Question:
Deluxe Ltd. undertook a contract for Rs.5,00,000 as on 1st July 2006. On 30th June 2007, when the accounts were closed, the following details about the contract were gathered.
|
Particulars
|
Amount
Rs.'000s
|
|
Materials purchased
|
100
|
|
Wages paid
|
45
|
|
General expenses
|
10
|
|
Plant purchased
|
50
|
|
Materials on hand on 30th June 2007
|
25
|
|
Wages accrued on 30th June 2007
|
5
|
|
Work certified
|
200
|
|
Cash received
|
150
|
|
Work uncertified
|
15
|
|
Depreciation of plant
|
5
|
The above contract contained an escalation clause which read as follows.
'In the event of materials and rates of wages increase by more than 5% the contract price would be increased accordingly by 25% of the rise 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 wage rates increased by 25%. The value of work certified does not take into account the effects of the above clause. Prepare Contract Account. Working should form part of your answer.