Cantilever Ltd was awarded a contract to build an office block in London and work commenced at the site on 1 May 2005.

During the period to 28 February 2006, the expenditure on the contract was as follows:

On 28 February 2006, the materials at the site amounted to £2,164 and there were amounts outstanding for wages £366 and direct expenses £49.

Cantilever Ltd has received on account the sum of £64,170 which represents the amount of Certificate No. 1 issued by the architects in respect of work completed to 28 February 2006, after deducting 10% retention money.
The following relevant information is also available:

(a) the plant and machinery has an effective life of five years, with no residual value; and

(b) the company only takes credit for two-thirds of the profit on work certified.

Required:

(a) prepare a contract account for the period to 28 February 2006; and 

(b) show your calculation of the profit to be taken to profit and loss in respect of the work covered by Certificate No 1.

Transcribed Image Text:

Materials issued from stores Materials purchased Direct expenses Wages 9,411 28,070 6,149 18,493 Charge made by the company for administration expenses 2,146 Plant and machinery purchased on 1 May 2005, for use at site 12,180