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CONTRACT COSTING

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WHAT IS A CONTRACT??

A contract is nothing but a big job having following features:

1. A high price of thousands or lakhs of rupees. 2. The period taken for completion may be many months or even years.
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3. The actual work may be done at a site away from the main office of the contractor.

CONTRACT COSTING
v

Contract costing is the method of costing used to find out the cost and profit of each contract for a given period. It applies where the work is undertaken to customers special requirement and order which is of a longer duration.

Contract costing enables the contractor to ascertain and control the cost of each job or contract. Contract costing is applicable when the work is usually of constructional nature for e.g. construction of road, building, dams, erection of factories, bridges, and other civil engineering 5/5/12 works, the

CONTRACTOR:

Meanings Of Some Important Terms

Contractor is the person who undertakes the contract (job).

CONTRACTEE:

Contractee is the person for whom contract job is undertaken.

CONTRACT PRICE:

Contract price is the amount agreed to be paid by the contractee to the contractor as consideration for the job done. The contract price may be payable in lump sum when work is completed. Alternatively, the amount may be paid in installments as the work progresses. The amount of each installment would depend on the amount of work done and 5/5/12 certified by the architects.

WORK CERTIFIED
In the case of large contract, normally the contractor receives on account payment against the value of the work completed at specific intervals. Work certified is that part of work completed for which the contractor gets the certificate of the architect. In the case of large contract, the contractor would expect the contractee to make a payments of the contract price in installments. He therefore, sends a part bill to the contractee as and when a portion of the work is completed. An architect, appoint in terms of the contract, between the contractor and contractee, scrutinizes the part bill, he certifies the work 5/5/12 for the purpose of payment. done

WORK UNCERTIFIED:
Work uncertified is that cost of work done which relates to the period between the date of work certified and accounting year ending.

At the end of the accounting period, not all work done would have been certified by the architect.

This would be so because the bill itself would not have been submitted by the contractor.

Suppose the accounting period ends on 31st December. The contractor would have submitted his bills which would 5/5/12 probably include all expenses incurred by him up to 10th

RETENTION MONEY:
Retention money is that part of work certified which is retained by the contractee so as to safeguard his interest in case of future defects in the work done. The contractee does not pay full amount of the value of work certified. He keeps certain amount till contract is complete. This amount so kept is by contractee is called retention money.

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Features of contract costing

Work is carried out at the contractees place.

Certificate of work done has to be certified by architect or engineer.

Contracts are undertaken to special requirements of the customers.

Duration of Contracts are relatively for a longer period.

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PROCEDURE FOR CONTRACT COSTING

A separate contract account is maintained for each contract. Accounting for each item of cost is shown below :

Material : Value of Material sent to site is debited to contract account.

Materials if returned to stores or lying at site unused or materials transfers to another contract site is credited to the contract account.

Labour : Total wages including outstanding wages are debited to the contract account. Plant : the hire charges of plant are charged to contract account.

Method 1 -Value of the plant sent to site is to be debited . The value of plant returned to the site is credited to the contract 5/5/12 account.

CONTD

Work Certified : The work that has been approved till date is called Work Certified. This is credited to the contract account. Work Uncertified : The work which has not been approved so far by the contractees architect or the surveyor is termed as Work Uncertified.

Work Uncertified

Total Cost to date less : Cost of Work Certified Materials on hand

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Plant at site

THANK YOU!
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