The following information relates to Contract 6502, which was undertaken for the construction of roadways for the
Question:
The following information relates to Contract 6502, which was undertaken for the construction of roadways for the City Council.
The total value of the contract was $250,000 and it is at a stage where profits can be attributed to it.Details of the contract are shown in the books:
$
Materials sent to site 85,349
Labour engaged on site 74,375
Plant installed at cost 15,000
Direct expenditure 4,136
General overhead charges3,167
Materials returned to store549
Work certified 195,000
Cost of work not certified 4,500
Materials on hand, December 31 1,883
Wages accrued on December 31 2,400
Direct expenditure accrued on Dec 31 240
Value of plant December 3111,000
Cash received on account amount180,000
Required:
(a)Prepare the Contract Account as at December 31, 2019.
(b)Prepare the Contract P&L account for the year ended December 31, 2019.
(c)Prepare the Contractee Account as at December 31, 2019.
(d)Explain the term 'retention money.'
Question 4 (CLO 6)
Mary is considering investing in three projects: Omega, Alpha and Sigma with initial investments of $300,000, $250,000 an $320,000 respectively. Each project is expected to have a life of five (5) years and an ending book value of $200,000. The expected profits generated by the projects are as follows:
Profits after tax and depreciation
Project Omega
Project Alpha
Project Sigma
$
$
$
90,000
30,000
40,000
90,000
60,000
80,000
65,000
120,000
160,000
55,000
33,000
44,000
90,000
57,000
76,000
390,000
300,000
400,000
a.Please assist Mary in deciding which project to invest in by calculating:
i.the average profits for each project.
ii.the average capital for each project.
iii.the accounting rate of return (ARR) on initial capital for each project.
iv.the accounting rate of return (ARR) on average capital for each project.
- Based on your calculations, which Project would you recommend Mary to invest in?
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker