Required: Contract A/C, Outer Cities Grabbers Ltd. (Contractee), Architects' Certificates A/C, and Retentions…

Question

Required: Contract A/C, Outer Cities Grabbers Ltd. (Contractee), Architects' Certificates A/C, and Retentions A/C

ScanSolve AI Tutor · Accepted Answer

Here are the required accounts for Example 2:

1. Contract A/C

\begin{array}{|l|r|l|r|} \hline \textbf{Particulars} & \textbf{£} & \textbf{Particulars} & \textbf{£} \\ \hline \text{To Plant} & 150,000 & \text{By Plant c/d} & 100,000 \\ \text{To Wages, etc.} & 260,000 & \text{By Materials c/d} & 50,000 \\ \text{To Materials} & 330,000 & \text{By Work-in-Progress c/d:} & \\ \text{To Sub-contract work} & 200,000 & \quad \text{Work Certified} & 1,550,000 \\ \text{To Sundry Expenses} & 30,000 & \quad \text{Work Uncertified} & 20,000 \\ \text{To Contract overheads} & 240,000 & & \\ \text{To Accrued wages} & 60,000 & & \\ \text{To Notional Profit c/d} & 450,000 & & \\ \hline \textbf{Total} & \textbf{1,720,000} & \textbf{Total} & \textbf{1,720,000} \\ \hline \text{To Notional Profit b/d} & 450,000 & \text{By Profit \& Loss A/C} & 212,903.23 \\ & & \text{By Reserve for WIP} & 237,096.77 \\ \hline \textbf{Total} & \textbf{450,000} & \textbf{Total} & \textbf{450,000} \\ \hline \end{array}

Calculate Total Debits and Credits for Notional Profit.
- Total Debits = Plant + Wages + Materials + Sub-contract work + Sundry Expenses + Contract overheads + Accrued wages $= 150,000 + 260,000 + 330,000 + 200,000 + 30,000 + 240,000 + 60,000 = 1,270,000$
- Total Credits = Plant c/d + Materials c/d + Work Certified + Work Uncertified $= 100,000 + 50,000 + 1,550,000 + 20,000 = 1,720,000$
- Notional Profit = Total Credits - Total Debits $= 1,720,000 - 1,270,000 = \boxed{450,000}$
Allocate Notional Profit to Profit & Loss A/C and Reserve for WIP.
- Cash Received = Progress payments during 2019 = £1,100,000
- Work Certified = £1,550,000
- Profit to P&L = Notional Profit $\times \left(\frac{\text{Cash Received}}{\text{Work Certified}}\right) \times \frac{2}{3}$ (assuming 50-90% completion) $= 450,000 \times \left(\frac{1,100,000}{1,550,000}\right) \times \frac{2}{3} = 450,000 \times 0.709677419 \times 0.666666667 \approx \boxed{212,903.23}$
- Reserve for WIP = Notional Profit - Profit to P&L $= 450,000 - 212,903.23 = \boxed{237,096.77}$
2. Outer Cities Grabbers Ltd. (Contractee) A/C
$\begin{array}{|l|r|l|r|} \hline \textbf{Particulars} & \textbf{£} & \textbf{Particulars} & \textbf{£} \\ \hline \text{To Architects' Certificates A/C} & 1,550,000 & \text{By Bank} & 1,100,000 \\ & & \text{By Retentions A/C} & 150,000 \\ & & \text{By Balance c/d} & 300,000 \\ \hline \textbf{Total} & \textbf{1,550,000} & \textbf{Total} & \textbf{1,550,000} \\ \hline \end{array}$
Record transactions in Contractee A/C.
- Debit the account with the value of work certified: £1,550,000.
- Credit the account with progress payments received: £1,100,000.
- Credit the account with retentions withheld: £150,000.
- Credit the account with the balance receivable: £300,000. $1,100,000 + 150,000 + 300,000 = 1,550,000$ The account balances.
3. Architects' Certificates A/C
$\begin{array}{|l|r|l|r|} \hline \textbf{Particulars} & \textbf{£} & \textbf{Particulars} & \textbf{£} \\ \hline \text{To Outer Cities Grabbers Ltd. A/C} & 1,550,000 & \text{By Contract A/C} & 1,550,000 \\ \hline \textbf{Total} & \textbf{1,550,000} & \textbf{Total} & \textbf{1,550,000} \\ \hline \end{array}$
Record transactions in Architects' Certificates A/C.
- Debit the account with the value of work certified from the Contractee A/C: £1,550,000.
- Credit the account with the value of work certified from the Contract A/C: £1,550,000. The account balances.
4. Retentions A/C
$\begin{array}{|l|r|l|r|} \hline \textbf{Particulars} & \textbf{£} & \textbf{Particulars} & \textbf{£} \\ \hline \text{To Outer Cities Grabbers Ltd. A/C} & 150,000 & \text{By Balance c/d} & 150,000 \\ \hline \textbf{Total} & \textbf{150,000} & \textbf{Total} & \textbf{150,000} \\ \hline \end{array}$
Record transactions in Retentions A/C.
- Debit the account with the retention amount from the Contractee A/C: £150,000.
- Credit the account with the closing balance of retentions: £150,000. The account balances.

Required: Contract A/C, Outer Cities Grabbers Ltd. (Contractee), Architects' Certificates A/C, and Retentions A/C

Answer

Step-by-step solution

Calculate Total Debits and Credits for Notional Profit.

Allocate Notional Profit to Profit & Loss A/C and Reserve for WIP.

Record transactions in Contractee A/C.

Record transactions in Architects' Certificates A/C.

Record transactions in Retentions A/C.

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