourced
has been duly acknowledged in thesis.

MAY-2023
MRS.PRIYA SARDA MAM
PROJECT GUIDE
 5

ARK ASSOCIATES ENGINEERS

CONTRACTORS, AHMEDNAGAR
AHMEDNAGAR-414001.
CERTIFICATE

This is to certify that

MISS.POKHARNA NIKITA MAHAVIR.
Student of B.P.H.E. Society’s Ahmednagar College
Ahmednagar. Has successfully completed project on
“CONTRACT COSTING” in our Agency.
During the above tenure he has collected all the
information related to the project and we found he is
sincere and hard worker.
We wish him all the best for the future endeavors and
carrier.

ARK ASSOCIATES ENGINEERS CONTRACTORS,

AHMEDNAGAR
AHMEDNAGAR-414001.

MR. AMOL KARANDE

PROPRIETOR
 6
INDEX
S.R.NO.
TOPICS PAGE
NO.
1 INTRODUCTION 8-12

2 COMPANY PROFILE 13-14

3 OBJECTIVE OF STUY 15-16

4 RESEARCH METHODOLOGY 17-18

5 REVIEW OF LITERATURE 19-36

6 DATA ANALYSIS AND INTERPRETATIONS 37-43

7 OBSERVATIONS AND FINDINGS 44- 46

8 CONCLUSION AND SUGGESTIONS 47-51

9 BIBLIOGRAPHY 52-53

10 QUESTIONAIRE 54-56
 7

CONTRACT
COSTING
 8

1. INTRODuCTION
 9

The contract costing is a terminology relating to the accounting of a cost of a

contract. That is why it is important to find out the cost of contract is to be made
according to the rules and procedure of the calculation. The contract costing is very
important concept to be study because in normal circumstances the contract needs a
completion period of more than one year. So, it is very difficult to find out the profit
for one accounting year because till the contract is in progress
The objective behind doing the research on the topic of the contract costing for the
fulfillment of the post graduation is that to have to be familiarized with the term
contract costing in the practical way. The contract costing is very interesting topic for
the study because it has very important things to be study like ascertainment of
contract cost, allocation of the different expenses to the contract, apportionment of
the overall expenses to the different contracts and the most important point in the
contract costing is how they calculated the profit of the incomplete contract to find
the profit for one accounting period. Profit to be calculated for incomplete contract is
difficult because it is very hard to find profit till date. Calculation of profit on
incomplete contract is important from the point of view of company because the
company has to file a return with the government and also to find out their position in
the contract.

Contract
Meaning
A contract is a legally binding agreement. The term ‘contract’ has been defined by
various authors in different ways. Some of the definitions are given below:
(1) 3)According to sir William Anson, “ a contract is a legally binding agreement
between two or more person by which rights acquired by one or more to acts
or forbearances on the part of the other or others . “
(2) According to section 2(h) of the Indian contract act, “an agreement
enforceable by law is a contract.” This definition is based on Pollock’s
definition.
If we analyses the above definitions of the contract, given in section 2(h) of the
Indian contract act, we can say with conviction that a contract must have following
two elements.
(1) An agreement , and
(2) Enforceability of an agreement, we may put it as under:
Contract = an agreement + enforceable by law
 10

Costing
Meaning
Computation of cost on scientific basis and thereafter cost control and cost reduction has
become of Paramount importance. Hence it has become essential to study the basic
principles and concepts of cost Accounting. These are discussed in the subsequent
paragraphs.
As compared to the financial accounting, the focus of cost accounting is different. In the
modern days of Cut throat competition, any business organization has to pay attention
towards their cost of production.
Cost
Meaning
According to ICMA London, Cost can be defined as the expenditure (actual or notional)
incurred on or attributable to a given thing. It can also be described as the resources that
have been sacrificed or must be sacrificed to attain a particular objective. In other words,
cost is the amount of resources used for something which must be measured in terms of
money. For example – Cost of preparing one cup of tea is the amount incurred on the
elements like material, labor and other expenses; similarly cost of offering any services like
banking is the amount of expenditure for offering that service.
Thus cost of production or cost of service can be calculated by ascertaining the resources
used for the production or services.
 11

Costing
Meaning
According to ICMA London, Costing may be defined as, ‘the technique and process of
ascertaining costs’. According to Weldon, ‘Costing is classifying, recording, allocation and
appropriation of expenses for the determination of cost of products or services and for the
presentation of suitably arranged data for the purpose of control and guidance of
management. It includes the ascertainment of every order, job, contract, process, service
units as may be appropriate. It deals with the cost of
Production, selling and distribution.
If we analyze the above definitions, it will be understood that costing is basically the
procedure of ascertaining the costs. As mentioned above, for any business organization,
ascertaining of costs is must and for this purposes a scientific procedure should be followed.
‘Costing’ is precisely this Procedure which helps them to find out the costs of products or
services.
The procedure of ascertaining costs. As mentioned above, for any business organization,
ascertaining of costs is must and for this purpose a scientific procedure should be followed.
‘Costing’ is precisely this procedure which helps them to find out the costs of products or
services.
 12

Contract costing
Meaning
“Contract or terminal costing is adopted by those business undertakings which undertake
definite contract which take long period of time to complete e.g. builders and contractors,
civil engineering firms, ship building companies etc.”
The same principles of job costing are applicable to contract costing. The cost are
ascertained and analyzed with respect to the contract expected for execution. this method
of costing is adopted by those concern undertaking definite contracts e.g. builders ,
contractors and civil engineers who undertake long term projects like construction of roads ,
bridges , houses , large estates , irrigation schemes etc. it is also being adopted by the
concerned where the unit output is heterogeneous e.g. ship building companies , turbines
and boilers manufacturing companies , motion pictures etc. the operation of contract
costing is comparatively simpler than job costing
Contract costing is a type of job costing in which a contact costing constitutes a unit of cost.
It is further development of the job costing. In this method it is desired to find cost of
carrying out a complete contract for a customer involving numerous jobs and batches of
jobs.
 13

2.COMpANy
pROFIlE
 14

COMPANY PROFILE
NAME OF FIRM : ARK ASSOCIATES ENGINEERS
CONTRACTORS

DIRECTOR : MR.AMOL KARANDE

ADDRESS : 178/6,BASEMENT DREAMLAND BULDING,

ZOPDI CATEEN,SAVEDI ROAD,
AHMEDNAGAR-414003.

