Page 227 - DCOM202_COST_ACCOUNTING_I

Unit 11: Contract Costing

™ z Generally the contract price is widely increased. Notes
™ z The contractee has to pay more for the efficiency of the contractor as the contractor
has no incentive to reduce costs.
(xiii) Work Certified and Work Uncertified: Work certified represents that portion of the contract
that has been duly approved by the architect of the contractee. This is denoted in terms of
money value in contract account and appears on the credit side of the contract account.
Work uncertified refers to that portion of work completed by the contractor by disapproved
by the architect on the ground that it has not reached a stipulated stage. The value of work
uncertified also appears on the credit side of the contract account.
(xiv) Work-in-Progress: The work-in-progress represents the value of work which is in progress
as a contract and requires further completion. The value of WIp appears on the asset side
of the balance sheet and is ascertained as under:
Amount of work certified ......................

Amount of work uncertified ...................... ......................
_________
Less: Profit transferred to WIP ......................
Less: Cash received ...................... ......................

_________ _________
Amount of Work-in-Progress ......................
(xv) Contractee’s Account: The contractee’s account is prepared by the contractor in his books.
When the various installments of contract price is received from the contractee, the
following entry is passed:
Cash a/c Dr.
To Contractee’s a/c

When the contract is fully completed the following entry is passed:
Contractee’s a/c Dr.
To Contract a/c
Amount of work certified ......................
Amount of work uncertified ...................... ......................
_________

Less: Profit transferred to WIP ......................
Less: Cash received ...................... ......................
_________ _________
Amount of Work-in-Progress ......................

Thus, it is clear that the contractee’s account will show a debit balance indicating the
amount due from him to the contractor till it is paid fully.
(xvi) Loss of Completed Contract and Incomplete Contract: Every loss on contract, whether
completed or incomplete, should be transferred to profit and loss account in full. This
treatment is justified on the basis of prudence concept. While accounting the loss on
contract, stage of completion of contract work is not considered. In case of incomplete

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