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Unit 11: Contract Costing

Notes
To Wages .... Material sold ...
Add : Outstanding wages .... .... Material at site/in hand .... ....
To Direct Expenses .... By plant :
To Indirect Expenses .... Returned to stores ....
To plant : Transferred to other ....
Cost of specific plant if .... contract
used in the contract plant sold ....
Depreciation of plant if .... plant at site/in hand .... ....
used in other contracts (the depreciated value
To Profit and loss account .... of plant, if used in the
contract)
(profit on sale of plant or
material)
.... By Profit and Loss Account:
To Costs of sub-contract Material lost, stolen or ....
To Cost of extra work done .... destroyed
To Profit and Loss account .... plant lost, stolen or ....
(if the contract is complete destroyed
balancing figure) Loss on sale of plant/ .... ....
Or material
To WIP account (if work .... By Contractee account ....
certified is less than 1/4 of (contract price in case
th
contract price – balancing of completed contract +
figure) extra work price)
Or Or
To Balance c/d (if work .... By WIp account :
certified is more than 1/4 Value of work certified ....
th
of contract price)
Cost of work uncertified .... ....
(in case of an incomplete
contract)
.... ....
To Profit and loss account .... By Balance b/d ....
(profit and loss credited at
the end of the year)
To WIP account (profit kept as ....
reserve)
.... ....
The preparation of contract account is the essence of contract costing. The contract account is
prepared by the contractor in his books. In addition to this account the contractor also prepares
contractee’s account.
!

Caution The only purpose of preparing a contract account is to know the profit or loss on
each contract executed.
Some of the important points in contract costing are now discussed in detail.
(i) Materials Cost: Materials required for the execution of contract in most of the cases are
ordered specifically and then used on the contract. The following entries are passed to
record the materials cost:

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