ACC 202 CA6 Contract Accounting Question One Alloy Constructions Plc have just signed a five year contract to construct a 10,000 kilometers road for the federal government of Nigeria. The CEO is undecided on the method to use to recognise profit and has solicited your advice as a financial consultant. Prepare a memo to him in line with the following outline: i. Identify the methods that can be used to recognise profit on a contract, mentioning their features ii. Explain the effect that the use of completed contract method on a long term project would have on the performance of a company. iii. Discuss the considerations that underlay the decisions on recognition of profit in a long term contract. Question Two In accounting for long term contract, the treatment of profit or loss on the contract is very important. Required: i. Discuss the principles underlying the two options available for treatment of profit on a contract ii. Clearly explain the principle underlying the treatment of foreseeable loss on a contract Question Three Lambe CONSTRUCTION Coy LTD. has undertaken the construction of a multi-storey building for a contract sum of N25million. The retention money agreed is 20% and the contractee is to make payment for 80% of the work certified by the Architect. The following are the details as shown in the books on 31 March 2019: N Materials sent directly to site 8,400,000 Materials issued from stores 2,124,000 Labour on site 8,100,000 Hire and use of plant 242,000 Materials destroyed at site (cost) 100,000 Direct expenses 460,000 General expenses allocated to contract 742,000 Materials sold at site at a profit of 20% on selling price 400,000 Materials at hand on 31 March 2019 126,000 1 Wages accrued on 31 March 2019 Direct expenses accrued on 31 March 2019 Work not yet certified at cost Work certified by the Architect Cash received from contractee 156,000 32,000 330,000 22,000,000 17,600,000 You are required to prepare: i. Contract Account ii. Contractee's Account "Always show your workings