MEANING OF

PROJECT
P
Perspicacious.
R

Recondite.

O
Omniscient.
J

Jargon.

Efficacious.

Taxonomy.

PROJECT REPORT
STUDY OF
APPLICATION OF CONTRACT COSTING

SUBMITTED TO
UNIVERSITY OF PUNE
FOR THE PARTIAL FULFILLMENT OF THE DEGREE

BACHELOR OF COMMERCE
BY
Mas. Swapnil Bandopant Sontakke.
T. Y. B.com, Div-A,
Roll No: 094
University Roll No:
B.Y.K. (SINNAR) COLLEGE OF COMMERCE
NASHIK-422005
ACADEMIC YEAR
2008-2009

Dr. Mrs. Chhaya Gandhi.

Sunita Pimple.

Prof. Mrs.

SUBJECT TEACHER
PROJECT GUIDE

S. S. JAIN
CONSTRUCTIONS
CONTRACTORS

BUILDERS &

kund kund Niwas, Prabhat Nagar, Mhasrul,

NASHIK-422 004. (M.S.)
PROP. BANDOPANT BHIMRAO SONTAKKE

To whom so ever it may concern

This is to certify that Mr.
Swapnil B. Sontakke of B.Y.K. College
of Commerce, Nashik has visited our
office & site place personally for his
project work. Her has discussed various
topics & collected information for her
project on Study of Application of

Contract Costing & has taken sincere

efforts.
We wish him all the best for his
future.

Date:
Mrs. Bandopant Sontakke.
Place:
(Proprietor)

ACKNOWLEGDEMENT
I have pleasure in successful completion of the
project work titled APPLICATION OF OPERATING

COSTING
The special environment at B.Y.K. College Of
Commerce, Nashik that always supports education
activities facilitated my work on this project.
I acknowledge the support, the encouragement
extended for this study by Principal, Dr. Dhanesh
Kalal and Vice Principal Dr. Mrs. Chhaya Gandhi.
I greatly appreciate the motivation and
understanding extended for the project work, by Mrs.
Bandopant B. Sontakke and the staff of the
surveyed business unit, who responded promptly and
enthusiastically to my request for frank comments
despite their congested schedules. I am indebted to all
of them, who did their best to bring improvements
through their suggestions.
I am very much thankful to Prof. Mrs. Sunita
Pimple for her encouragement and guidance for this
project work. It could not have been possible for me to
complete this work without her suggestions on every
part of this work.
I acknowledge the authors, whose works gave
me insight and information related to this subject.
I am thankful to library staff and Administrative
staff of B.Y.K. College that, directly or indirectly, have all

been helpful in one way or another.

I thank my father, mother who encouraged me
to extend my reach; with their help and support, I have
been able to complete this work

Date:

Mas.

Swapnil Sontakke
T.Y. B.com.

INDEX
1] Introduction:1.1 Evolution of cost accounting.
1.2 Objective of cost accounting.
1.3 Subject matter of costing.
2] Research Methodology:2.1 Objectives of the project.
2.2 Source of data collections and research.
2.3 Classification, tabulation & interpretation.
3] Organization Profile:3.1 About S.S. Jain Constructions (builders &
contractors).
7

4] Theory related to contract costing:4.1 Introduction of contract costing.

4.2 Meaning of contract costing.
4.3 Accounting concept in a contract costing.
4.4 Elements of cost in contract costing.
5] Data Analysis & Interpretation:5.1 Comparison with theory.
5.2 Accounting of contract.
6] Conclusion & Suggestions:6.1 Conclusion.
6.2 Suggestions.
7] Bibliography.

Our College Has Provided Different Practical

Oriental Subjects to Us under "c' Component. I Have
Selected Cost & Works Accounting Under "C"
Component. Because I Interested In Costing. How to
Calculate Cost? & Also From My Career Point Of View
Because I Want Become A Cost Accountant.
I Am Very Happy By Selecting This Subject As
My Special Subject For T.Y.B.Com.
Costing is immensely useful in all economic
activities. It is a natural instinct with all of us to
measure to pros & cons of everything. A prudent house
wife who goes for shopping considers the price of each
product before she buys it. In short, each economic
activity, if rationally viewed, has two aspects firstly,
the cost involved in it & secondly the benefit obtained
of it. This analysis is technically known as cost benefit
obtained analysis. It is very important in industrial &
commercial activities. Cost accounting involved a study
of those concepts, tools & techniques that helps us in
ascertaining & analyzing cost.

