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One more party is there called certifier/evaluator/engineer. Now what is the role of the certifier/
evaluator/engineer? Actually, contractee gives money to the contractor on the basis of the work
completed. Suppose, contract price is Rs. 10,00,000 and contractor says to the contractee that 40%
work is completed and give me Rs. 4,00,000 i.e. 40% of the contract price. Now, what if the work
completed is not 40% or if the work completed is 40%? In such a case after taking money the
contractor may leave the work in between. Now the certifier/evaluator/engineer (from the side of the
contractee) comes in the picture. Contractee sends the certifier/evaluator/engineer to the site and
certifier/evaluator/engineer gives a certificate for the completed work. On the basis of this certificate
only the contractee gives money to the contractor. Also, the contractee does not give the full money to
the contractor, because if he does so, then contractor may leave the work in between. So the
contractee retains some money which is called the Retention Money. Now, if the
certifier/evaluator/engineer gives a certificate of 25% work completed then the value of the work
certified will be Rs. 2,50,000 (Rs. 10,00,000 25%). Now the contractor is eligible to get Rs. 2,50,000.
But the contractee gives only Rs. 2,00,000 to the contractor, then Rs. 50,000 will be the retention
money. This retention money is the 20% of the work certified (Rs. 50,000 / 2,50,000 100). Any work
which is completed but not certified by the certifier/evaluator/engineer is called the work not
certified. Also the expenses incurred after obtaining the certificate for the completion of work will
form part of the work not certified.
In order to prepare the contract account, first of all learn/cram the format of the contract account.
It’s like a mini profit and loss account. Its prepared on the basis of two principles—debit what
comes in and credit what goes out, and debit all expenses and losses and credit all incomes and gains.
Further, while preparing the contract account one must keep in mind the principle of normality
also. All the abnormal losses and abnormal incomes shall be excluded from the contract account. For
example, if there is any loss on sales of plant/machinery/material then obviously it’s already
included/debited in/to the contract account, so the amount of such loss shall be credited to the
contract account. Likewise, if there is any profit on sales of plant/machinery/material then obviously
it’s already included/credited in/to the contract account so the amount of such loss shall be debited to
the contract account.
In case of expenses are being incurred then such expenses shall be debited to the contract account
on accrual basis. Outstanding expenses shall be added to the concerned expense and prepaid expenses
shall be subtracted.
In case of material is being used for the contract then such amount shall be debited. In case of
outgoing material the amount shall be credited using the principle of real accounts. At the time of
completion of the contract material is returned to the stores and it’s written on the credit side.
Sometimes the material consumed is calculated (or given) in the question, then such material