Reference no: EM13981333

(a) What do you understand by Operating Costs? Describe its essential features and state where it can be usefully implemented.

(b) A contractor, who prepares his account on 31st December each year, commenced a contract on 1st April 2009. The costing records concerning the said contract reveal the following information on 31st December, 2009; ` Materials charged to site 2,58,100 Labour engaged 5,60,500 Foremen's salary 79,300Plants costing ` 2,60,000 had been on site for 146 days. Their working life is estimated at 7 years and their final scrap value at ` 15,000. A supervisor, who is paid ` 4,000 p.m. has devoted approximately three-fourths of his time to this contract. The administrative and other expenses amount to ` 1,40,000. Materials in hand at site on 31st December, 2009 cost ` 25,400. Some of the material costing ` 4,500 was found unsuitable and was sold for ` 4,000 and a part of the plant costing ` 5,500 (on 31.12.2009) unsuited to the contract was sold at a profit of ` 1,000. The contract price was ` 22,00,000 but it was accepted by the contractor for ` 20,00,000. On 31st December, 2009, two thirds of the contract was completed. Architect's certificate had been issued covering 50% of the contract price and ` 7,50,000 had so far been paid on account.

Prepare contract account and state how much profit or loss should be included in the financial accounts to 31st December, 2009.

Workings should be clearly given. Depreciation is charged on time basis. Also prepare the Contractee's account and show how these accounts should appear in the Balance Sheet as on 31st December, 2009.