Evolution of Cost Accounting

During the 17th century in France, the royal
wallpaper manufacturing had accosted accounting
systems. Some iron masters & potters in 18th century
in England began to produce cost accounting
information before the industrial revolution.
Modern cost accounting developed in 19th
century as a response the management information
needs arising out of conditions resulting from industrial
revolution. Mechanization of the production &
transportation led to the creation of excess capacity by
10

competing group of investors. This excess capacity

forced its owners to wages commercial welfare against
one
another,
producing
waves
of
industrial
bankruptcies, particularly during the second half of 19th
century of the factor underlying the situations was soon
recognized it was lack of cost information, so that the
firms under cutting each others prices without any
acknowledge of consequences on their own economy.
By the end of 19th century, firms in the competitive
industries formed trade association to exchange cost
information & eventually developed uniform cost
accounting systems for this purpose.

During I & II world war social importance of cost

accounting grew with the growth of each countrys
defence expenditure. In the absence of competitive
markets for most the material required to fight wars,
govt. in several countries placed cost plus contracts
under which price to be paid was the cost of production
plus a certain agreed rate of return. The reliance on the
information by the parties to the defense contract
continued after World War II, many Govt. also brought
down legislation, which had the effect of placing almost
a blanket control over the price.
Today in India, Institute of Cost & Works
Accountants of India is in exist. It was established in
1959 & their respective law is also passed. Such bodies,
take the control over the industrial cost policies, it
determines the standards & rules for the cost &
achievements of objectives.

DEFINATIONS:

11

Cost:
A price paid for something
The amount of expenditure (actual or notional)
incurred on or attributable to a given thing ascertain
the cost of given thing
Costing:
The technique & process of ascertain cost
I.C.
M.A
.
Eng
lan
d.

Cost accounting:
The process of accounting for which begins with
the recording of income & expenditure or the basis on
which they are calculated & ends with the preparation
of periodical statements & reports for ascertaining &
controlling the cost terminology.
I.C
.M
.A.
En
gl
an
d.
Cost accountancy:
The application of costing & cost accounting
principles, methods and techniques to the science, art
& practical of the cost control & the ascertainment of
profitability. It includes the presentation of information
12

derived there from for the purpose of managerial

decision making
I.C
.M
.A.
En
gl
an
d.

OBJECTIVES OF COST ACCOUNTING:

Ascertainment of cost.
Determination of selling price.
Cost control & cost reduction.
Ascertainment of profit of each activity.
Assisting the management in decision making.

SUBJECT MATTER OF COSTING:

Following diagram explains it in easy manner:

COSTING

Methods of costing

Techniques of

costing

13

Job costing

uniform

Batch costing

Cost

costing

reduction
Contract costing
marginal costing
Single or output costing
standard costing
Process costing
historical costing
Operating costing

direct

costing
Multiple costing
Absorption costing

For the purpose of the study of the costing it is

divided in the two parts as methods of costing &
techniques of costing. Also the third part is cost audit
and CARR.
Cost audit & CARR
14

(Governed by ICWA Act, 1959)

15

OBJECTIVES OF THE STUDY

In the performance of the T.Y.B.Com curriculum
the special subject is cost & works accounting. In this
subject the paper is that Research Methodology &
project work. As per the pattern of the university every
student has to do project on the topic of costing. For the
purpose I selected the topic:

Application of contract costing

I visited to the S. S. Jain
Construction and get more knowledge about its
accounting and settling there accounting.
For

that

MEANING:

A Project May Be Defined As A Scientifically

Evolved Work Plan Devised To Achieve A Specific
Objective Within A Specified Period Of Time. The
Objective May Be To Create Expand & Develop Certain
Facilities In Order To Increases The Production Of Goods
And Services In The Community.
The Project Work Is A Method Of Discovering The
Truth Through Critical Thinking. Project Work Is Nothing
But A Systematic Process And It Consists Of Several
Steps.
1. Identifying a Small Research Problem
2. Formulating the Hypothesis or Assumption
or Prediction about the Problem in Above
Study.
3. Designing of the Project Work.
4. Observation Variables.
5. Examining or Verifying the Relationships
between Variables Observed.
6. Drawing Conclusions Regarding Problem
Based on Observed Relationship.

7. Project Is A Method of Obtaining and

Evaluation Data the Decision Process.
Our College Is Expected To Develop
Certain Skills In Students For Making Their Learning
More Effective.

 Analytical Skill
Decision Making Skill
Communication Skill
Logical Thinking Skill
Research Skill Effective.
Project Objectives Is An Important Element In
The Project Planning Cycle. Project Objectives Are
Concerned With Defining In A Precise Number What The
Project Is Expected To Achieve And To Provide A
Measure Of A Performance For The Project As Whole.

Objectives Are The Foundations On Which The

Entire Of The Project Is Built The Essential Requirement
For Project Objectives Are:
Specific Not General
Not Overly Complex
Measurable And Attainable
Established Within Resource Bounds
Consistence With Resources Available
Consistence
With
Organizational
Plans, Policies,& Procedure

The Project Objectives Are Aimed To Complete The

Project On Time, Completion Of The Project Within
Contemplated Costs And The Completion Of The Project
As A Profit To The Company.

