contract costing for bba students.

1. 1
CONTRACT COSTING

2. 2
• Method where each contract is treated as cost unit
and Profit & Loss is ascertained separately.
Contract Costing defined:
• Employed by undertakings engaged in building,
road & bridge construction, ship building, etc.

3. 3
Features of Contract Costing:
• Large in size and takes more than one year for
completion
• 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
Contd.
• Involves two parties viz. Contractor and Contractee
• Contract executed for a price termed as Contract Price

4. 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

5. 5
Concepts relating to Contract Accounts:
Contractor:
Contractee:
Contract Price:
Work certified:
Part of the total contract price which is has been
completed and approved by the architect
Value for which the contract is undertaken
Person on whose behalf the task is being done
Person who undertakes the task of doing the job

6. 6
Concepts relating….
Uncertified Work:
Cash Paid:
Retention Money:
Part of the work certified that is held back by the
Contractee
Part of the work certified that is paid by the Contractee
Part of the task done but not approved by the
architect of the Contractee

7. 7
Notional Profit:
Difference between the value of work certified and
uncertified less the cost of work done to date
Estimated Profit:
Contract Price
Less Total cost already incurred
Excess of the contract price over the estimated total
cost of the contract
Less Estimated additional cost required to complete
the contract
Value of work certified
Add Value of work not yet certified
Less Cost of work to date

8. 8
Profit on Incomplete Contracts:
No profit or Loss be accounted for
Notional Profit X 1/3 X Cash received
--------------------
Work Certified
(b) When work certified is 25 % or more but less than
50%
(a) When work certified is less than 25% complete

9. 9
Profit on Incomplete Contracts:
Notional Profit X 2/3 X Cash received
--------------------
Work Certified
(d) When the contractor estimates the profit:
(c) When work certified is the 50% or more but less
than 90%
Estimated Profit X Work Certified
---------------------
Contract Price

10. 9
Profit on Incomplete Contracts:
Notional Profit X 2/3 X Cash received
--------------------
Work Certified
(d) When the contractor estimates the profit:
(c) When work certified is the 50% or more but less
than 90%
Estimated Profit X Work Certified
---------------------
Contract Price