Ury plc is a house building firm specialising in the construction of 3 and 4 bedroom kit houses. Two contracts were started during Year 1 Contracts Crichie and Davah

3. Ury plc is a house building firm specialising in the construction of 3 and 4 bedroom
kit houses. Two contracts were started during Year 1: Contracts Crichie and Davah.
The following information was available on 31 December Year 1.
Contract – Crichie
£000s
Contract price 920
Kits imported 200
Shipping cost for kits 13
Materials purchased 80
Material issued from stores 23
Material transferred to Contract Davah 8
Direct wages paid 140
Direct site expenses paid 51
Plant and machinery sent to site (at valuation) 100
Sub contract costs 43
Professional architects fees 12
Balances at 31 December:
Work completed but not yet certified 40
Work certified complete 690
Value of Plant and machinery on site 75
Direct wages accrued 12
Direct expenses prepaid 3
Materials on site 6
1. During the year materials costing £20,000 were damaged on site, 25% of which
were scrapped and sold for 40% of the value. The remainder were disposed of at
no cost.
2. Company overheads costing £90,000 are to be shared out on a Prime Cost basis
between Contract Crichie and Davah. Contract Davah had Prime Cost of
£400,000.
3. Any profits on incomplete contracts are recognised using the formula:
• Notional Profit × Value of Work Certified/Contract Price
4. All contracts allow house purchasers to retain 5% of the value of work certified
for a period of 1 year after the completion date.
(a) Prepare the account for Contract Crichie at 31 December Year 1, showing your
calculation and treatment of any profit or loss.
(b) (i) Calculate the amount paid to date to Ury plc by its clients for Contract
Crichie.
(ii) Explain why the clients do not pay the full amount due at the completion
date.
(c) Explain the significance of establishment costs to a firm beginning a new
contract.