The Project Work Helps Us To Apply Their

Conceptual Knowledge In A Practical Situation And To
Learn The Art Of Conducting A Study In A Systematic
Manner And Presenting its Findings In A Coherent
Report.
Project Work Is Essentially An Investigation A
Recording And As Analysis Of Evidence To Require
Knowledge. The Inherent Aim Of Every Project Work Is
Gaining Knowledge Is A Tool To Solve The Problems Of
Individuals Institutions And Societyatlarge.
OBJECTS OF THE PROJECT :
To observe and compare the theory concepts
with practical applications:
To study the collection of element of cost.
To study the profit calculation and its
ascertainment.
To study the absorption system of costing.
To finalize the accounts of cost.
To see it easy to apply the theory in
practice.
To study the problems in it.

SOURCE OF DATA COLLECTIONS AND

RESEARCH:
Shorter Oxford Dictionary

Research is an investigation directed to the discovery

of some facts

by careful study of a subject a course of

critical or scientific enquiry.

Types of research

Descriptive.

Exploratory.

Experimental.

Pure.

Applied

Evaluation

Survey.

Quantitative.

Qualitative.

Historical.

SOURCES

OF

INFORMATION:

Published material.

Books.

Journals.
22

Computer.

Newspaper.

Dictionary.

Audio sources.

Radio.

Tape.

Slides.

Posters.

Charts.

Workshop.

Various documents.

Conference seminar.

Pamphlets.

SOURCES

OF

DATA

COLLECTION:Meaning of DATA:

Collection of data or collection of information on

the topic selected for the study. Collection of data is to

23

be done by resources, because he himself should

develop capacity of understanding & capacity of
learning the skills of data collection. Collection of data
makes it possible to understand to analyze and derive
conclusions. Word DATA is derived from word datum,
a datum is what observed. On the basis of observation
it is possible to study him subject & collect the
information.
Once

the

hypothesis

is

formulated

the

researcher proceeds with the collection of data as a

step ahead in the process of research work. Collecting
of data refers to purposive gathering of information
relevant to the subject matter of the study from the
units under investigation. The method of collection of
data depends mainly upon the nature, purpose and
time on the other, statistical data may be classified into
primary & secondary depending upon the nature of
data & made of collection.

SOURCES

OF

DATA

COLLECTION

PRIMARY SOURCE
SECONDARY SOURCE

Interview method.

Questionnaire.

24

Observations.

Filed survey.

Primary data are original observation collected

by the researcher personally at first hand, whereas
secondary data are collected by others & used by
researcher in the research project. The difference
between primary & secondary data is the only of
degree of detachment with original source. The data,
which are primary one time, may be secondary at
another. Once the primary data have used it loses its
original character & becomes secondary, such data are
mostly published in newspaper, periodicals & journals.
The selection of sources for the research work
mainly depends upon the nature, objectives & scope in
inquiry, degree of accuracy, availability of time and
money etc.
Primary data being original observation by the
researcher are more reliable but secondary data can be
relied examining the authenticity of source form, which
they have been collected. It may be pointed out that in
large

no

statistical

inquires,

secondary

data

are

generally used as fairy reliable source publishes such

data based on their survey, for eg: census data,
employment, illiteracy, poverty etc. Intact, primary data
are collected only if there does not exist any secondary
data suited to the investigation under study. Generally
the researcher widely uses both the sources of data
collection. They are also called as

25

Paper & people Paper source provides data to

the researcher in the form of historical records, diaries,
biographies & statistical records.
People sources refer to information collected
from the people through interview & questionnaire as
the techniques for the collection of data (primary
source). Once the scope & purpose of inquiry have been
defined, the next step is the selection of source. Both
the techniques of data collection of data discussed at
length below:

PRIMARY SOURCE:A primary source is also one of the important

techniques of data collection. Primary source is the
contribution of the researcher where data is not
published. The invention skill of the research design.
The method of data collection is published for the first
time, so primary source is one of the important sources
of data collection.
ADVANTAGES OF
PRIMARY SOURCE:

Researcher develops skill of taking interviews

qualities

of

analysis,

interpretation,

frames

&

questionnaire with proper understanding of the subject.

26

 Interview method (direct method):

It is verbal method of collecting data, which a
person designated as interviewer asking question
(mostly) in face-to-face contact to the other person
designated as interviewee. Interview may be said to be
one of the most commonly used technique of data
collection in social science. As the researcher personally
collects data, it would be first hand & original in
character. The result obtained by this method is
generally accurate & reliable. The researcher can clear
all doubts by this reliable information. Moreover there is
flexibility in asking questions because there is personal
contact. The researcher can twist the question keeping
in mind the interviewee/ respondents reactions.
This technique of data collection sometimes is
very interesting & effective source as the respondent
share his experiences, problems & difficulties faced ups
& downs in struggle for survival, which inspires the
researcher. Interview of the entrepreneurs, business
executives/CEO, industrialist who have proposed in their
life with very meager resource/little in their formative
stage becomes the guiding force for the researcher.
However, in terms of cost energy & time. Interview
technique

proves

to

be

very

expensive

source.

