- 20 Marks
MI – Mar-Jul 2020 – L1 – SB – Q1 – Costing Methods
Prepare a contract account, statement of financial position, and calculate the expected profit on a construction project.
Question
Piano Construction Company Limited has been in operation for many years. The following relates to Contract AO50 on the Akure-Owo site as at 31st Dec., 2017.
| Item | Amount (N’000) |
|---|---|
| Wages | 42,156 |
| Materials delivered directly to site | 54,203 |
| Materials from main stores | 657 |
| Materials transferred to Akure-Ibadan Site | 1,590 |
| Plant purchased at cost | 12,500 |
| Plant transferred to Akure-Owo Site | 5,250 |
| Sub-contractor’s charges | 19,580 |
| Site expenses | 5,086 |
| Materials on site at 31st Dec. | 18,300 |
| Plant on site at 31st Dec. | 14,750 |
| Accrued wages at 31st Dec. | 921 |
| Prepayments at 31st Dec. | 507 |
| Value of work certified | 117,500 |
| Cost of work certified | 102,300 |
| Progress payments received from client | 115,000 |
Head office charges are 10% of wages.
The contract value is N550,000,000 and it is anticipated that there will be further costs of N375,000,000 (including rectification claims). As this is the 1st year of the contract, no profit has been taken previously.
Required:
- Prepare the Contract Account for project AO50 for the year ended 31st December, 2017. (15 Marks)
- Prepare the Statement of financial position extracts as at 31st December, 2017. (3 Marks)
- What is the expected profit on the contract on completion? (2 Marks)
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