(a) On 1^st June 2017 Mars Ltd commenced construction of an apartment building for a contracted price of 2,900,000 with completion expected 31^st December 2018. The companys yearend was 31^st December 2017 and on that date the accounts relating to the contract contained the following balances:

000

Materials issued to site 550

Materials returned from site 75

Own plant used on site, at cost 420

Wages paid 395

Hire of equipment 87

Administration charges 65

Value of work certified 1068

Estimated cost of work not certified 56

Cash received from client 980

The plant was delivered to the site on 1^st June 2017 and depreciation is to be provided at a rate of 12% per annum on a straight line basis. The value of materials on site at 31^st December 2017 is 64,000 and there are wages which need to be accrued of 7,000. In addition Mars Ltd has estimated that the extra costs to complete the contract will be 1,800,000.

Mars Ltd has an accounting policy of taking two-thirds of the profit attributable to the value of work certified on a contract (ie 2/3 x (value of work certified cost of work certified)), once the contract is one-third completed. Anticipated losses on contracts are provided in full.

Required:

Complete the contract account for the year ended 31^st December 2017 and show the amount of profit or loss to be included in Mars Ltds income statement.

(b) Show the balance sheet (statement of financial position) extracts for the contract

(c) If due to unforeseen circumstances Mars Ltd now estimates that the costs to complete the project will actually be 2,000,000 rather than 1,800,000. Discuss how this would impact on the reported profit or loss given in part (b) above making any relevant calculations?