Moreover, its scope is restricted, as it has limited

coverage.

Personal

information.

bias

may

distort

the

correct

In

account

of

above

physical

&

financial

limitations, this method is suitable when the field

inquiry is small, which has limited coverag

Questionnaire (indirect method):

Collection of data through questionnaire is one

of the popular methods used these days. Unlike
interview, it is an indirect method of data collection. A
questionnaire contains many questions pertaining to
the field of inquiry in a definite order or a form/or a set
of papers (forms) & provides space for answers. It may
be defined as an instrument for collecting information
from no of persons, supposed to posses it (information)
by making them record their replies to a no of
questions. Ideally, the respondent has to answer the
questions on his own i.e.: unaided.
Very often, the term questionnaire & schedules
are treated as synonyms. However, there is difference
between

the

two.

In

the

case

of

schedule,

enumerator/investigator/ researcher fills the answers to

the questions asked by him. The answers are provided
by the information. Moreover, schedule proves to be
effective

informants

are

illiterate.

Schedules

also

eliminate the problem of non-response.

Questionnaire as a technique of data collection
is widely used by the researcher as it has very wide
coverage since extensive field may be surveyed &
information can be collected from persons living over a
wide geographical area. It is economical in terms of
money & energy. However, illiteracy, among the people,
lack of knowledge in understanding the significance of
inquiry/research
questionnaire.

results

in

low

returns

of

the

 OBSERVATION:
It is method of getting information about the
world around us. An observation technique is used
where it is not possible to researcher to go physically &
collect the information. In it scientifically approved
observation techniques are used. It means accurately
noting. The observation, noting the repetitive act this
researcher arrived at certain conclusion.
Observation refers to recording the things as it
occurs in the normal course of its operation. It is
independent of peoples willingness to report, as it
demands very little co-operation on the part of the
subjects. Studies dealing with subjects whom are not
capable of giving verbal reports of their behavior or
feeling for the reason that they cannot speak eg:
infants, physically impaired, animals, etc.such studies
necessarily use observation technique. Observation
becomes a scientific tool for the researchers to the
extend that it serves a formulated research purpose, is
planned & recorded systematically & is subject to
checks & control on validity & reliability.
The investigator/researcher, whatever be the
purpose of study, must answer based questions before
setting out to observe i.e. he must be sure about:o What should be observed?
o How the observation should be recorded?

o How to ensure accuracy at observation?

Observation may take place in the natural or

real life setting or in laboratory. It may be used to
explore the given area of subject matter or to gain
insight into researcher & provide basis for development
of hypothesis.
Advantages of observation:

It is directed & realistic,

Useful for listing hypothesis,

Greater accuracy,

Results & dependable.

Limitations of observations:

It is not possible to remain present for all the time,

Observation may not be possible because change

in environment,

Observation is not possible because of long

duration.

Instruments of observations:

Camera,

Stop watch,

Videotape,

Field notes.

SECONDARY SOURCES:Secondary sources are also one of the important

ways of collection of information but it is related to the
data, which is already published. The sources are
various

books,

committee

journals

report,

magazines,

legal

reports,

letters,
survey

video,
reports,

newspapers, speeches, Pamplets, etc.

Secondary

sources

are

normally

used

by

students for writing projects. The entire information

which is already published is very authentic & helps

researcher in getting the knowledge of the topic
selected for the study.
Data collected through the various sources &
various techniques, observations, primary & secondary.
It is to be analyzed properly for getting correct
information.

CLASSIFICATION,

TABULATION

&

INTERPRETATION
After the data is collected, the researcher turns
his focus of attention on analysis & interpretation of
data. Analysis of data refers to observing the data in
the

light

of

hypothesis

or

research

problem.

Interpretation on the other hand is research operation,

which enables the reader to understand what the
research findings really mean. Data collected during the
research is processed with a view to reduce it to
manageable proportion so that certain interferences
can be drawn from it. A careful & systematic processing
/ analysis will highlight the importance characteristic of
data. The data collected is required to be classified for
further investigation. The process of arriving at the data
in to groups or classes according to similarities &
dissimilarities is technically called classification.
It is the process of arranging data in to
sequence

&

groups

according

to

their

common

characteristic. For eg: no of students registered in pune

universities during the academic year2008-2009 may

be classified on the basis of following:-

CRITERIA:

Sex,

Age,

State to which they belong,

Religion,

Different

faculties

like

Arts,

Science,

Commerce,

Height.

Weight.

Each of the above groups or classes may be

divided into sub groups or Sub classes. For eg: Religion:
Hindu, Muslim. In Hindu Gujarati, maharashtrian sub
caste. This technique if dividing the given data into
different classes is called crossed classification.

TABULATION:
After the data has been classified the next step
is to arrange them in the form of tables. Tabulation
involves the orderly & systematic presentation of
numerical data in a form designed to elucidate the
problem under consideration.

According to A.M.Tuttle, a statistical table is the

logical listing of related quantitative data in vertical
columns & horizontal rows of nos. with sufficient
explanatory & qualifying words, phrases & statements
in the form of titles, headings & notes to make clear the
full meaning of data & their origin. Tabulation is the
process,

which

helps

in

understanding

complex

numerical facts. It is a useful tool for analysis of data.

The purpose of table is to summarize the numerical
information & present it in simplest possible form,
consistent with the purpose for which it is to be used.

Structure of table:
A good statistical table is not a mere careless
grouping

of

columns

&

rows

of

figures

but

masterpiece of space combined with maximum of

clearly presented information. Its presentation demands
skills, analytical ability & knowledge. A table generally
has following structure:-

Number:
Each table is to be given a specific no. which is
stated at the top above title of the table. Numbering
the table facilitates easy identification.

 Title:
Each table is given the title in accordance with
the contents of the table. A title should represent the
nature of the data, the time period & its location. The
title of the table should be concise but selfexplationary.
The wording of the title should be carefully planned so
that it may be properly interpreted.

Stub:
The horizontal rows or the data in the table are
called stub or stub item.

Caption:
The heading of the column is called caption. The
caption should be carefully worded & written in the
centre at the top of the column.

Body:
The body of the table contains figure that the
table is designed to present to the readers. The data in
the body correspond to classification under caption &
stub.

S.S.
Jain
Constructions
is
the
leading
construction company in the builders market in Nasik. It
is golden hat in the building construction industry. It is
old & well settled & also popular construction company
in Nashik.
The proprietor of S.S. Jain Constructions Mr.
Bandopant B. Sontakke is a qualified engineer & he
in this profession for the past 24 years, he is a
visionary personality, aiming to do beautiful
constructions with material like trust & reliability.
He always uses his technique & designs to make it
unique construction. He had worked with Mate
construction for five year in addition to his experience.
Since 1990 this company has come into
existence to build the dreams of people. And it has
satisfied about over 550 families. It is grouped by very
eminent professionals to make S.S. Jain Constructions
successful. The professionals are:

Builders:

S.S.

Jain

Constructions

(builders & contractors).

Building Planner: Anup Misrikotkar &
Associates.
R.C.C consultant: Mrs. Prasana Bhore.

Chartered Accountant: C.A. Mrs. S. D.

Pawar.

Legal Advisor: Advocate Mrs. Dhiraj S.

Pawar.
Vastu consultant: Mrs. S. D. Kulkarni,
Poona.

Company had constructed many Bungalows, Buildings,

Hospitals, Temples, Halls & etc. al over Nashik &also out of Nashik
like Savakar Nagar, Prabhat Nagar at Mhasrul, Peth Road, Tarwala
Nagar. Sanjeevani Nagar, Datta Nagar, Ganesh Nagar, Savitri Nagar,
Pandit Colony, Tilak Nagar, Swami Samartha Nagar. Some of the
projects with there photos are as follows:

Anucool Bungalow
Gangapuroad.

Shree Niwas Society

Gangapuroad.

Jain Hospital Ghoti.

Zipre Bungalow
Peth Road.

Sanket Bungalow Mhasrul.

Vikrant Bungalow
Gangapuroad.

Nadishwar
Dharamshala Chambhar
Lene.

Adiswar Bungalow
Mhasrul.

Mate
Park
Gangapuroad.

Bhamni Bungalow Mhasrul.

Nadishwar Temple Chambhar

Lene.

Janardan
Swami
Ashram
Temple Aurangabad Road.

&

 INTRODUCTION

TO

CONTRACT COSTING:
Contract costing is the special type of the job
costing where the unit of the job is single job. When job,
which are undertaken, includes large orders require
considerable length of time to complete activities
outside is known as contract costing.
This method of costing is adopted by the
concern such as builders, contractors, civil engineer
who undertake the long term project like construction of
roads, bridge, houses, large estates, irrigation schemes
etc.
A contract usually takes several years to get it
self completed if the profit on such contract is recorded
after there completion, then wide fluctuations may be
noted in the profit figures of contractors from year to
year. To avoid these flections in the reported profit &
the reflect to the revenue in the accounting period
during which the activity is undertaken, the profit in
respect of each contract in progress is transferred to
the P&L a/c of the year. By calculating the notional
profit to be transferred to the P&L a/c depends on the
stage of completion of contract. To determine such a
profit figure the knowledge of various concepts is
essential in the contract costing.

