Barley Construction plc are the contractors for the building of a replacement high technology factory for a multinational company. The total value of the contract is £8,500,000 over a three-year period. The contract commenced on 1 March 20X0, and the following details are available as at 28 February 20X1.

Barley Construction plc have received payment of £1,555,500 which represents work certified as completed by the architects as at 28 February 20X1, less a 15 per cent retention.
The company takes credit for two-thirds of the profit on work certified (less retention).
The plant is estimated to last the life of the contract, and no residual value is expected.
Required:
A The contract account for the year ended 28 February 20X1, together with a calculation of the value of work in progress as at that date. (15 marks)
B Briefly explain the accounting concept involved in the calculation of profit to be credited to the accounts for the year ended 28 February 20X1.
In the event of a loss being made, how would this be dealt with? (3 marks)
C It is intended that the new factory be fully automated with the consequence of a number of redundancies amongst existing employees. From the social responsibility viewpoint, what factors should the company consider, and what assistance could it give to employees who will eventually be made redundant at the site (the majority of whom it is anticipated will be taking early retirement)?

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Materials purchased Material transfers in from another site Material transfers out to another site Materials on site, not yet used Direct labour Direct labour accrued Indirect labour 765,000 23,000 8,000 38,000 448,000 19,500 63,000 Indirect labour accrued 2,400 Plant delivered to site 120,000 Hire of equipment 57,000 Hire charges owing 3,200 Head office charges 48,000 Cost of work not yet certified 86,000