hello students welcome you all back to the problems of contract costing already i have prepared the theory part of this contract costing if you have watched then you go uh you come to know what are the i mean techniques we have to apply in contract costing so now i'm going to start the problems on contract costing so the problems depend on the theoretical part without understanding the theory you cannot understand the problems so my suggestion to the viewers regular viewers please go back to the video of theory of contract costing watch carefully that video then only you can be able to understand the problems now before starting the problems i expect my viewers to have a hard copy of all the problems i have provided all the problems in the link under my description so go to the link get a copy of all the problems and then we can easily understand the problems of contract costing so first i am starting the short problems short problems on contract costing first short problem you see how much of profit if any would you allow to be considered in the following case see in contract costing the contract may not be completed at the end of the year some work is still to be completed so it is called work in progress so when the working progress is there we cannot ascertain the true profit the profit which we get in a contract account is not the correct profit some profit we have to carry over to the next year so we have to calculate the notional profit a part of the notion of profit will be transferred to pll account and the remaining part will be transferred to reserve so how much profit to be transferred to pll account it depends on what is the percentage of work completed percentage of work completed in the theory session i already explained you there are some rules given if the work is completed up to 25 no profit should be transferred to pl account if the work is completed over 25 percent but below 50 percent then one third one third of inertial profit into percentage of cash received that will be the amount transferred to peer leg if the work is completed over 50 then two third notional profit into two by three into percentage of cash received this is the profit to transfer to pl account now in our problem what is given contract cost to 2 lakh 28 product 80 000 contract cost to like 18 hours contract cost means the expenditure incurred on the contract the expenditure incurred on the contract is called contract cost then contract value the contract value means contract price the contract price file and then cash received 2 lakh 70 000 cash received is given two lakh seventy thousand work uncertified so uncertified work is given thirty thousand then deduction from bills by way of security ten percent deduction from bills by way of security 10 that means the contractee is withholding 10 percent as retention money and this 10 percent will be paid on the completion of the contract the contract is 90 of work certified will be paid by the contractee 10 person is without withholding so deduction from bill is 10 profit to be transferred to pl account is equal to the contract pays 90 percent of work certified because contract is holding 10 percent contract is retaining 10 that means how much is paying will pay right suppose if the work certified is hundred if work certified is hundred cash received will be ninety because ten percent is withholding retention money ten percent the hundred rupees work certified the cash paid will be 90 right similarly when cash received is 2 lakh 70 000 actual cash received is 2 lakh 70 000 so how much would be the work certified 100 rupees work certified hey 90 rupees payment contract that means contractor is receiving 90 rupees when quarterly contractor has received 2 lakh 70 000 then how much would be the work certified cash received into 100 by 90 cash received into 100 by 90 because 10 percent he is withholding so 3 lakh rupees is the work certified now work certified three lakh work uncertified thirty thousand the total work in progress will become three lakh thirty thousand the work in progress consists of work certified work uncertified work certified is not directly given in the problem we have calculated work certified work uncertified is given in the problem thirty thousand the total work in progress three lakh thirty thousand less contract cost contract cost means the expenditure incurred on the contract expenditure incurred on the contract contract cost to like 80 000 so 3 lakh 30 000 work in progress 2 lakh 80 000 is the contract cost so remaining 50 000 is called notional profit imaginary profit now percentage of work completed actually what is the contract price contract value and how much work has been certified by the architect rupees who has given certificate architect husband so what is the percentage of work completed were certified by contract price in 200 work certified is 3 lakh contract price is 5 so 3 lakh by 5 lakh into 160 in other words we can say 60 percent of work has been completed by the contract since the work is completed into two by three into percentage of cash receipt this formula we apply to find out the profit to be transferred to peer review by three into percentage of cash receipt the notion of profit is 50 000 into two by three into percentage of cash received how much percentage of cash received ninety percent so we can take point nine or else you can take ninety percent you can take ninety percent or you can take point nine both way you will get the same answer so 50 000 into two by three into a point and thirty thousand that's all so out of fifty thousand rupees notional profit thirty thousand rupees will be transferred to pl account remaining twenty thousand rupees will be transferred to reserve that is the first host right now see the second problem calculate the amount of profit to be transferred to peer record just like the previous