 MEANING

OF

CONTRACT

COSTING:
Contract or terminal costing is one form of
application of the principles of job costing. In fact a
bigger job is referred to as a contract. Contract costing
is usually adopted by building contractors engaged in
the task of executing civil contracts.

FEATURES

OF

CONTRACT

COSTING:
The major part of the work in connection with
each contract is ordinarily carried out at the
site of the contract.
The bulk of the expenses incurred by the
contractor are considered as direct.
The indirect exp. mostly consists of office
expenses of the yards, stores & work.
A separate account is usually maintained for
each contract.
The no. of contracts undertaken by contractors
at a time is not usually very large.
Cost unit in contract costing is contract itself.

DEFINITION:
Contract costing is that form of costing which
applies where work is undertaken to consumers special
requirement & each order is of long duration. It is also
known as terminal costing.
I.C.M.A London.

 ACCOUNTING CONCEPTS
IN CONTRACT COSTING:Contract:
Contract is special type of job undertaken to
earn the profit.

Contract price:
The price fix for the contract undertaken which
is payable to the contract for the accounting period.

Sub contract:
Contract for any major activity is given to
another contractor for expert quality of work or
disability to do such activity, is known as sub contract.
Thecost paid for such is called as sub
contract cost.

Extra work:
The

extra

work

amount

payable

by

the

contractee should treat it as separate contract. If it is

not substantial, it should be debited to the

contract

account as a cost of extra work.

Cost of work certified:

All

contractors

receiving

the

payment

periodically are known as running payment these is

made on the basis of surveyors certificate. But the

payment is not equal to the work certified, a small
percentage of the amount is taken as amount of
security for any defective work, which may

be

discovered, latter within the guarantee period.

Mathematically
Cost of work certified cost of work to date
(less) cost of work uncertified.
= material in hand.

Work uncertified:
It represents the cost of work, which has been
completed

but

not

certified

by

the

contractees

architect. It is always shown at cost price.

It is ascertained as follows:
Cost of work uncertified = Total cost to date
(less) cost of work certified
= material in hand.

Retention money:
A contractor does not receive full payment of
the work certified by the architect; out of it some
nominal amount is not paid. It is called as

retention

money. This retention money is paid when it ensured

that there is no fault in work carried out by contractor. If
any deficiency is found or defect is noticed in the work,

it is to be first rectified by the contractor, then & then

only the retention money is paid to the contractor.
Retention

money is safeguard against the faulty

workmanship.

Cash received:
It is ascertained by deducting the retention
money from the value of work certified. Thus,
Cash received = value of work certified (less)
retention money

 Work in progress:
In the contract account the value of W-I-P is
usually shown under the two heads viz. certified &
uncertified, profit credited will appear under the head
certified W-I-P while the completed work not yet
certified & cost of labour, material, expenses of work
which has not yet reached the stage of completion are
shown under the head uncertified W-I-P.

Notional profit:
It represents the difference between the value
of work certified & cost of work certified. It is
determined as follows:Notional profit = value of work certified (less)
cost of work to date.
= cost of work uncertified.

Estimated profit:
It is the excess f contract price over total cost of
contract. It is estimated cost plus contract. Under the
cost plus contract, the contract price is ascertained by
adding percentage of profit to the total cost of the work.
Such types of contracts are entered into when it is not
possible to estimate the contract cost with reasonable

accuracy due to unstable condition of material, labour

etc.

 Escalation clause:
If during the period of execution of the contract,
the price of materials, labours etc. rise beyond a certain
limit, the contract price will be increased by an agreed
amount. Inclusion of such a clause in a contract deed is
known as escalation clause.

Realization

of

profit

on

certain stage of completion:

When stage of completion is less than

25% then no profit should be taken to P&L
A/c.

When stage of completion is more than

25% but less then 50% of contract price;
Then,

Profit realized should be = 1/3 * notional profit *

cash received / work certified.

When stage of completion is more than

50% but less then 90% of contract price;
Then,

Profit realized should be = 2/3 * notional profit *

cash received / work certified.

When stage of completion is more than 90% but

not yet completed, then least of the following should be
credited to the P&L A/c: Estimated profit* work certified / contract price.
Estimated profit* cash received / contract
price.
Estimated profit* cost of work to date /
estimated total cost.
Estimated profit* cost of work to date /
estimated total cost* cash received / work
certified.
Notional profit* work certified / contract
price.

If there is loss in the contract, whole amount of

loss is to be transferred to P&L A/c.

 Comparison with theory:This

is

summary

of

the

unstructured

questionnaire, interview with the expert & study of the

accounting books of the concern. Contract subject
matter of contract is the terms & conditions of the
constructions.

