QUESTION FIVE

Sasumwa Construction limited has been awarded a contract to build a house. This is a contract

No 45 for the company and the contract price is Shs.2.65 million. At the end of the company's

financial year, the contract was 85% complete and hence regarded as being near completion. You

are also provided with the following information about the contract:

Particulars Shs.

Materials purchased and delivered 580,000

Materials issued from store 60,000

Materials returned to stores 9,000

Site expenses 300,000

Site wages 200,000

Plant sent to site 100,000

Architect's fees 30,000

Plant returned from site 10,000

Subcontractor's fees 105,000

Head Office overheads absorbed 60,000

Valuation at the year ending disclosed the following: Shs

Materials: 19,500

Plant on site 50,000

Work done but not yet certified 60,000

Additional information

a) The portion of the work which was completed during the year and certified by the architect

was assessed as representing 75% of the whole contract price. The contractee made

payments to this extent less 10% retention money.

b) The management of the company decided for the purpose of preparing the company's

annual accounts to make a provision of a third of the notional profit against the possibility

of defects and other contingencies arising later in respect of the work already certified

for payment.

Required:

- Prepare the contract account

- Compute the amount of profit or loss to be taken to the main profit and loss account of

the company.

- Compute the value of work in progress.