Question

Ethekwini Builders Ltd provides a unique scope of services in the home renovations industry. They deliver quality, reliability and impeccable customer service while staying on time and on budget, ensuring a hassle-free renovation experience for their customers. Being experienced specialists in renovation design and building, they employ efficient systems, top quality modern materials and finishes and talented artisans at the forefront of their trade, all at very competitive costs.

On 01 March 2019, the legal department of Ethekwini Builders Ltd had entered into a contract. The contract was undertaken to build a Gym in the La Mercy area. The legal team of Ethekwini Builders was instructed to draw up the contract between the necessary the parties by the Director of the company. The financial year of the company ends on the 28 February of each year. The contract will be completed by 28 February 2020. The Management Accountant of Ethekwini Builders Ltd supplied the following details with regard to the contract:

Salary and wages R212 500

Equipment hire R5 500

Machinery and plant sent to site R400 500

Other contract expenses R42 200

Payments received from Debtor AA Mathew was R706 500

Statistics South Africa’s figures released on Thursday showed that the steel production in South Africa fell strongly in December 2019, dropping by 7.5% from a year earlier, suggesting that the effect of work stoppages owing to the “wild cat” strikes at the steel industry during the third quarter continued to be felt in the fourth. The December fall follows a 3.8% drop year on year in November, revised down from the previously reported 4.5% fall.

The “wild cat” strikes caused a panic among buyers and this led to a sharp increase in steel prices. Ethekwini Builders decided to absorb the increases in steel prices due to the company’s slogan of keeping to the budget quoted. The site manager indicated:

Raw materials issued from warehouse R185 000

Raw materials delivered to site by suppliers R165 500

Raw materials returned: Warehouse R 5 500

Supplier R1 155

He further stipulated that raw materials on site (28 February 2020) amount to R 38 800 and plant on site (28 February 2020) amount to R388 500.

The Architect indicated that the Work certified (Debtors) amount to R785 000.

Additional information:  An amount of R1 800 relates to salaries and wages. This amount is due and payable at year-end but no entries have been put through the books.

Required:

1.1 Prepare a Contract account in which you clearly indicate the amount to be transferred to the profit and loss account at the 28 February 2020.

1.2 Prepare the debtors account

Round off to the nearest whole number

Answer 1

Contract account
1st March 2019 to 28 feb 2020
Particular	Amount	Particular	Amount
To Raw Materials		By Raw Materials
- Issued	185,000	- returned	5,500
		- Supplier	1,155
		- In hand	38,800
To Salary & wages	212,500	By Profit & loss
add - outstanding Salary & wages	1,800	- Raw Material Lost	13,345
To Equipment	5,500	By plant at site	388,500
To Plant & machinery	400,500	By work Certified	785,000
To Profit	427,000
Total	1,232,300		1,232,300
	Debtor Account
1st March 2019 to 28 feb 2020
Particular	Amount	Particular	Amount
To Work certified	785,000	By Bank	706,500
		By Balance C/f	78,500
Total	785,000	Total	785,000