Any

contract

applies

as

per

the

provisions of the Indian contract act 1872, Indian penal

code & constitution of India. Thus, both the parties are
under legal obligation to sign it.

Sub contract:
In a modern day, everyone is not sufficient to
fulfill all their wants, So company gives number of
contracts such as painting, labour contracts, slab
contracts,

electric

fitting,

furniture,

plumbing

etc.

sometimes whole contract is subcontracted to sub

contractors.

Work certified:
Civil

engineer

or

Chartered

authorized persons to certify the

engineer

are

work of contractors.

The work which is not certified by them is called as

work uncertified. Number of times such point creates
conflicts between engineers &

contractors

but

where contractor and engineer is the same person then

no

problem is faced.

 Retention money:
Only in government contracts as a matter of
law, money is kept as retention but in general very
rarely. Private contracts are given to related contractors
thus the point does not arise.

Profit:
In the actual practice the notional profit is
calculated, only the compliance of the law is not
practically useful. Actually builders estimate the profit
element, on drawing the plan & estimated expenditure.
Thus in contract costing estimated profit is more
important than notional profit.
Before accepting the contract estimated cost
sheet of the contract is prepared on the basis of past
experience. Thus, they know estimated profit, which
may change to large extent. Therefore the notional
profit is calculated on the basis of the accounting &
taken to P&L A/c at the end of financial year.

Escalation clause:
It is rarely in the history of the company once
the contract is accepted the risk start. Due to such a
clause goodwill of the contractors reduces, is the
thinking of the company. Thus company always tries to

accept contract without the exceptions. Company

thinks that when there is escalation clause, the
contractee always fear of the price rise. It is not habit of
the company to fear its clients.

 Cost plus contracts:

It is the transparency in the work of the
contractor. Therefore company gives favor to accept the
cost plus contract and on that basis high goodwill is
acquired in the market.

Elements of cost in contract costing:

Material (Direct & Indirect).

Labour.
Direct expenses.
Indirect expenses.
Plant & Machinery.

Accounting of the contract:-

The construction of building of Shanti Bhavan Dharm

Shala was going on five years. Contract is accepted on15th Feb,
2005 & completed on 10th Feb.2009. The position as on end of
financial year is as follows:-

Contract A/c
For the year ended 31-3-2005
Particular
To Plant &
Machinery b/d
To Wages

Amt
Particular
800000 By Plant &
Machinery
50000 By Work Certified

To Materials

200000 By Work
Uncertified

To Expenses

100000 By P & L A/c (Loss)

1150000

Amt
750000
200000
150000
50000

1150000

Contract A/c
For the Year ended 31-3-2006

Particular
To Work certified b/d
To Work Uncertified
b/d
To Plant &
Machinery b/d
To Material
Purchases
To Wages
To Expenses
To Notional Profit
To P & L A/c
To Work in Progress

Amt
200000
150000
750000
300000

Particular
By Work Certified
c/d
By Work Uncertified
c/d
By Plant &
Machinery c/d
By Notional Profit

Amt
1100000
130000
700000
310000

100000
120000
310000
103333
206667
2240000

2240000

Contract A/c
For the year ended 31-3-2007

Particular
To Work certified
b/d
To Work Uncertified
b/d
To Plant &
Machinery b/d
To Material
Purchases
To Wages
To Expenses
To Notional Profit
To P & L A/c
To Work in Progress

Amt
Particular
1100000 By Work in Progress
c/d
130000 By Work Certified
c/d
700000 By Work
Uncertified c/d
350000 By Plant &
Machinery c/d
90000 By Notional Profit
115000
751667
501111
250556
3988334

Amt
20667
2080000
300000
650000
751667

3988334

Contract A/c
For the year ended 31-3-2008

Particular
Amt
To Work certified
b/d
To Work Uncertified
b/d
To Plant &
Machinery b/d
To Material
Purchases
To Wages
To Expenses
To Notional Profit
To P & L A/c
To Work in Progress

2080000
300000
6500000
500000
85000
100000
1635556
1383932
25164
6986112

Particular
Amt
By Work in Progress
c/d
By Work Certified
c/d
By Work
Uncertified c/d
By Plant &
Machinery c/d
By Notional Profit