MOBILE NO : 9503367444

ESTABLISHMENT : 10TH FEB 2013

AREA OF BUSINESS : CONSTRUCTION OF COMMERCIAL

BUILDING
& CONSTRUCTION OF RESIDENTIAL
BUILDING

TYPE OF HR : PERMANENT LABOURS & CONTRACT

LABOURS
DEPARTMENTS : 1) ACCOUNTS DEPARTMENT
2) HUMAN RESOURCE DEPARTMENT
3) MEASUREMENT DEPARTMENT
4) RCC WORKS DEPARTMENT
5) BRICKS WORKS DEPARTMENT
6) PLASTER WORKS DEPARTMENT
7) DIGGING WORKS DEPARTMENT
8) PLUMBING WORKS DEPARTMENT
9) LIGHT FITTING WORKS DEPARTMENT
10) FLOORING WORKS DEPARTMENT
11) COLOR WORKS DEPARTMENT
12) INTERIOR DECORATION WORKS DEP.
 15

3.ObjECTIvES OF
STuDy
 16

The objectives of the different things are the different. So, it is necessary to define the objective of the study
before doing the study. The objective of the study of the contract costing are stated as follows,

(1) To understand how contract cost is ascertained-the next and the most important point or objective of
the study of contract costing is that to understand how the cost of a contract is calculated in the
contract costing.

(2) To be familiarized with the term-The first and the most important objective of the study of the
contract costing is to be familiarized with the work done in the contract related to the contract
costing

(3) To study how cost are apportion in the contract- apportionment of the cost of a whole thing to a
certain particular thing is very important in the contract costing, so it is very important to study how
the cost are apportioned in the contract costing.

(4) To study how cost are allocated in the contract- allocation of the cost of a whole thing to a certain
particular thing is very important in the contract costing, so it is very important to study how the cost
are allocated in the contract costing

(5) To find out that the firm follows the DSR rules given by the government or not in his actual practice.

(6) To study how the apportionment of the profit on incomplete contract is done- apportionment of the
profit on the incomplete contract is very difficult to be apportioned according to the accounting year
.so, it is very important objective of the study of the contract costing is to have the familiarize with
how the profit of the contract is apportioned according to the accounting period in which they are
commenced.
 17

4 RESEARCH
METHODOlOGy
 18

Primary Data Collection

The main sources of data collection of primary source are as follows,
(1) Structured Interview

Structured Interview of 4 employees was taken to understand contract costing of

contracting company in a simple and understandable manner.

(2) Structured Questionnaire

Interview of the few employees was taken place with the need of understanding
how the contract costing work is done in the company with the help of the
structured interview.

(3) Observation

Observation is the main sources of data collection for contract costing .because
there is something which cannot be asked or answered. By having observation in the

company I tried to find out the actual procedure and mental thinking of the person
doing contract costing.
Secondary Data Collection
The secondary data is collected from different literature related to the subject like books,
hand books and pamphlet, in-house journals. The data collected is interpreted by scale wise.
The secondary was used to study and understand the terminologies used in the contract
costing .to have better and in depth understanding of the subject of the project. The
methods used for collecting the secondary data are as follows,
(1) Reference Of Library
The various books available in the library related to the topic of contract costing are
referred to have in depth knowledge of the subject matter and to make the study in
the perfect manner of the project.

(2) Referring Various Journals On Internet

The various journals published by the institute of cost and management accountant of
India and the institute of company secretary of the India are referred to have the in
depth knowledge of the topic for better conduct of the project
 19

5.REvIEw OF
lITERATuRE
 20

Methods of Costing - Job, Batch and Contract

Costing
Introduction
Cost accounting is the process of accounting for cost from the point at which expenditure is
incurred or to be incurred to the point of charging to the cost centre and cost units. It has
many uses which include the preparation of statistical data, the application of cost control
methods and the ascertainment of the profitability of activities carried out or planned.
The term ‘costing’ refers to the techniques and processes of determining different methods
of costing are used to suit these diverse requirement costs of a product manufactured or
services rendered. The first stage in cost accounting is to ascertain the
Cost of the product offered or the services provided. In order to do the same, it is necessary
to follow a particular method of ascertaining the cost. The methods of costing are applied in
various business ascertain the cost of product or service offered. Different methods of
costing are required to be used indifferent types of businesses. For example, costing
methods used in a manufacturing business will differ from the methods used in a business
that is offering services. Even in a manufacturing business, some business units may have
production in a continuous process, i.e. output of a process is an input of the subsequent
process and so on, while in some businesses production is done according to the
requirements of customers and hence each job is different from the other one.
Definition
Cost accountancy has been defined by the institute of cost and management accountants,
London, as follows,” the application of costing and cost accounting principles, methods, and
techniques, to the science, art and practice of cost control and the ascertainment of
profitability. It includes the presentation of information derived there from for the purpose
of managerial decision making”.
The above definition makes it clear that cost accounting performs the following functions.
(1) Collection of cost data
(2) Cost ascertainment ;
(3) Cost presentation;
(4) Cost control.
Need For Various Methods
(1) There are some industries which produce goods on mass scale continuously in
anticipation of demand. It is difficult to find out individual lots of products. In view of
this, the same basis of cost accumulation cannot be followed.
(2) There are some organizations which produce standardized items of goods as per
their own specifications determined in advance. On the other hand there are some
organizations, which produce goods exactly as per customer’s specifications.
(3) Where the work is concerned with execute of contracts, a contract becomes a unit of
cost. ‘Contract costing ‘method is adopted for determination of cost of a contract.
(4) Where production is carried out in batches each batch becomes a unit of cost. In
such a case, ‘batch costing’ method is adopted for determination of cost of a batch.
 21

METHODS OF COSTING
process
job costing
costing

PROCESS
JOB COSTONG
COSTING

BATCH OPRETING
COSTING COSTING

CONTRACT
COSTING OPRETION
COSTING

OUTPUT OR
MULTIPEL
SINGLE
COSTING
COSTING
 22

Methods of Costing
Basically, there are two methods of cost ascertainment viz. job costing and process costing. The remaining
methods costing are either the variants of this basic methods or techniques of cost accumulation used
specifically for a particular purpose.

(A)Job Costing:
It is concerned with the costing of job that are made to a customer’s particular requirements. It is
applicable where individual jobs are identifiable and each of the jobs becomes a cost centre. It is used
when non standard jobs are made according to customer specifications.

(B)Batch Costing:
This method of costing is used where similar or identical products are manufactured in definite batches
and held in stock for assembling process or for sell to customer.