problem it is asking you to calculate how much profit to be transferred to pll account from the following particulars contract price 16 lakh 16 lakh rupees contracted cash received from the contractee being 70 percent of work certified 4 lakh 90 000 cash received from the contract t is 4 lakh 90 000 and this 4 lakh 90 000 rep presents 70 percent of work certified previous problem 90 percent are worth certified contractee has paid 90 percent of work certified so what we have taken cash received into 100 by 90 cash received into 100 by ninety again ninety percent to hundred by ninety is a multiplication other seventy percent to hundred by seventy the work certified is equal to cash received into hundred by 70 so here work certified is equal to cash received the cash received are given in the problem for like 90 000 into 100 by 70 you'll get 7 lakh so work certified is 7 lakh one work uncertified is given in the problem sixteen thousand so total work in progress will become seven lakh sixteen the work certified or work uncertified donor millennial work in progress suddenly less total expenditure incurred on the contract is six lakh forty thousand in the problem it is given total expenditure incurred on the contract is six lakh forty thousand subtract of the notion of profit one lakh twenty one like twenty thousand is the notional profit percentage of work completed is equal to work certified by contract price in 200 the work certified 7 lakh here works certified we have calculated 7 lakh contract price is given in the problem 16 lakh the percentage terms it comes to 43.75 it is below 50 it is more than 25 but below 50 so profit to be transferred to pll account is notional [Music] into one by three into percentage of cash received the notion of profit is one lakh twenty thousand one by three is in the formula and percentage of cash received is 70 0.7 70 percent cash receipt 0.7 so multiplying out 28 000 rupees is the amount of profit to be transferred to profit and loss account that's this is the end of second problem hello students come on we continue the problems on contract costing so already in the previous video we have explained i have explained you all the details regarding the features of contract costing and we have done two problems short problems we have completed in the previous video and those two problems are regarding how much profit to be transferred to pll account profit and loss account now see if the contract was completed then the whole profit will be transferred to p l account suppose if the contract is incomplete that means work in progress is there then some portion of the profit will transfer to pll account and remaining portion will be transferred to reserves that is the rule there are no hard and fast rules but the accounting principles followed in contract costing is if the contract is completed up to 25 percent no profit should be transferred to peer account the whole profit should be transferred to reserve if the contract is completed up to 25 huh if the contract is completed over 25 percent but up to 50 percent the notional profit into one by three into percentage of cash received by applying this formula we can find out how much profit to be transferred to p if the contract is completed more than 50 percent then notional profit into two by three into percentage of cash receipt so these are the rules which are followed in cost accounting regarding profit to be transferred to pl account already two problems we have done now i am starting the third problem hope that you have the hard copy of the problems from the link which i have given in the description now i am reading out the third problem see carefully calculate the amount of profit transferable to pll account from the following particulars again we have to find out how much profit to be transferred to profit and loss account contract price 25 lakhs cash received from contracting being 80 percent of work certified is 12 lakh work certified is not given but we need work certified cash received the cash received is 12 lakh rupees which is 80 percent of work certified but certified we don't know so we can calculate what certified is equal to cash received into 100 by 80. 80 percent cash received 100 so how much is the work certified cash received into a hundred by eighty other ninety percent cash received by ninety seventy percent cash received hundred by seventy so cash received will be multiplied by 100 by 80 to get work certified their uncertified work is 50 000 so work uncertified and work certified work in progress actual expenditure incurred on the contract is 10 lakh including closing stock of material at contract site yet 10 lakh rupees the expenditure incurred on the contract but this 10 lakh includes so that closing stock will be deducted from total expenditure so 10 lakh rupees to get actual expenditure incurred so how the solution will be like this once certified 12 lakh rupees is given in the problem cash received problems with the cash receipt this will be multiply 100 by 80 to get work certified 15 length the 15 lakh rupees is not given in the problem we have calculated how multiply cash received with hundred by eighty then work uncertified is given fifty thousand the work in progress fifteen lakh fifty thousand expenditure incurred on contract is 10 lakh rupees minus closing stock of material at site 40 000 the contract costs together 9 lakh 16 contract cost council expenditure incurred on the contract now work in progress working progress means 15 lakh 50 000 this is the work in progress minus contract cost expenditure incurred on the contract nine lakh sixty thousand so w i p miss a contract expenditure will get notional profit imaginary profit the international profit we got nine lakh sixteen now percentage of work completed how much work has been done on this basis only we will take a decision how