Jigantic Ltd is a building company engaged in the construction of hospitals and other major public buildings; most of the contracts undertaken extend over a three or four year period.

Shown below are the expenses incurred for the year ended 31 May 1981.

together with other operating details. for three of the contracts in which the company is currently engaged.

The agreed retention rate is 10% of the value of work certified by the contractees' architects.
Contract C is nearing completion and the site manager estimates that costs , additional to those tabulated above, of £425,000 will be incurred in order to complete the contract. He also considers that the plant and equipment on site will be worthless by the time the contract is complete.
The nature of the work undertaken by Jigantic Ltd is such that it may be regarded as reasonable for the company to include in its annual accounts a prudent estimate for profit attributable to that part of the work on each contract certified as complete at the end of each accounting year.
The opening stock of work in progress shown above includes an estimated profit of £1,150,000 for Contract C, but none for Contract B as, at the beginning of the year, work on this project had only recently commenced.
The directors of Jigantic Ltd propose to incorporate into the company's Profit and Loss Account for the year ended 31 May 1981, the following amounts of prof it/(Ioss) for each contract :

Required:

(a) Making whatever calculations you conside r necessary, carefully explain whether you agree with the proposed profit/(Ioss) figures for the above contracts. If you consider any of the proposed amounts are inappropriate suggest. with supporting explanations and calculations a more suitable figure.

(b) Show the relevant entries for each contract. incorporating any revised profit/(Ioss) figures. on the balance sheet of Jigantic Ltd as at 31 May 1981.

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Contract Contract Contract A B C 000 000 000 Contract price 4,000 10,200 12,000 Value of work certified by contractees' architects 2,350 7,500 11,000 Cash received from contractees 2,000 6,750 9,900 Work in progress at 1.6.1980 2,400 6,700 Costs incurred during the year: Materials 1,100 1,600 1,050 Labour 700 1,150 975 Other expenses, excluding depreciation 350 475 775 Plant and equipment: Written down value at 1.6.1980 300 800 700 Written down value at 30.5.1981 600 525 175 Purchases during the year 725 400 125 Cost of work not yet certified 75 1 800