(C)Contract Costing:
This method aims to find the cost of carrying out a complete contract for a customer probably involving
numerous jobs and batches of jobs. It is used in undertaking carrying out building or constructional
contract.

(D)Multiple Costing:
It relates to system used in such business which makes a variety of goods. These goods differed both in
value and in kind and I the number of variety of the processes necessary for completion. It is used in
automobile industries which produce numbers of components to be subsequently assembled into a final
product.

(E)Process Costing:
It is the method of costing where by cost incurred for process are collected according to the period of time
and are divided by the production of that period. It is employed in cases where there is a variety of
process or operation before a finished product is turn out and where it is necessary to find out cost of
each variety of operations. It is particularly necessary whereby products occurred or where one article out
of batch losses its identity during the process of manufactured.

(G)Operation Costing:
This form of process costing is used in case of mechanical products involved in production process of
continuous and repetitive nature, consisting of number of operation. Under this method, costs are
ascertained and analyses with respect to each and every operation carried out, treating every operation as
a separate cost centre.
 23

(H)Output or Single Costing:

It describes a method of costing dealing with the production of a uniform product. In this method, it is
only necessary to find the cost of quantitative measure of the product produced.

(I)Operating Costing:
It is essential method of costing where only the services are rendered. It ascertains the cost of a one unit
of service rendered, e.g. railways, hospitals, hotels, schools, colleges, etc.

Contract Costing
Introduction

Contract costing is a type of job costing in which a contact costing constitutes a unit of cost.
It is further development of the job costing. In this method it is desired to find cost of
carrying out a complete contract for a customer involving numerous jobs and batches of
jobs.
The cost are ascertained and analyzed with respect to the contract expected for execution.
this method of costing is adopted by those concern undertaking definite contracts e.g.
builders , contractors and civil engineers who undertake long term projects like construction
of roads , bridges , houses , large estates , irrigation schemes etc. it is also being adopted by
the concerned where the unit output is heterogeneous e.g. ship building companies ,
turbines and boilers manufacturing companies , motion pictures etc. the operation of
contract costing is comparatively simpler than job costing . Under this method individual
numbers are given against each contract undertaken and a separate ledger account is
opened for the purpose of finding of the profit or loss for the same. As the major part of the
network perform on each contract is done on the side of itself, particularly most of the
expenses are direct in nature and are charged to the contract as and when they are
incurred. The indirect expenses such office and administrative expenses are very small in
amount and are recovered on the reasonable bases such as percentage of direct material,
direct wages or of prime cost the principle applied are the same as those used in job costing,
except that certain modification are made to suit the specific requirements of the contracts.
Thus, the accumulation analysis, apportionment, allocation and control of cost are more
simplified in this method of costing.
Meaning
Contract costing is a type of job costing in which a contact costing constitutes a unit of cost.
It is further development of the job costing. In this method it is desired to find cost of
carrying out a complete contract for a customer involving numerous jobs and batches of
jobs.
“ contract or terminal costing is adopted by those business undertakings which undertake
definite contract which take long period of time to complete e.g. builders and contractors ,
civil engineering firms , ship building companies etc. “
The same principles of job costing are applicable to contract costing.
 24

Features of Contract Costing

Following are the features of contract costing
(1) Each contract considered as a separate unit of cost
(2) A separate ledger A/C is kept for each contract and is allotted a distinguishing
number.
(3) Usually the contract work is carried out at the customer’s site
(4) A contract usually takes more than one accounting year to complete.
(5) Normally entire labour is directly chargeable to the contract.
(6) Calculation of profit on incomplete contract is a distinguishing feature of this
method.
(7) Most of the expenses e.g. electricity, telephone, insurance, etc. are also direct.
(8) Since major contract work is done at site, most of the expenses are directly allocated
to the contract. Common expenses are apportioned to all contracts as a percentage
of materials or labour.

Accounting Procedure
A contract ledger is kept in which a separate account for each contracts opened. A
contract is known by number allotted to it e.g. contract no. 41, contract no. 42 etc. the
recording procedure for the following items may be noted carefully:
Materials
Materials required for the contract may be received from the following sources:

(A)Issue From Store Room:

The store will issue materials on the basis of store requisition prepared for the contract
or on the basis of bills of material prepared earlier for the contract. The indirect material
issue to the contract o the basis of standing order number are treated an overheads.

(B)Purchases from Market:

Materials not available with the stores are directly purchased from the market on the
basis of purchase requisition. Sometimes due to distance between stores and customers
site, the material may e directly obtained from the local sources.

(C)Transfer from Other Contract:

It is not uncommon to transfer material from one contract to another. This is done on
the basis of material transfer note. The contract A/c is debited with cost of material
transferred to it or credited with cost of material transfer from it.
 25

(D)Material Supply by Contractee:

Sometimes the contractee may supply materials from his own stock. Such materials are
not debited to contract A/c but shown in separate memorandum record.
The contract account should be debited with the material cost from the above
mentioned sources. The contract A/c should be credited with the following items
regarding materials:
(1) Material return to stores on the basis of material return note.
(2) Value of materials lying on site.
(3) Material transfer to other contract ( at cost )
(4) Value of materials stolen or destroyed by fire
(5) Cost of unused materials sold at site.

Value of material stolen or destroyed by fire is debited to profit and loss A/c. and credited to
contract A/c. similarly any profit/loss on sale of materials is shown in contract A/c
separately.
In case of any compensation received from insurance company for loss of materials, the
amount due from the insurance company is shown in the balance sheet. The loss which is
not compensated is debited to profit and loss A/c.
Direct Labour
Generally, the cost of labour working at the contract Is direct charge to the contract.
Otherwise a wage analysis sheet should be prepared wherein particulars of the daily or
weekly time sheets should be entered. The total labour cost alone with labour cost
outstanding at the end of the accounting period should be debited to the contract A/c.
salary of supervisory staff is apportioned on equitable basis. Wages accrued will also be
debited to the contract account.
Direct Expenses
The expenses incurred for a particular contract only are direct expenses and charge directly
to that contract.

Indirect Expenses or Overheads

There are certain expenses which are common to two or more contracts, and which cannot
be directly charged to the contract. Examples of such overheads are:
(1) Stores expenses including salary of store keeper
(2) Salaries of managers, architects, engineers, supervisors etc.
(3) Administrative and office expenses like staff salary, postage, rent, insurance, etc.

