What is Progress Payment due

What is Progress Payment due

The payment is required to be paid for the work completed and certified to date. The amount of already retention and payment already paid will be deducted from the certified amount.

Example of Progress Payment

Example of Progress Payment
Certified Work	200,000
Retention 10%	20,000
Already paid	80,000
Solution
Certified Work	200,000
Less
Retention 10%	20,000
Already paid	80,000
	100,000
Progress Payment Due	100,000

What is retention money

What is retention money

Retention money is concept related to contract payment when a portion of payment is retained from the certified amount. This is very much international practice

Purpose of retention money

The money is retained for two reason.

1. Completion of work

The first reason to retain money is to require the contractor to complete the work. this contract may not be interested to complete the project if he is given the full payment of work performed if he get some other opportunity of investment or for any other reason.

2. Quality

The other reason is to retain money to maintain the quality in remaining work to be performed by the contractor.

Example of anticipated Contract Loss

Example of Anticipated Contract Loss
Material Issued			50,000
Labour			40,000
Plant value Begning			100,000
Ovehreads			40,000
Matrial at Site			5,000
Plant at Closing			80,000
Toal estimated Cost			230,000
Contract Price			190,000
Work Certified			120,000
Solution
Contract Cost Profit & Loss
Work Certified			120,000
Material Used	(50,000-5000)		45,000
Labour			40,000
Plant value Begning	(100,000-80,000)		20,000
Ovehreads			40,000
Less: Cost of Good Sold			145,000
Loss for the year			(25,000)
Total Loss
Loss for the year			(25,000)
Future Loss			(15,000)
Total Loss	(230,000-190,000)		(40,000)

Contract Profit

There are number of way where the profit can be calculated from the contract. The following are important consideration for profit recognition in contract costing. There are number of practices are available in the industry to recognized but those practices must not be confused with the international accounting standard criteria of profit.

1. Expected Loss

The expected loss of contract is immediately recognized in full.

2. Initial Activity

The contract in very early stage and the cost incurred for mobilization the activity . Then no profit should be recognized this is a situation where 1 to 5 % cost is incurred.

3. Cost of completion

A very famous method of profit recognition and this method is also supported by international accounting standard.

= cost of work done/estimated total cost x estimated profit

4. Work Certified

= value of work certified / contract Price x estimated profit

5. Work certified - Cost of work certified

How Depreciation Charged Contract Costing

How Depreciation Charged Contract Costing

There are there method of charging cost of plan to a contract.

1. Deprecation

The depreciation may be charged by using straight line or reducing balance method. both these method have predetermined rate of utilization and therefore site manager give little attention for careful utilization and maintenance of asset.

2. Book Value Difference

The book value difference is charged as depreciation. The book value at the start and at the end is calculated and the difference is charged as depreciation. The book value is determined by the condition of the plant. This method improve the responsibility of site manager for effective and careful utilization of asset.

3. Plant Account method

Depreciation and Repair and maintenance is charged to an account and then a notional rent is charged to contract on the bases of utilization.

What is Contract Costing

What is Contract Costing

Contract costing is basically a type of job costing and normally apply to a long term assignment.

Characteristic of Contract Costing

1. Formal Agreement

The contract involve long duration and high cost therefore a formal contract is made between contractor and contractee.

2. Job costing Methodology

Contract costing apply the job costing methodology and cost are collected at a single point which is known as contract account.

3. Direct Cost

Majority of cost in contract costing are direct cost and most of the cost are incurred in direct relation of the contract due to the nature of the job.