CONTRACT COSTING

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Contract Costing defined:

Method where each contract is treated

as cost unit
and Profit & Loss is ascertained
separately.
Employed by undertakings engaged in bu
road & bridge construction, ship building,

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Features of Contract Costing:
Large in size and takes more than one year
completion
Involves two parties viz. Contractor and Co

Contract executed for a price termed as Co

Each contract is a cost unit; expenses get s

recorded and profit too is separately ascert

Expenses are chargeable directly to contra

Specialist sub-contracts may be employed

Contd.
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 Plant may be purchased or hired especially
contract

Employed by undertakings engaged in buil

road & bridge construction, ship building, e
Work carried out at site and not in
factory premises
Payments made based on stages of
completion and
depends on Architects Certificate
May contain Escalation Clause and
Penalty Clause
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Concepts relating to Contract
Accounts:
Contract
or:
Person who undertakes the task of doing the job
Contracte
e:
Person on whose behalf the task is being
done
Contract Price:
Value for which the contract is undertaken
Work certified:
Part of the total contract price which is
has been
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completed and approved by the architect
Concepts
relating.
Uncertified
Work:
Part of the task done but not approved by the
architect of the Contractee

Cash Paid:
Part of the work certified that is paid by the
Contractee
Retention Money:
Part of the work certified that is held back by the
Contractee
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Notional
Profit: between the value of work certified
Difference
and uncertified less the cost of work done to
date
Value of work certified
Add Value of work not yet certified
Less Cost of work to date

Estimated Profit:
Excess of the contract price over the estimated
total cost of the contract
Contract Price
Less Total cost already incurred
Less Estimated additional cost required to
complete 7
Profit on Incomplete
Contracts:
(a) When work certified is less than 25% complete
No profit or Loss be
accounted for

(b) When work certified is 25 % or more but less

than
50%
Notional Profit X 1/3 X Cash receive
------------
Work Cer

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Profit on Incomplete
Contracts:
(c) When work certified is the 50% or more but
less
than 90% Profit
Notional X 2/3 X Cash received
--------------
Work Certi

(d) When the contractor estimates the profit:

Estimated Profit X Work Certified

---------------------
Contract Price
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