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19. Shirkashi Construction Company Limited commenced construction for a building on 01/01/2023 for a contract price of Rs 600000. The following is the trial balance of the company as on 31/12/2023:

| Particulars | Debit | Credit |
| -------------------- | ----- | ------ |
| Share Capital | - | 80000 |
| Contractee's A/C | - | 24000 |
| Cash at bank | 60000 | - |
| Charged to the Contract |
| Materials | 60000 | |
| Plant | 40000 | |
| Wages | 75000 | |
| Other expenses | 25000 | |
| Supervisor's Salary | 60000 | |
| Total | 320000| 320000 |

The contractee pays 80% of the value of work certified.

Additional information:

a. Wages outstanding

b. Depreciate Plant at 20% p.a.

c. Plant costing by 5000 was returned to store on 31/12/2023 and Plant of the original cost of Rs 5000 was destroyed by accident at the beginning of the contract.

d. Materials at site on 31/12/2023 was valued at Rs 11,000.

e. Cost of work done but not yet certified amounted Rs 19000.

f. Prepare contract account and also give the balance sheet of the company as on 31/12/2023.

Answer :

To address the question, let's start by preparing the Contract Account for Shirkashi Construction Company Limited.

1. Contract Account for the year ending 31/12/2023:

[tex]\begin{align*}
\text{Particulars} & \text{Rs} & \ \ \ \text{Particulars} & \text{Rs} \\
\hline
\text{To Materials} & 60,000 & \ \ \ \text{By Materials at Site} & 11,000 \\
\text{To Wages} & 75,000 & \ \ \ \text{To Closing Stock (Certified)} & 240,000 \\
\text{To Other Expenses} & 25,000 & \ \ \ \text{By Material Returned} & 5,000 \\
\text{To Supervisor's Salary} & 60,000 & \ \ \ \text{By Plant Destroyed} & 5,000 \\
\text{To Plant} & 35,000 & \ \ \ \text{By Plant Depreciation (20\% of 40,000)} & 8,000 \\
\text{To Cost of Work Done but Not Certified} & 19,000 & \ \ \ \text{To Contractee's A/C} & 192,000 \\
\hline
\text{Total} & 274,000 & \ \ \ \text{Total} & 269,000 \\
\end{align*}[/tex]

Notes for Contract Account:

  • Depreciation on Plant is calculated at 20% of Rs 40,000, which is Rs 8,000.
  • Only 80% of the certified work's value is paid by the contractee. Therefore, certified work is [tex]\frac{240,000}{0.8} = 300,000[/tex].

2. Balance Sheet as of 31/12/2023:

Assets:

  • Current Assets:
    • Cash at Bank: Rs 60,000
    • Materials at Site: Rs 11,000
  • Non-Current Assets:
    • Plant: Rs 27,000 (after depreciation of Rs 8,000 and reduction for returned/damaged)

Liabilities:

  • Share Capital: Rs 80,000
  • Contractee's A/C: Rs 240,000 (from the work paid)
  • Outstanding Wages: Not specified but usually part of the liabilities if any exist

Equity and Liabilities:
The remaining balances would normally be adjusted for profits and outstanding expenses.

In conclusion, the contract account shows the expenses incurred and the revenue recognized, while the balance sheet reflects the company's financial position.

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Rewritten by : Barada