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Contract Costing

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Published in: Commerce Subjects | Cost Accounting and Financial Management
13,253 Views

Explains the Contract Costing Technique of Cost Accounting And Also Explains the Various Terms and Conditions Associated With Contracts.

Dr.Amit G / Delhi

22 years of teaching experience

Qualification: Ph.D ( - 2012), M.Com ( - 2002), MBA/PGDM ( - 2010), B.Com ( - 2000)

Teaches: Accountancy, Economics, Costing, Financial Management, Statistics, BBA Subjects, Management Subjects

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  1. CONTRACT COSTING 1/10/2018 Dr. Amit Gupta 1
  2. Contract Costing defined: ' Method where each contract is treated as cost unit and Profit & Loss is ascertained separately, ' Employed by undertakings engaged in building, road & bridge construction, ship building, etc, 1/10/2018 Dr. Amit Gupta 2
  3. Features of Contract Costing: ' Large in size and takes more than one year for completion ' Involves two parties viz, Contractor and Contractee Contract executed for a price termed as Contract Price ' Each contract is a cost unit; expenses get separately recorded and profit too is separately ascertained ' Expenses are chargeable directly to contract account ' Specialist sub-contracts may be employed 1/10/2018 Dr. Amit Gupta Contd. 3
  4. Plant may be purchased or hired especially for the contract ' Employed by undertakings engaged in building, road & bridge construction, ship building, etc, ' Work carried out at site and not in factory premises Payments made based on stages of completion and depends on Architects Certificate ' May contain Escalation Clause and Penalty Clause 1/10/2018 Dr. Amit Gupta 4
  5. Concepts relating to Contract Accounts: Contractor: Person who undertakes the task of doing the job Contractee: Person on whose behalf the task is being done Contract Price: Value for which the contract is undertaken Work certified: Part of the total contract price which is has been completed and approved by the architect Dr. Amit Gupta 1/10/2018 5
  6. Concepts relating Uncertified Work: Part of the task done but not approved by the architect of the Contractee Cash Paid: Part of the work certified that is paid by the Contractee Retention Money: Part of the work certified that is held back by the Contractee 1/10/2018 Dr. Amit Gupta 6
  7. Profit on Incomplete Contracts: (a) When work certified is less than 25% complete No profit or Loss be accounted for (b) When work certified is 25 % or more but less than Notional Profit X 1/3 X Cash received Work Certified 1/10/2018 Dr. Amit Gupta 7
  8. Profit on Incomplete Contracts: (c) When work certified is the 50% or more but less than 90% Notional Profit X 2/3 X Cash received Work Certified (d) When the contractor estimates the profit: Estimated Profit X Work Certified 1/10/2018 Contract Price Dr. Amit Gupta 8

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