bcom 2nd year contract and job costing
Meaning & Definition of Contract Account
The method of keeping accounts (by contractors) of the work done on contract is called ‘Contract Cost Method’ ie the accounts kept by the contractors in relation to finding the cost and profit and loss of the contract. The accounting procedure is known as ‘contract cost method’. .. “The contract or term-outlay method is adopted by those businesses; Who perform fixed contracts, such as building-builders and contractors. ” bcom 2nd year contract and job costing
Walter W. Big 0 – “This method of costing is adopted in businesses where creative contracts are taken and there is a desire to know the true cost of each contract not only at the completion of the contract but at different stages of work completion.” .
– The time of complete execution of the JR Bottleboy contract is fixed. Hence, contract costing method can also be called as ‘Terminal Costing’. If the contractor is unable to complete the contract work within the stipulated time, then he is statutorily liable as per the written contract to the contractor. bcom 2nd year contract and job costing notes
The contractor records all direct and indirect expenses incurred in connection with the contract in the debit of the contract account while the material returned to the stores from the contract site, material transferred to other contracts, the material remaining at the contract site and the value of the plant and certified work and Represents the cost of the uncertified work in the credit to the contract account. Finally, the contract uses both sides of the account to find the profit or loss on the contract. If the sum of the credit side of the contract account is greater then the difference is considered as profit while the difference is the apparent difference when the sum of the debit side is greater.
Contract Account Preparation
(Preparation of Contract Accounts)
The contract account is found in two parties – the name side and the deposit side. The difference between these two parties represents the profit or loss on the contract. The details of the main items falling on these two sides are as follows.
Name of Contract Account
(Defict side of Contract Account)
On every contract, some laborers, masons, etc. are employed to complete the contract work. The contract account related to the amount of remuneration paid to them is debited. If the laborer works on the same contract all the time, then the wage is determined from the time card itself, but for the workers who work on more than one contract, using the time card and the subtitle-card, the wages- By making a brief The wages of work done on different contracts are determined. The wages which have become due on the date of creation of the contract account, but which have not been paid, are shown in the debit of the contract account as Unpaid or Outstanding or Accrued wages. Another option could be to write down the amount of unpaid or earned wages with the wages paid.
Other Direct Expenses –
Other expenses directly incurred on the contract are also written on the debit side of the contract account. If some direct expenses are unpaid (outstanding) then at the end of the year they are debited to the contract account along with the expenses paid.
Indirect Expenses –
Some expenses are of such nature that are made jointly on many contracts and it is not possible to divide them on different contracts, for example, salary of manager, engineer, supervisor etc., expenses related to arrangement of stores, Administration and office related expenses etc. Such expenses can be divided for different contracts on any of the following reasonable grounds-
(a) On the basis of direct labor,
(b) On the basis of direct material,
(c) Based on the original cost,
(d) Labor Hour Rate
Plant and Machinery
Plants and machines are used in almost every contract. Therefore, the amount of depreciation on these should be written on the debit of the contract account. The following points should be kept in mind while accounting for depreciation.
(I) If the machine is of high value, its entire amount is written on the debit side of the contract account and when the contract account is closed, the revalued amount of the machine is written on the credit side.
(II) If the machine has gone on hire, its fare will be written in the name side only.
(III) When the machine is used on many contracts for a short period of time, only the loss of the contract account is debited. bcom 2nd year contract and job costing
(IV) Even when the machine is of lesser value, only the amount of depreciation is debited to the contract account. Calculation of Depriciation While removing depreciation on plant and machine, it should be noted that it is written per year along with the percentage of depreciation. If the percentage of degradation per annum is then the amount of depreciation is calculated taking into account the time of use of the plant and the machine and if it is not written every year with the percentage of depreciation, then the time of use of the plant and machine is not taken into account. go.
Sub-Contract Cost –
Sometimes the contractor gives a contract to complete a part of his contract to another contractor. For example, a contractor took a contract to build a picture hall, and after taking the contract, he gave the contract for digging the foundation to ‘X’, the woodwork contract to ‘Y’ and the electrical work contract to Z ‘. The payment made by the main contractor to these three contractors will be a part of the total contract cost. Thus when the contractor completes some part of his contract work to others, it is called sub-contract and the amount paid for sub-contract is called sub-contract cost which is written in the debit of the contract account.
Costs of extra work done –
Sometimes, in addition to the original contract, the contractor gets some additional work done by the contractor, for which he also pays the fixed amount separately from the contractor.
Deposit account side
(Credit side of Contract Account)
(1) Work Uncertified –
The part of the work done by the contractor which has not been certified, is called “unproven work”. Unproven work = Work done-certified work. The cost of the uncertified work is also shown on the deposit side of the contract account.
(2) Plant and Machinery in Hand
– If a plant and machinery is written to the contract account with its full value at the time of bringing the contract, then after reducing the justified depreciation at the time of removing the plant and machine from the contract, it is shown in the deposit side of the contract account.
(3) Transfer of Materials or Plant to Other Contracts –
When unnecessary material or plant is transferred to another contract, the value of the material or plant transferred in this way is transferred to the credit of the contract account ‘By Material or Plant transferred to Contract No….’ It is written.
(4) Materials or Plant Sold sold –
If some of the material or plant is sold out of the material or plant available at the workplace, then the amount by which it is sold. It is written in the credit of the contract account by ‘By Sale of Material or Plant’. If there is some profit from the sale, he will write ‘To P & LA / c’ in the debit of the contract account and if there is a loss, he will write ‘By P & LA / c’ in the credit of the contract account.
(5) Materials or Plant Returned –
If any material or plant is returned from the contract site on completion of the contract or in the middle of the financial year, the value of the material or plant thus returned is written to the credit of the contract account. In this regard, it is necessary to pay attention to the following points.
(i) If the material is returned to the supplier, then ‘By Material returned to Supplier’ will be written in the credit of the contract account, ie the supplier’s account is debited and the contract account is credited.
(ii) If the material is returned to the stores, then in the codet of the contract account, we will write ‘By Material returned to Stores’ ie Debit Store Control Debit and Contract Account is credited. ..
(iii) If some part of the plant issued during the financial year is returned to the stores, the contract will be written to the credit of the account by By Plant returned to Store.
(6) Material Lost, Destroyed or Theft
A contract account is deposited on the value of goods lost or destroyed on the contract because lost, destroyed or stolen goods cannot become a part of the cost of the contract.
(7) Work Certified
That part of the work completed by the contractor, which is passed by the engineer and craftsman of the contractor, is called certified work. The value of this certified work is written on the deposit side of the contract account .
If the contract work has not been completed by the date of preparation of the contract account, it is called an incomplete contract .