The contract account is debited with such expenses distributed on several contracts on
some suitable basis such as percentage of materials or labour etc.
 26

Plant and Machinery

Careful records of plant and machinery should be maintained to ensure that the contract
account is duly charged with the cost for the use of a plant. There are two methods of
treatment of plant and machinery in contract costing:
(a) Debit contract account with the full cost value of plant and credit contract account at
the end of the accounting period with the written down value of the plant. If the
plant is return or lost or destroyed by fire or transferred to the other contracts, the
contract account is credited with the depreciated value of such plant. Sometimes it is
difficult to estimate exact depreciation of plant. So the best thing to do is revalue the
plant at the end of the accounting period and credit the contract account with the
revalue figure. The difference between the cost value and written down value
represents plant depreciation. Any sale of plant is credited to contract A/c. profit or
loss on sale is disclosed in the contract account separately.
The depreciated value of the plant is carried forward as the opening balance at the
commencement of the next accounting year.
 27

Treatment of Plant and Machinery

Contract A/c.
Year Particulars Rs. Year Particulars Rs.
1990 1990 By loss by accident Xx
jan.1 To plant issued to site Xx dec.31 By value of plant Xx
To profit on sale of Xx returned’ Xx
plant _ By sale of plant
Xx
1991 To plant b/d By value of plant

(b)Contract account is debited with depreciation only calculated at the rate mentioned.
Where a certain plant is used on several contracts simultaneously then for the period which
the plant is used is ascertained and depreciation is calculated on time basis or when certain
plant is used for a few days or few hours only e.g. cranes, then depreciation is calculated on
hourly rate basis and the contract account is debited with depreciation.
Sub Contract Cost
A contractor may not be expert in all the work e.g. installation of lift, electrical fittings, door
fittings, etc. which may be passed on by main contractors. Such sub contract costs are
treated as direct cost and recorded on the debit side of the contract account.
Extra Work Done
When extra work or variation of work originally contracted for is required to bedone, such
additional work is subjected to a separate charge,
(a)If the extra work is substantial, it should be treated as a separate contract and a separate
account should be opened for it.
(b) If the extra work done is not substantial the cost of such work is debited to contract
account and the extra amount which the contractee has agreed to pat should be added to
contract price.
Escalation Clause
The clause is provided in the contract to cover up any changes in the price of the material,
labour etc. since, the contract takes more than one year to complete, the object of the
incorporating this clause is to safeguard the interest of both the parties against unfavorable
changes in the prices. The contractor has to produce sufficient proof of excess cost before
the customer agrees to reimburse such cost. The contractor is entitled to increase the
contract price if cost increases beyond a certain specified percentage. This clause is of
important especially when the price of material and labour are likely to be increased or
where it is difficult to estimate accurately the quantity of material and labour time.
The de-escalation clause may be inserted in the agreement to take care of the interest of
the contractee. It provides for downward revision of the contract price in case cost goes
down beyond a certain agreed level.
 28

Cost plus Contracts

When it is difficult to estimate the cost of contract due to cost fluctuations or long period of
time to execute contract or the probable cost of contract cannot be estimate in advance,
with reasonable degree of accuracy, or when the contract is absolutely new to the
contractor, then cost plus contract plus assured of his profit, he is unable to prepare a cost-
budget for his contract. The customer also feels suspicious about the contractor expenses.
Moreover, the contractor has to watch for every expense. Unscrupulous contractors may
lead to influent cost to the disadvantage of the customer. This system puts a premium on
inefficiency of the contractor because high cost would mean high profit for him. There is no
incentive for the cost reduction or cost-optimization. However, the contractors books of
accounts should be kept open for inspection by the contractee ad the terms of contract
should be clear.
Contract Price
It is the value of the contract which is agreed to be paid to the contractor by the contractee
when the contract is satisfactorily completed. The journal entry on completion of the
contract for contract price receivable is: debit contractees A/c and credit contract A/c.
Work Certified
We know that completion of contract takes generally more than one year the financial
resources of a contractor could be severely strained and large amount of working capital
would required if the contractor did not received payment until the completion of the
contract. Thus, it is a normal practice for the contractee to pay the contractor some of the
money on the account during the period of the contract. This sum of money is paid on the
basis of certificate given by an architect for the contractee. The certificate certifies the value
of the work so far performed. This is called work certified. The amount of the work certified
is credited to the contract account and debited to the contractee account. Alternatively
work certified may be carried forward as a balance I contract account.
Retention Money
It is on the basis of work certified that the contractees pays. The objective of the retention
money is to put the contractor in the favorable position to take care of faulty work that may
arise or penalty that may become payable on late completion. This also ensures the
contractee that contractor will continue to work and not leave the contract if the contract is
not providing to be a profitable one to him. Say, the contract is for 10 lacks, and the work
certificate certifies that 40% work is performed; therefore the value of work done is Rs. 4
lacks. However, the contractee advances not the full amount of Rs. 4 lacks but the
percentage therefore is retained by the contractee until sometime after the contract is
complete. Say, he pays 80% of work certified, thus, he pays Rs 3, 20,000(80% of Rs. 4,
00,000) and the balance 20% i.e. Rs. 80,000 which is not paid is called retention money.
If the work certified is not given, cash received from the contractee can be used to calculate
work certified. For example, if Rs. 80,000 is received being 80% of the work certified, then
Work certified = cash received/80% =80,000/80*100 =Rs 1, 00,000
 29

Accounting Treatment (With Above Example)

(1) On the basis of work certified :

Debit work in progress A/c Rs. 1, 00,000(with value of work certified)
Credit contract A/c RS. 1, 00,000

(2) On receiving the cash from the contractee :

Debit bank A/c Rs. 80,000 (with actual cash received)
Credit contractee`s A/c Rs. 80,000
Thus, until the contract is completed, the contractee`s A/c shows advance payment
and Is deducted from work in progress in balance sheet. On completion i.e. when
100% is certified, the entry will be:

Debit contractee`s A/c (with contract price)

Credit contract A/c
Note: the value of work certified includes profit element i.e. if 40% is work certified, it would
be inclusive of profit as would the entire contract include the profit.
Work Done But Not Certified
It is not necessary that the entire work done by the contractor would be certified by the
architects or the contract work continues after the date of certificate and this work done
since certification may remain uncertified. This is called the work done but not certified.
Until the work is certified by the architect the contractor should not add any profit element
to the uncertified work. So, the work doe but uncertified is to be valued at cost and at
contract price. It is carried forward as balance in contract. It is considered while ascertaining
value of work in progress
Work In Progress
Incomplete contracts are referred to as work in progress. It includes the cost of certified
work and uncertified work. As the value of plant and materials as and when supplied is
debited to the contract account, it is advisable to take into consideration the value of plant
at site and the cost of materials at site. This is also being included in the value of work in
progress.
In that case, value of work in progress will consist of: a) work certified, b) work uncertified,
c) plant at site, and d) materials at site.
Accordingly, work in progress A/c is debited with certified as well as uncertified work, plants
at site and materials at site and with this sums contracts a/c is credited. On the following
date in the next accounting period, the entry is reversed. These entries are repeated year
after year till the entire work is completed. On completion of the contract, contractee` A/c is
debited and contract A/c is credited with the full amount contracted. Contractee`s A/c is
usually debited by the contract price on completion of work.
 30

