Question
N Limited undertook a contract for Rs. 5,00,000 on 1st April 2020. On 31st March 2021 when the accounts were closed, the following details about
N Limited undertook a contract for Rs. 5,00,000 on 1st April 2020. On 31st March 2021 when the accounts were closed, the following details about the contract were gathered:
Materials purchased Wages paid 1, 00,000
General expenses 45,000
Plant purchased 10,000
Materials in hand 31.3.2021 50,000
Wages accrued 31.3.2021 5,000
Work certified 2, 00,000
Cash received 1, 50,000
Work uncertified 15,000
Depreciation of plant 5,000
The contract contained an escalation clause which read as In the event of increase(s) of prices of materials and rates of wages by more than 5% the contract price would be increased accordingly by 25% of the rise of the cost of materials and wages beyond 5% in each case. It was found that since the date of signing the agreement, the prices of materials and wage rates increased by 25%. The value of the work certified does not consider the effect of the above clause.
Prepare the contact account.
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