New Vistas Builders Limited undertook a contract on 1st January 1997 with an escalation clause. The clause provided that if material prices and wage rates increase by more than 10%, the contractor gets compensation for 60% of such rise in the cost of materials and 80% of such rise in wage rates beyond the 10% in each case. It is agreed that since the signing of the agreement till 31st December 1997, the material prices had gone up by 25% and wage rates by 30%. The value of work certified does not take into account the effect of the escalation clause.

The following are the details relating to the contract for the year ended 31-12-1997.

Rs Contact price 4,00,000 Material sent to site 78,800 Wages 1,26,500 Sundry expenses 8,000 Plant installed at site 20,000 Materials on hand 4,000 Work certified 2,40,000 Cash received in respect thereof 1,80,000 Work uncertified 6,000 Depreciation on plant at 10% p.a.

Prepare contract account and show the profit to be taken to profit and loss account.