Work in progress will appear in balance sheet as follows:

Work In Progress in Balance Sheet
Asset Side
Work certified xx
Work uncertified xx
Plant at site xx
Materials at site xx
Less: reserves xx
Xxx
Less: cash received from the contractee
xx xx

Profit on Incomplete Contracts

Large contracts take number of years to complete and the cost can be ascertained only
when the contract is complete and therefore, it is not possible to ascertain the profit or loss
on the contract until the completion of the contract. For the purpose of annual accounts it is
necessary to ascertain the profit or loss on the contract until the completion of the contract.
For the purpose of annual accounts it is necessary to ascertain the profit for the year.
However, this procedure will show a lot of fluctuations in the annual profits. The year in
which the contract is completed would show large profits and other years would show even
losses. So, at every tear ending it is desirable to take into account a reasonable proportion
of the estimated profit (notional profit) on incomplete contract subject to the following
conditions:
(1) When the work done is less than 25% or 1/4 complete no profit is taken.
th
(2) If the certified work is 1/4 or more than 1/4 but less than 1/2 of the contract price,
rd
then 1/3 of the notional profit as reduced to the percentage of cash received is
credited to profit and loss A/c. the balance sheet of the notional profit is credited to
reserve which is a part of work in progress.
Profit = 1/3 x notional profit x cash received/work certified
rd
(3) If the value of work certified is ½ or more than ½ of the contract value, then 2/3 of
the notional profit as reduced to the percentage of cash received to work certified is
credited to profit or loss A/c.
Profit = 2/3 x notional profit x cash received/work certified
(4) When work certified is 100% or when the contract is complete, the entire profit is
credited to the profit and loss A/c.
 31

(5) When incomplete contract A/c shows loss, the entire amount of loss is transferred
(debited) to profit/loss A/c. irrespective of the stage of completion.
(6) For the contracts which are almost complete :
In this case, the estimated profit is ascertained by deducting the aggregate of the
costs to date and additional expenditure to complete the contract from the contract
price. A portion of this estimated profit is credited to P/L A/c.
This portion may be calculated by adopting any one of the following formula:
a) Estimated profit x work certified/contract price
b) Estimated profit x work certified/contract price x cash received/work certified
OR
Estimated profit x cash received /contract price
c) Estimated profit x cost till date/estimated total cost
d) Estimated profit x cost till date/estimated total cost x cash received/work
certified
 32

Architect Certificate
In case of large contracts which take a long period, it is normal practice for the contractor to
get interim advance payments against the actual portion of contract completed by him. The
contractee appoints the architect or surveyor or engineer who works as a technical assessor
and issues the certificate as to the value of work so performed. Thus, as per the contract
agreement the periodical payment is made to the contractor on the basis of such architects
certificate.
 33

Performa Contract Account (When Work Is Incomplete)

Contract A/C.
Rs. Rs.
To work in progress: By materials:
Work certified xx Return to stores xx
Work uncertified xx Transferred to other contracts xx Xx
Plant at site xx By P & L A/c.- loss on sale of items Xx
Less reserves xx Xx By P & L A/c. – for items stolen or Xx
To materials: destroyed
From stores By work In progress
From other contracts Xx Certified work xx
To wages xx Uncertified work xx
Add: outstanding xx Xx Material at site xx Xx
To direct expenses Xx Plant at site xx
To plant(cost) Xx
To overheads
Add: outstanding Xx
To sub-contracts cost Xx
To cost of extra work done Xx
To P & L A/c. – profit on items sold Xx
To notional profit c/d Xx
Xx Xx
To P& L A/c. Xx
(1/3 or 2/3 x N.P. x cash received Xx By notional profit b/d
/work certified )
To work in progress A/c.( reserve) Xx
Xx Xx

Xx Xx

Dr. Cr.

Note: in the final year or when the contract is complete, then instead of W.I.P. A/c. we have
contractee`s A/c. (at contract price) on the credit side of contract A/c.
 34

Preparation of Contractee`S A/C:

There are two methods of preparing contractee`s A/c.
(1) Memorandum Method:
Under this method, contractee`s A/c. is debited by work certified and credited by
cash received every year. The balance will be equal to retention money which is
carried forward. The account appears as follows:

Contractee`s A/c
Rs. Rs.
To contract A/c. ( work Xx By cash/bank A/c. Xx
certified) _ By balance c/d Xx
Xx Xx

(2) Advance Method:

Under this method, contractee`s A/c is credited by cash received every year. Cash
received is treated as advance which is carried forward year after year. On the
completion of the contract, contractee`s A/c. is debited and contract A/c. is credited
by contract price.

Contractee`s A/c.
year Rs. Year Rs.
1 To balance c/d xx 1 By bank/cash A/c. xx

2 To contract A/c.( cost xx By balance b/d Xx

price) Xx By bank A/c. Xx
_ Xx
xx Xx

Defective Work:
If the work done by the contractor is defective it will not be paid by the contractee. Cost of
rectification such defective work is debited to the contract A/c.
 35

Extract of P & L A/c. for the year ended……..

Rs. Rs.
To loss by accident Xx By contract A/c.(profit) Xx
To depreciation on plant at stores Xx By profit on sale of assets Xx
building Xx
To general expenses Xx
To loss on sale of assets Xx
To net profit Xx Xx

Extract Of Balance Sheet as On ………..

Liabilities Rs. Assets Rs.

Capital Xx Land and building xx

P&L A/c. Less: depreciation xx Xx
Last year`s balance xx Plant and machinery xx
Add: net profit for the year xx Xx Less: depreciation xx Xx
Creditors Xx Work in progress
Outstanding expenses Xx Work certified xx
Work uncertified xx
Plant at site xx
Materials at site xx
Less: reserves xx

Less : cash received from the

contractee xx Xx
Stock of materials:
At stores xx
Cash and bank balance xx Xx

Xx Xx
 36

District Selling Rates

The district selling rates are normally known as the DSR. The DSR is basically using as regulatory rates
by the government for contract rates purposes. The DSR is a rate given by the government from time
to time for the purpose of regulation of the various prices used in the construction of the various
under the contract. The DSR is nothing but the rates given by the government for the all contractors
to have the uniformity in the regulation of the prices related to the works conducted in the contract.
The DSR includes the various rates relating to the work carried out I the construction of the contract,
starting from its Excavation to the finishing of the work of the contract. The DSR includes the rates
related to Excavation, structural steel works, plain cement concrete, reinforcement cement
concrete, brick work, stone masonary, cement concrete block masonary, water proofing, expansion
joints, plastering and pointing, paving, flooring, dado, wood finish, oil painting, color, white washing,
distempering, wood work, roofing, ceiling, doors, windows, iron work, water supply, sanitary fittings,
miscellaneous, road works, cross drainage works, bridge works, roads, bridge and various other rates
related to the contract work.
The DSR are normally nothing bur the rates given by the government for the purpose of making it
useful for the contractor in the work of the estimating and for the uniformity in the all rates.
 37

6.DATA
ANAlySIS AND
INTERpRETATION
 38

(1) Ascertainment of contract price :

There are two methods practically used in the ascertainment of contract price,
(a) Estimated price method :
Calculation of contract price based on estimated amount :
This method is simple for calculation. This method is same like used in the job
costing method.
 39

Estimate
Name of Work: proposed construction of bungalow on Gat No. 9/3, Plot No.18 at
pathardi Tal. Shevgaon, Dist. Ahmednagar for Mr. Khan Sami

Sr. Particulars Quantity Unit Rate Amount

No.
1 Excavation 1290.76 CU.M 114.00 147370.46
2 Cement & concrete 60.156 CU.M 3833.00 235950.95
Foundation & bedding
3 Filling in Plinth and Floors 1010.717 CU.M 35.00 35600.10
Of Excavation
4 RCC 180.725 CU.M 5600.00 1048620.52
5 Filling in Plinth & Floors 280.558 CU.M 318.00 90810.55
6 Rubble Stone Soiling 170.750 CU.M 547.00 97090.51
7 Foundation & Bedding 80.335 CU.M 3465.00 288810.12
8 RCC Columns 110.390 CU.M 6707.00 763950.92
9 RCC Beams & Lintels 160.276 CU.M 7177.00 1168100.35
10 RCC Slabs & Landings 130.679 CU.M 6548.00 895700.20
11 HYSD Bar Reinforcement 20.206 M.T. 63548.00 1402050.29
12 Burnt Bricks in 690.803 Sq.m. 625.00 436260.88
Superstructure 1.5cm
13 Burnt Bricks in 330.597 CU.M 5110.00 1716830.12
Superstructure 230mm
14 Burnt Bricks in 330.597 Sq.m. 788.00 264740.81
Superstructure 115mm
15 Internal Cement Plaster 370.048 Sq.m. 150.00 555070.20
12mm
16 Sand Faced Plaster 2410.522 Sq.m. 249.00 601380.88
Externally
17 Solid Core Flush Door 200.160 Sq.m. 3815.00 769100.40
18 Sliding Windows 180.900 Sq.m. 2044.00 386310.60
19 Steel Gates 30.99 Sq.m. 2732.00 109000.68
20 Ceramic Tiles 40.410 Sq.m. 958.00 42240.78
21 Dado & Skirting 200.160 Sq.m. 885.00 178410.60
22 Flooring For Porch 140.280 Sq.m. 566.00 80820.48
23 Makrana Marble 190.31 Sq.m. 1802.00 347870.61
24 Vitrified Tiles Flooring 390.697 Sq.m. 1168.00 463660.10
25 Polished Kotah Stones 110.861 Sq.m. 770.00 91320.82
26 Paint 3700.05 Sq.m. 63.00 233130.02
27 External Apex Paints 2410.52 141.00 340540.5456
Total 12790860.49
Add 5% Contingencies 639540.32
Add 15% For 1918620.97
Electrification & Plumbing
Total Cost 15349030.78
Total Cost (Rounding Off) 15350000.00
Add 10% Profit of 1535000
Contractor
Total Contract Price 16885000
 40

(b) Area wise price method :

Calculation of contract price based on the area wise price method,
Contract price = area in square feet x price per square feet of construction
= 40,000 square feet x 1,500 = Rs. 6,00, 00,000
In this calculation, the area of the construction is 2,000 square feet and the rate
per square feet is Rs. 1,500 then the contract price is Rs. 6,00, 00,000. This
method of calculation is simple for calculation and easy to understand for both
the contractor and contractee.
 41

(2) Contract account when work is incomplete :

Contract A/C for the Year Ended 31st March 2022

Dr. Cr.
Particulars Rs. Particulars Rs.
To materials: By materials:
From purchases 4,00,000 Return to stores 1,40,000
From stores 4,00,000 Transferred to other contracts 2,00,000
From other contracts 10,00,000 60,000 80,000
2,00,000 By P & L A/c.- loss on sale of items 1,20,000
To wages 1,40,000 2,00,000 By P & L A/c. – for items stolen or
Add: outstanding 6,00,000 destroyed
60,000 4,00,000 By work In progress
To direct expenses 5,60,000 Certified work 18,00,000
To plant(cost) 1,20,000 Uncertified work 2,00,000 30,00,000
To overheads 40,000 Material at site 6,00,000
Add: outstanding 80,000 Plant at site 4,00,000
To sub-contracts cost 80,000
To cost of extra work done 3,20,000
To P & L A/c. – profit on items sold 34,00,000 34,00,000
To notional profit c/d

To P& L A/c. 1,60,000 By notional profit b/d

(2/3 x 1,60,000. x 6,75,000 3,20,000
/9,00,000 ) 1,60,000
To work in progress A/c.( reserve)

Total 3,20,000 Total 3,20,000

In this the contract price is Rs. 24, 00,000 and the work certified is Rs. 18, 00,000. The
contract account shows the notional profit Rs. 3, 20,000 . the profit transferred to the profit
and loss A/c is calculated on the base of the work certified i.e. the work certified is Rs. 18,
00,000 and the contract price is Rs. 24,00,000 then the contract work certified is more than
half but less than 80% of the contract so, the amount transferred to the P/L A/c is Rs.
1,60,000 and the reserve is Rs. 1,60,000 .
 42

(3) Contractees A/c when work is incomplete :

Contractee`s A/c
Particulars Rs. Particulars Rs.
To contract A/c. ( work 18,00,000 By cash/bank A/c. 13,50,000
certified) _ By balance c/d 4,50,000
18,00,000 18,00,000

The amount paid by the contractee is 75% because the retention money is 25% of
the work certified. In the above A/c the work certified is Rs. 18, 00,000 so, payment
to be made is 75% of Rs.18, 00,000 i.e. Rs. 13, 50,000. The contractee A/c shows that
the contractee is in strong position because the contractee has a huge amount as a
safety for the completion of the contract.

