ECONOMICS

Detailed explanation-1: -Depreciation of assets used in the contract will also be debited, but unlike in other types of accounts it is customary in Contract Accounts to debit the opening balance of the assets and credit the closing balance of the same instead of depreciation, wherever it is convenient to do so.

Detailed explanation-2: -At the end of the accounting period, the value of the plant after providing an appropriate amount of depreciation (i.e., depreciated value) should be credited to the contract account. In this way, the depreciation on the plant is automatically charged to the contract account.

Detailed explanation-3: -2nd Method: Alternatively, Contract Account is simply debited with the amount of depreciation. This method is used when plant is sent to contract only for a short period or plant is used in different contracts. For example – mobile crane or bulldozer used in a contract may be charged on this basis.

Detailed explanation-4: -(1) Contract is debited with the full value of the plant. When a new plant or old plant is issued to a contract, the cost of the plant or book value of the old plant is debited to the contract. The plant is revalued at the end of the year and credited to the contract with revalued (depreciated) value.