Deluxe Limited undertook a contract for Rs 5,00,000 on 1st July 1997. On 30th June 1998 when
Question:
Deluxe Limited undertook a contract for Rs 5,00,000 on 1st July 1997. On 30th June 1998 when the accounts were closed, the following details about the contract were gathered:
| Rs |
| Rs |
Materials purchased | 1,00,000 | Wages accrued 30-06-1998 | 5,000 |
Wages paid | 45,000 | Work certified | 2,00,000 |
General expenses | 10,000 | Cash received | 1,50,000 |
Plant purchased | 50,000 | Work uncertified | 15,000 |
Materials on hand 30-06-1998 | 25,000 | Depreciation of plant | 5,000 |
The above contract contained an escalation clause, which read as follows:
"In the event of prices of materials and rates of wages increase by more than 5% the contract price would be increased accordingly by 25% of the raise in 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 wages rates increased by 25%. The value of the work does not take into account the effect of the above clause.
Prepare the contract account working should form part of the answer.
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston