During its financial year ended 30 June 20x7 Beavers Ltd, an engineering company, has worked on several contracts. Information relating to one of them is given below.
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Contract X201
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Date Commenced
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1 July 20X6
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Estimated Completion Date
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30 Sept 20X7
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Contract Price
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RO 240,000
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Proportion of work certified as satisfactorily completed (and invoiced) up to June 20X7
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RO 180,000
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Amount received from contractee
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RO 150,000
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Costs up to 30 June 20X7
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Wages
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RO 91,000
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Material sent to site
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RO 36,000
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Other contract costs
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RO 18,000
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Proportion of head office costs
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RO 6,000
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Plant and equipment transferred to the site (at book value on 1 July 20X6)
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RO 9,000
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The plant and equipment is expected to have a book value of about RO 1,000 when the contract is completed.
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Stock of materials at site on 30 June 20X7
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RO 3,000
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Expected additional costs to complete the contract
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Wages
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RO 10,000
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Materials (including stock at 30 June 20X7)
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RO 12,000
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Other (including head office costs)
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RO 8,000
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Company policy is to recognize profit on contracts as follows
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Profit to be recognized = {Value of work certified / Total contract value} x Estimated total
Contract Profit
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a) Prepare the Contract account.
b) The profit to be recognized on the Contract to date.
c) The amount to be shown on the company balance sheet as at 30 june 20X7 in respect on Contract X201 are:
a. Stocks
b. Debtors