(4) Extract of P/L A/c when contract is incomplete :

Extract Of P& L A/C. For The Year Ended 31st March 2022
Particulars Rs. Particulars Rs.
To loss by sale of items 80,000 By contract A/c.(profit) 1,60,000
To depreciation on plant and 1,60,000 By profit on sale of assets 1,00,000
building By net loss 50,000
To general expenses 40,000

To loss on sale of assets 30,000

3,10,000 3,10,000
Total Total

The contractor suffers a loss of Rs. 50.000 in the above contract because there is loss by sale of items and loss
by sale of asset is Rs. 1,10,000, and the amount of profit transfer in P/L A/c is not that much sufficient to
absorb all the losses in the contract.
 43

(5) Extract of Balance Sheet when contract is incomplete :

Extract Of Balance Sheet as On 31st March

2022

Liabilities Rs. Assets Rs.

Capital 26,00,000 Land and building 4,00,000

P&L A/c. Less: depreciation 1,00,000 3,00,000
Last year`s balance 1,00,000 Plant and machinery 4,00,000
Less: loss for the year 50,000 50,000 Less: depreciation 60,000 3,40,000
Creditors 4,50,000 Work in progress
Outstanding expenses 40,000 Work certified 18,00,000
Loan 4,00,000 Work uncertified 2,00,000
Plant at site 4,00,000
Materials at site 6,00,000
Less: reserves 4,50,000

Less : cash received from the

contractee 13,50,000 22,00,000
Stock of materials:
At stores 1,00,000
Cash and bank balance 2,00,000 3,00,000

31,40,000 Total 31,40,000

Total
The extract of the balance sheet of the contractor shows that the contractor is not in a good position in the
state of its health about the money because most of the money is blocked in the non productive assets.
So, it Is advised to the company to invest the amount of its money in an asset which will give the more
productivity to them.
 44

7.ObSERvATIONS
AND FINDINGS
 45

For the data analysis, I have taken 11 things which I have asked to the contractor and about
which they have given me answered I wanted with the solution. I have taken the
observation regarding how the contractor conducted to make the contract costing of the
different contract at different time and what are the problem arise in the study of the topic
contract costing. The observation are regarding the starting point of the ascertainment of
the contract price till the calculation of the profit at the end of the accounting period.
Following are the various observation which are observe in the period of the study, they are
as follows,
(1) The contractor takes generally the private contract and not the government
contract.
(2) The contract cost is calculated according to the estimated cost of the contract and
the particular margin is added in the estimated contract price of the contract.
(3) There are also such formats of ascertainment of the contract where the contractor
uses the area for the calculation of the contract price i.e. the contractor measures
the area of the contractee’s construction and then uses his area wise contract price
according to his experience or market rate.
(4) The allocation of the cost in the contract costing is very difficult. So the contractor
uses the contractor uses the method of absorption of the expenses by the contract
to have the allocation of the cost. The costs are allocated in the contract costing as
per the usefulness of that expense according to the contract.
(5) There are some costs which cannot be allocated directly to the contract, so it is very
difficult to find contract cost. So, in the contract costing the methods of
apportionment are used to apportion this cost according to the proportion or the
percentage of the use in the various contract.
(6) The apportionment of the profit of incomplete contract is the biggest and the most
competitive job in the contract costing. Because the contractor have to find the
profit of him for one accounting period to used it to submit it to the government for
the return.
The profit of the incomplete contract is finding according to the following formulas
used according to the condition followed by the formula. They are as follows,

(i) When the work done is less than 25% or 1/4 complete no profit is taken.
(ii) If the certified work is 1/4 or more than 1/4th but less than 1/2 of the contract price,
then 1/3rd of the notional profit as reduced to the percentage of cash received is
credited to profit and loss A/c. the balance sheet of the notional profit is credited to
reserve which is a part of work in progress.
Profit = 1/3 x notional profit x cash received/work certified
(iii) If the value of work certified is ½ or more than ½ of the contract value, then 2/3 rd of
the notional profit as reduced to the percentage of cash received to work certified is
credited to profit or loss A/c.
Profit = 2/3 x notional profit x cash received/work certified
(iv) When work certified is 100% or when the contract is complete, the entire profit is
credited to the profit and loss A/c.
(v) When incomplete contract A/c shows loss, the entire amount of loss is transferred
(debited) to profit/loss A/c. irrespective of the stage of completion.
 46

(vi) For the contracts which are almost complete :

In this case, the estimated profit is ascertained by deducting the aggregate of the
costs to date and additional expenditure to complete the contract from the contract
price. A portion of this estimated profit is credited to P/L A/c.
This portion may be calculated by adopting any one of the following formula:
a) Estimated profit x work certified/contract price
b) Estimated profit x work certified/contract price x cash received/work
certified OR
Estimated profit x cash received /contract price
c) Estimated profit x cost till date/estimated total cost
d) Estimated profit x cost till date/estimated total cost x cash received/work
certified
(7) The material used in the contract is debited in the contract A/c and the amount of
closing stock of material is credited to the contract A/c.
(8) The direct labour cost is directly charged to the contract A/c and the indirect labour
cost is charged on the some proportionate basis according to the convenience or
uses.
(9) The indirect expenses or the overheads includes the salaries of staff of office, stores
expenses. These overheads are charged to the contracts on some proportionate
basis of usefulness.
(10) The plant and machinery opening balance is debited to the contract A/c with the full
amount of the plant and contract A/c is credited with the closing amount of the
plant.
(11) The contractor normally uses to give 25% as the retention money. it means that the
contractee generally pay 25% of the work certified to the contractor.
(12) The work I progress in the contract is more because the work uncertified and the
retention money by the cotractee is more to make the contract los making in the
accounting year.
(13) The most important thing in the study is the contract A/c shown in the calculation is
not good because it does not show a stable position about the contract because the
contract is in progress and the very big amount is take back by the contractee as
retention money.
(14) The balance sheet of the contractor is not in good state of health.
(15) The person who is benefited in the contract is the contractee because he has very
many privileges in the contract. As he has huge amount back as the retention
money.
(16) The firm follows the DSR Rules Given by the Government from Time to Time.
 47