250556
4400000
100000
600000
1635556

6986112

Contract A/c
For the year ended 31-3-2009

Particular
To Work certified
b/d

Amt

Particular
4400000 By Plant &
Machinery c/d

To Work Uncertified
b/d

100000 By Contractee A/c

To Plant &
Machinery b/d

600000

To Material
Purchases
To Wages
To Expenses
To Notional Profit
To P & L A/c

Amt
550000
5200000

50000
30000
30000
1635556
540000
5750000

5750000

Notes to accounts:I. Material:Items

2005

2006

2007

2008

2009

Sand

30000

40000

50000

70000

15000

Cement

50000

65000

60000

70000

12000

Stones

35000

Small Stones 20000

15000

20000

10000

2000

Steels

60000

80000

100000

5000

Binding Wire 2000

3000

5000

6000

600

Bricks

23000

70000

120000

150000

8000

Marbles

47000

15000

94000

7400

Total

200000

300000

350000

500000

50000

40000

II. Expenses:Particulars
Salary:
Supervisor
Transport
Watchman
Accountant
Office Boy

2005

2006

2007

2008

2009

8000
2000
6000
9000
2000

12000
4000
10000
10000
5000

10000
3000
8000
10000
4000

11000
5000
6000
10000
2000

3000
1500
600
12000
400

Insurance
Sy.Expenses
Traveling Exps.
Total:-

20000
43000
10000
100000

30000
37000
12000
120000

30000
35000
15000
115000

30000
16000
20000
100000

5000
5000
2000
30000

* These are apportioned expenses to this contract only.

III. Wages:Labour contract is given for all 5 years to the
particular amount & amount shown is apportioned amount on
such quality.

IV. Plant & machinery:-

6.

V. Mixture Machine.
VI. Truck.
VII. Minidoor.
VIII. Wooden Polls.
IX. Slab Tray.
Small Equipment.

Rs.800000/- is taken proportion amount on the estimated base

& Rs.50000/- charged as
Depreciation on fixed installment amount.
V. Amount of work Certified & Uncertified:Years

Work Certified

Work Uncertified

2005

200000

150000

2006

1100000

130000

2007

2080000

300000

2380000

2008

4400000

100000

4500000

2009

5200000

5200000

1. Here total work done is calculated & work certified by

chartered engineers is segregated, balance is work
uncertified.
2. Balance of work Certified & Uncertified is b/d to next
year debit side.
3. Work certified of next year is current years work
certified including last year.
VI. Work in Progress:Notional profit is the balancing figure of contract A/c.
After that it appointed as

Profit & loss A/c & work in progress A/c, as per rules,
explained as follows:

Years 2005:Here, loss is incurred thus, while is transfer to profit &

loss A/c.

Years 2006:Notional Profit = Rs.310000/1/3 amount is transfer to P & L A/c & balance to work in
progress A/c. It is brought down to next year contract A/c credit side.
P & L A/c 310000 x 1/3 = Rs. 103000/W.I.P. A/c 310000 x 2/3= Rs. 206667/Years 2007:Notional Profit = Rs.751667/2/3 profit is transferred to P & L A/c & balance to work in
progress
P & L A/c 751667 x 2/3 = Rs. 501111/W.I.P. A/c 751667 - 501111 = Rs. 250556/Years 2008:Notional Profit = 1635556/Following profit is transferred to the P & L A/c.
Notional Profit = Work certified / Contract Price.
1635556 x 4400000 / 52000000 = Rs. 1383932/P&L A/c =Rs. 1383932/W.I.P. A/c = Rs. 251624/Years 2009:The amount of profit is transferred to the P & L A/c &
W.I.P is adjusted in the contractee A/c & that is why it is not
brought down in contract A/c.

CONCLUSION:-

From the study of this project I reach the conclusion that the
contract costing is
much similar in theory & application to the practice. Its application is
not much hard
Practicably & enjoying while accounting of it.

SUGGESTION:-

S.S.

Jain

Constructions

(builders

&

contractors) is complying with the concept of the contract

costing & Accounting Standard 7 with the accounting principle, thus
they do not require to improve there accounting.
Best wishes to them!

ANNEXURE
I Have Questionnaire Which Includes Some
Important Questions for Project Report Given As Under
1. Introduction with Company Profile?
2. Who Is Owner Of The Company?
3. When The Proprietor Start His Own
Business?
4. How Many Skilled Workers And Unskilled
Workers Are There?
5. What Are Different types of Contract held
by Company with customer?
6. Who Are Your Esteem Customers?
7. What Are The Advantages To The
Company From This Technique?
8. What Will Be The Future Expansion Plan
Of The Company?
9. Which are the major constructions held
by company widely?
10. What is the mode of maintaining
accounting system?
11.

Any problems faced by industries?

12. How it is useful to prepare to estimate

for up coming constructions?
13. Which are the other different bodies
attached with company?

79

BIBILOGRAPHY

NAME OF THE
BOOKS
Study of material of
ICAI PE-II
Cost Accounting &
F.M
Research
Methodology &
Project Work
Accounting Standard

AUTHOR

PUBLICATION

ICAI PUBLICATION

Sarvanna prasath

PADUKA
PUBLICATION
NIRALI PRAKASHAN

Cost & Works

Accounting

Dr. Suhas Mahajan

P. C. Pardeshi

D. S. Rawat

TAXMANN
PUBLICATION
NIRALI PRAKASHAN

80