Loyal Construction plc commenced a new long-term contract on 1 April 20X1. At the financial year end, 31 March 20X2, the following details are available.

Additional information available:
(i ) Direct labour accrued as at 31 March 20X2 amounted to £19,200.
(ii ) The plant purchased on 1 April 20X1 is estimated to last three years from the date of purchase, with a residual value of £4,000. The company uses the straight line method of depreciation.
(iii ) The payment received from the customer represents payment for all work certified by the architect, less a 10% retention.
(iv) The company policy is to charge head office expenses to the Contract Account each year at a rate of 8% of the value of work certified by the architect for the year.
(v) The attributable profit formula used by the company is:

Required:

(a) The Contract Account for the year ended 31 March 20X2, showing all appropriate balances brought down as at 1 April 20X2. (21 marks)

(b) The value of the work in progress as at 31 March 20X2. (2 marks)

(c) Briefly explain the purpose of the 10% retention in note (iii ). (3 marks)

(d) (i ) State and briefly explain the accounting concept involved in the calculation of profit to be credited to the accounts for the year ended 31 March 20X2. (3 marks)
(ii ) In the event of a loss being made, how would this be dealt with in the accounts

Transcribed Image Text:

Plant purchased and delivered to site on 1 April 20X1 Materials purchased to site Materials returned to suppliers Materials on site as at 31 March 20X2 not yet used Direct labour paid Plant hire paid Paid to subcontractors Architect's fees paid Cost of work not yet certified Payment received from customer 94,000 968,000 7,500 15,300 471,000 52,600 102,300 31,700 136,000 1,800,000