8.CONCluSIONS
AND SuGGESTIONS
 48

SuGGESTIONS
 49

After the study of the contract costing of the company, following are the suggestions which
are as follows,
(1) The company can use the method of having low retention money amount when
making a new account with the contractee to have less amount of retention money
with the contractee and to have the more generation of the fund or income for the
contractor to have more funds with him to complete a contract in well time.
(2) The company can used the new software to make them compatible in the market
and to be more competitive in the market. Because there are some software which
provide the useful information to the contractor about the contract where he is
lacking behind in the contract work.
(3) The company can use the different method of calculating the contract price by used
of new innovation and techniques formed by the national institute and the different
contractors for having the accuracy of finding the cost. There are also scientific
methods which can be used for the finding or the ascertainment of the contract
price.
(4) The company can used the different method of allocation of the expenses according
the base use to allocate the expenses. The company can use the different bases
according to their convenience to allocate the expenses incurred in the contract.
(5) The company can used the bases of proportion to apportion the expenses incurred
for the contract according to the need like cost of contract, the proportion of the
work certified, state of profit etc.
(6) The company can use the competitor’s rate to define their own rate. It is useful for
the company to be competitive in the market and to have its survival in the market
for longer period of time. The company can use the competitor’s price to decide
their own price.
(7) The company can follow the regulation given by the government of India to have to
be compliance with the format and procedure given by the government to be
followed in the India. It is helpful for the company to survive in the market for long
lasting period.
(8) The company can used the method of being cost consciousness in the contract to be
more competitive in the market for having a long time survival in the market.
(9) The company can try to make the low amount of work in progress to have to make
more amount of money in the hand to make it useful somewhere else in the
construction work or to make the full utilization of the money.
(10) The company can used the method of the optimum utilization of resources to have
the greater usefulness of each and every thing related to the contract.
 50

CONCluSIONS
 51

The following are the conclusions which are given to the company after the study.
They are as follows,
(1) The contract costing is a term related to the costing of the contract. It means it is
very much useful to the contractor for the purpose of finding out the cost of a
particular contract and what is the proportion of the profit he has earned by doing
the contract. It means the contract costing is very much useful from the side of the
contractor regarding the maintenance of the records for his accounting profit and
contract profit.
(2) The contract costing is also used for the contractee in the way of checking the
accuracy of the contract price charged by the contractor. If the contract price is
based on the cost plus certain amount of profit then the contractee can used the
contract costing maintained by the contractor for the purpose of checking of the cost
incurred by the contractor to give the amount of price after the calculation of the
cost incurred for the contract and certain amount of profit.
(3) The allocations of the cost incurred by the contractor to the different contracts are
directly allocated to the contracts for which they are incurred. It is the job of the
contractor to maintain the books of accounts to know which cost are incurred for
which purpose.
(4) The apportionment of the total cost which is used for the many contract by one cost
is to be apportioned to the different contracts according to the cost incurred for the
different contracts according to the cost incurred for them.
(5) The main and the most important problem which are to be focused in the contract
costing is apportionment of the profit in the incomplete contracts. The profits in the
incomplete contracts are apportioned on the basis of the work of the contract
completed by the contractor and certified by the architects.
(6) The whole study of the contract costing state that the contract costing is very useful
thing both for the contractor, contractee and to the whole society at large because
it gives clear and accurate information of the contract to the all parties.
(7) The contract conducted by the contractor is not beneficial for him for this accounting
period because he is suffering various losses due to this contract as the reason
behind that is the retention money.
(8) The contract conducted by the contractor will be beneficial for him in the next
accounting year as the contractor will connect full amount from the contractee and
he will be in good position of the huge profit.
(9) The main and basic problem in this contract is the retention money brought back by
the contractee in this contract.
(10) The other main issue for the contract to be made loss making is that there is a huge
amount of the work in progress in the contract.
(11) The firm follows the DSR given by the government from time to time in its practice.
 52

9.bIblIOGRApHy
 53

 www.icsi.edu
 www.icmai.in
 www.mhapwd.com
 Khan, M.Y., Jain, P.K., Cost Accounting (15thedition) Delhi, Tata McGraw-Hill,
2011.
 Jagtap, K.N., Zagade, Jare, Ghorpade, Cost and Works Accounting 2
(overheads and methods of costing) (5th edition) Pune, Success publication,
2013.
 Patkar,M.G.,Joshi,C.M.,Advanced Cost Accounting And Cost Systems(1st
edition)Kolhapur,Phadke publication,2003.
 54

10.
QuESTIONNAIRES
 55

(1) Which type of contract you normally do?

(a) Private contract (b) government contract

(2) Which method you used for calculating the contract price?
(a) Cost plus contracts (b) construction area based contracts

(3) How you deal with the material used in the contract?
(a) As direct material (b) As indirect material

(4) How you deal with the labour used in the contract?
(a) As direct labour (b) As indirect labour

(5) How you deal with the expenses related to the contract?
(a) As direct expenses (b) As indirect expenses

(6) Where you make the entry of the overheads in the contract account?
(a) Debit side (b) Credit side

(7) On what basis you make the apportionment of overheads in contract costing?
(a) On percentage of usefulness (b) On proportionate basis of contract

(8) Which depreciation method you used for treating the plant and machinery in
contract account?
(a) Written down value method (b) Full depreciation

(9) How you deal with the work in progress in the contract ?
(a) Debited in contract account (b) Credited in contract account

(10) How you deal with the profit on incomplete contract with respect to the
transfer of proportion of profit to balance sheet?
(a) Full transfer (b) Partial transfer

(11) Which methods of costing you used for treatment of the contractees
account?
(a) Memorandum A/c method (b) Advance A/c method

(12) How you deal with the defective work in the contract account?
(a) Credited in contract A/c (b)Debited in contract A/c
 56

(13) Which method of balance sheet you used for the preparation and
presentation purpose?
(a) Horizontal method (b) Vertical method

(14) How much percentage you normally accept the retention money in the
contract?
(a) 10% of work certified (b) 20% of work certified

(15) Do you use the retention money clause in the contract agreement?
(a) Yes (b) No

(16) What is the treatment of the sub-contract cost in the contract account?
(a) Debited In contract A/c (b) Credited in contract A/c

(17) Do You Follow the DSR Rules Given By the Government From Time to Time?
(a) Yes (b) No