The financial statements of Albar LLC are made up to 31 March in each year. Work on a certain contract started on 1 July 2013 and completed on 31 January 2015. The total contract price was AED360,000, but a penalty of AED5,000 was suffered for failure to complete by 31 December 2014.
The following is a summary of receipts and payments relating to the contract:
Year to 31 March
2014 2015
Payments:
Materials 51,000 67,000
Wages 57,000 91,000
Direct expenses 4,000 6,000
Purchases of plant on 1 July 2013 24,000 –
Receipts:
Contract price (less penalty) 108,000 255,000
Sale, on 31 January 2015, of all plant purchased on 1 July 2013 – 6,000
The amount received from the customer in 2014 represented the contract price of all work certified in that financial year less 10 per cent retention money.
When the financial statements to 31 March 2014 were prepared, it was estimated that the contract would be completed on 31 December 2014, and that the market value of the plant would be AED6,000 on that date. It was estimated that further expenditure on the contract would be AED161,000.
For the purposes of the financial statements, depreciation of plant is calculated, in the case of uncompleted contracts, by reference to the expected market value of the plant on the date when the contract is expected to be completed, and is allocated between accounting periods by the straight line method.
Credit is taken, in the financial statements, for such a part of the estimated total profit, on each uncompleted contract, as corresponds to the proportion between the contract price of the work certified and the total contract price.
Required:
Prepare a summary of the account for this contract, showing the amounts transferred to the profit and loss account at 31 March 2014 and 31 March 2015.