much profit to be transferred to p the percentage of work completed formula works certified by contract price in 200 work certified is given in the program we have calculated 15 15 lakh rupees work certified and contract price is given in the problem 25 lakh it is given in the problem since the work is completed over 60 50 50 says how much profit to be transferred to pl account notion of profit into two by three into cash into percentage of cash received so how much notional profit five lakh ninety thousand into two by three into how much percentage of cash receive 0.8 so we'll get 3 lakh 14 667 this is the profit to be transferred to profit and loss account this is the second third now see the fourth problem compute a conservative estimate of profit on a contract which is almost 80 percent complete that means more than 50 percent complete same formula we are going to apply from the following particle total expenditure to date is 85 000 up to date 85 000 total expenditure incurs the contract cost estimated further expenditure to complete the contract including contingency is 17 000. we don't require this one this will be required only when the contract is almost completed then we can treat this as an almost completed but here only 80 percent completed so we are not going to take expected expenditure to be incurred contract price is one lakh fifty three thousand works certified one lakh work uncertified eight thousand five so directly given work certified and work uncertified both are given and cash received is 81 600 only one small change is there work certified given work uncertified given total one lakh eight thousand minus expenditure incurred to date is eighty five thousand the notion of profit we got twenty three thousand five since the work is completed over 50 so profit to be transferred to pll account is notional profit into two by three into cash received by work certified in some problems percentage of cash received is given in some problem percentage of cash received is not given but cash received and contract price is given cash received and what certified is received but here percentage of cash received is not given cash received and work certified is given cash received and work certified is given so multiplying cash receipts information received by work foreign cash received 81 600 worth certified is one lakh so you'll get the answer 12 784 is the profit to be transferred to profit and loss account now see the fifth at 31st december 1997 four lakh 86 000 has been expanded upon a contract expanded expenditure incurred a contract for total expenditures 86 000 and the value of work certified is 5 25 000 certified file 25 the cost of work performed but not yet certified uncertified work is 15 000 the contract has reached a stage wherein future expenses can be estimated with a fair degree of accuracy in a contract so we can be able to estimate with accuracy how much expenditure we have to incur in future and such expenses are estimated of one lakh estimate currently okay almost 4 lakh 86 000 we have already incurred and still one lakh rupees more we have to incur then and however a provision of two personal contract value is desired for contingencies the one lakh rupees to expenditure hoga apart from that two percent of the contract price has to be kept in contingency contingency commission emergency estimate current future future is completely uncertain we are expecting that one lakh rupees will be incurred but then what is the guarantee that definitely one lakh rupees will be incurred in future there is no guarantee there is no guarantee so we want to keep some emergency contingency how much contingency two percent of the contract value contract price range contingency and the contract price is seven lakh and the payment received till debt is financed calculate the profit to be taken to profit and loss account for the year ended 31st december 19th this is the first problem where the contract is almost completed only a small part is left and we can estimate with cure accuracy how much expenditure we have to incur in future and how much contingency we have to make so how to find out the profit to be transferred to pll account see here expenditure already incurred is 4 lakh 86 000 already incurred for like expenditure to be incurred is one lakh still one lakh rupees more and contingency two percent of seven lakh fourteen thousand the total estimated expenditure is six lakh rupees out of the three these are the expenditure already incurred this is to be incurred and this is the contingency the total expenditure comes to 6 lakh rupees now contract price the contract price is 7 lakh this and the total estimated expenditure is 6 lakh contract price 7 lakh and the total expenditure is 6 lakh the estimated profit is 1 lakh so total expenditure expenditure already incurred expenditure to be incurred and contingency of the total estimated expenditure the estimated profit one lakh since the work is almost completed so profit to be transferred to profit and loss account is estimated profit into what certified by contract price estimated profit into work certified by contractor estimated profit one lakh rupees one certified 50 to 500 uh 5 lakh 25 000 sorry 5 lakh 25000 is the work certified and contract price is 7 bank so if you multiply then you get 75 000 rupees is the profit to be transferred to profit and loss account so this is the first problem where the all contract is almost completed when it is given in the problem that the contract has reached a stage where with full accuracy we can estimate how much expected expenditure to be incurred in future and how much contingency we have to apply again contract almost completed then we apply this formula otherwise we have to apply this form notional profit into two by three into percentage of cashes that's all so we have completed problem number five