Question 4

Marondela Limited is building an extension to a local factory. The agreed contract price is K 300,000. The contract commenced on 1 March year 2 and is scheduled for completion on 30 June year 3. Marondela Limiteds financial year ends on 31 December.

The following details are available concerning the factory contract as at 31 December year 2.

K 000

Materials sent to site from central stores 15

Materials delivered to site directly from suppliers 70

Plant delivered to site (net book value) 40

Direct wages paid 85

Direct site expenses paid 38

Head office charges 12

Material returned from site to central stores 6

Netbook value of plant on site, 31 December year 2 32

Materials on-site, 31 December year 2 4

Direct wages owing as at 31 December year 2 3

Cash received from customer 207

Estimated cost to complete the contract 119

Required

Prepare the contract account for the period ended 31^st December year 2, and show the amount to be included in Marondela Limiteds income statement in respect of the contract for that period.

(12 marks)

Describe the double entry for the following contract cost items

Depreciation on owned plant and equipment

Material sent to the site

Head office charges

Cash received from the customer

(8 marks)

(Total 20 marks)