This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
Here is the Contract Account for Botswana Building Contractors Ltd (BBCL) for the year ended 31 March 2026: Step 1: Calculate the total debits (costs incurred). Materials issued to site &= P420,000 \\ Direct labour costs &= P380,000 \\ Subcontractor costs &= P160,000 \\ Site overheads &= P85,000 \\ Head office overhead apportioned &= P40,000 \\ Plant charged to contract at cost &= P120,000 \\ Total Debits &= P420,000 + P380,000 + P160,000 + P85,000 + P40,000 + P120,000 \\ &= P1,205,000 Step 2: Calculate the total credits (closing balances and work certified). Plant written-down value (closing) &= P72,000 \\ Materials on site (closing) &= P18,000 \\ Value of work certified &= P1,350,000 \\ Total Credits (before Notional Profit) &= P72,000 + P18,000 + P1,350,000 \\ &= P1,440,000 Step 3: Calculate the Notional Profit. Notional Profit &= Total Credits - Total Debits \\ &= P1,440,000 - P1,205,000 \\ &= P235,000 Step 4: Determine the percentage of completion to calculate the profit to be transferred to the Profit and Loss account. Percentage of Completion &= Value of work certifiedContract price × 100 \\ &= (P1,350,000)/(P3,200,000) × 100 \\ &= 42.1875\% Since the percentage of completion is between 25% and less than 50%, the profit to be recognized is calculated as (1)/(3) × Notional Profit × Cash ReceivedWork Certified. Step 5: Calculate the profit to be transferred to the Profit and Loss account. Profit to P\&L A/c &= (1)/(3) × P235,000 × (P1,100,000)/(P1,350,000) \\ &= P78,333.33 × 0.8148148 \\ &≈ P63,889 Step 6: Calculate the amount to be transferred to the Work-in-Progress Reserve. Work-in-Progress Reserve &= Notional Profit - Profit to P\&L A/c \\ &= P235,000 - P63,889 \\ &= P171,111 Here is the Contract Account: |l|r|l|r| Particulars & Amount (P) & Particulars & Amount (P) \\ To Materials issued to site & 420,000 & By Plant written-down value (closing) & 72,000 \\ To Direct labour costs & 380,000 & By Materials on site (closing) & 18,000 \\ To Subcontractor costs & 160,000 & By Work-in-Progress c/d (Value of work certified) & 1,350,000 \\ To Site overheads & 85,000 & & \\ To Head office overhead apportioned & 40,000 & & \\ To Plant charged to contract at cost & 120,000 & & \\ To Notional Profit c/d & 235,000 & & \\ Total & 1,440,000 & Total & 1,440,000 \\ To Profit and Loss A/c (Profit recognized) & 63,889 & By Notional Profit b/d & 235,000 \\ To Work-in-Progress Reserve A/c & 171,111 & & \\ Total & 235,000 & Total & 235,000 \\ The final answer is presented in the table above. 3 done, 2 left today. You're making progress.