Contract Accounts (Cost of work uncertified)

Solved Past papers >>> Contract Accounts >>> Question number O-7

Consideration of profit on incomplete contracts

There are no hard and fast rules regarding calculation of the figures for profit to be taken to the credit side of Profit and Loss Account. However, the following rules may be followed:

a) Profit should be considered in respect of work certified only, work uncertified should always be valued at cost.

b) If the amount of work certified is less than ¼ of the contract price >>> NO PROFIT should be taken into consideration.

c) If work completed is ¼ or more, but less than ½ of the contract price, then 1/3 of the profit disclosed (as reduced by the percentage of cash received from the contractee) should be taken to the profit & loss a/c. The balance should be treated as a Reserve.

d) If work certified is ½ or more of the contract price, then 2/3 of the profit disclosed, as reduced by the percentage of cash received from the contractee, should be taken to the Profit & Loss a/c. The balance should be treated as Reserve. Profit transferred to P & L a/c

= Estimated profit x

e) In case the contract is very much near completion,

Profit to be taken to the credit of Profit & loss a/c

= Total estimated profit x x

Ratios

Mug up all the formulas.

Material Charged out to site

AssalamUalaikum!

In Contract Accounts, Material charged out to site means Material sent to site and utilized at site.

It is our expense and should be transferred to the debit side of the Contract Account.

Hope you got the answer... InsyaAllaah...

AssalamUalaikum...

Treatment of Bonus in Final Accounts

WaALAIKUMUSSALAM WA REHMATULLAAH...

First of all, sorry for late reply. I's in Lahore on an official meeting.

Well, you asked about BONUS. Let me explain it in detail>>>

1....

BONUS FUNDS, BONUS TO SHAREHOLDERS(IN CASH FORM), or just the word BONUS >>> If anyone of these words appears in questions, IT SHOULD BE SETTLED THROUGH Profit & Loss Appropriation Account...

BONUS TO EMPLOYEES >>> It should be settled through Profit and Loss Account... >>> because Bonus to employees is considered as expense (just like salary).....so it is expensed out through Profit and Loss Account...

Where as BONUS FUND, BONUS TO SHAREHOLDERS are considered as APPROPRIATION / DISTRIBUTION OF PROFITS >>>So it is settled through Profit and Loss Appropriation Account...

3...

If only the word BONUS is mentioned>>> It should be treated as>>> Bonus to shareholders <<< As it is an APPROPRIATION OF PROFITS >>> So Profit and Loss Appropriation Account should be used...

Hope you got the exact information....INSYA ALLAAH...:-)

Do all the best...

AssalamUalaikum....:-)