ILLUSTRATION 6 A contractor secured a contract to supply and erect machinery for the sum of $ 7,50,000. He was to receive payments on account from time to time equal to 90% of the certified value of the work done. He commenced work on 1st January, 2017 and incurred the following expenditure during the year- Plant and Tools $ 70,000 ; Machinery and Stores $ 2,00,000 ; Wages $ 1,50,000; Sundry Expenses $ 30,000 and Establishment Charges $ 40,000. A part of machinery costing $ 20,000 was unsuited to the contract and immediately sold at a profit of $5,000. The value of Plant and Tools on 31st December, 2017 was $ 40,000 and the value of Machinery and Stores then in hand $ 30,000. 0 By 31st January, 2018 he had received payments on account amounting to $ 4,38,750 being 90% of the certified value of work done upto 31st Dec. 2017. In order to calculate the profit made on the contract upto 31st Dec., 2017 the contractor estimated the further expenditure that would be incurred in completing the contract and took to the credit of Profit and Loss A/c for the year that proportion of the estimated net profit to be realised on contract which the certified value of the work done bore to the contract price. He estimated : (a) That the contract would be completed in a further period of six months; (b) that plant and Tools would have a residual value of $10,000 upon the completion of the contract; (c) That the cost of Machinery and Stores required in addition to those in stock on 31st December, 2017 would be $ 1,00,000 and that further Sundry Expenses of $ 20,000 would be incurred; (d) That the wages on the contract for 6 months to 30th June, 2018 would amount to 3 80,000; le) that the establishment would cost the same sum per month as in the previous year; (f) that 24% of the total cost of the contract (excluding this percentage) should be provided for Contingencies. Prepare Contract Account for the year ended 31st December, 2017 and show your calculations Profit and Loss A/c for the year