TUTORIAL SHEET -1

CEL 464
Q. 1
Value of Contract: Rs 1,00,00,000 (Rs. One Crore)
Time period: 4 months
Payment schedule: First month 15% of the contract value, 2nd month 40% (cumulative),
3rd month 80%(cumulative) and fourth month 100% (cumulative). The Owner makes an
advance payment of Rs 5.00 lakhs of Rupees, which is to be recovered in 4 equal
installments. The owner also supplies materials to the value of about Rs 3.2 lakhs which
value is also to be recovered equally from each Running Account bill. In addition, the
owner will recover from the payments made to the contractor 2% of the value of the work
done as income tax deducted at source and deposit this amount with the Reserve Bank of
India. Prepare the cash flow diagram for contractor and the owner?

Q2 A contract has been awarded on the following terms:

 Advance payment of Rs. 5.00 lakhs. To be recovered in equal installments from
the R.A Bills.
 Materials issued by the Owner to the tune of Rs. 3.20 lakhs to be recovered
equally from each R.A. Bill.
 TDS at 2% to be recovered from each R.A. Bill.
Contractor has prepared the construction schedule which has been approved by the
owner. The construction schedule is shown below. Also shown are the estimated
quantities that are likely to be executed during each month.

Sl Item description Unit Qty 1 2 3 4 Remar

ks
1 Earthwork in cum 500 500
excavation
2 R.C.C. cum 1000 250 500 250
3 Brick work cum 2000 5 6 9
4 Sanitary works Lump 50% 50%
Sum
5 Electrical works Lump 50% 50%
Sum
6 Woodwork Lump 50% 50%
Sum
7 Finishing work sqm 4750 4750

1. Prepare the month-wise running account bill

2. Prepare the cash inflow diagram for the contractor
3. Prepare the cash outflow diagram for the owner

Question 3
A project is estimated to cost 2.4 crores and is expected to be completed in 12 months. You may
assume that:

 10% of the work is completed in the first two months. Take the progress to be 3% and 7% in
the first and second month respectively.
  80% of the work is completed during the next 8 months
 10% of the work is completed in the last two months. Take the progress to be 8% and 2% in
the eleventh and the twelfth month respectively.

The following data may also be useful.

 The contractor has to submit an Earnest Money Deposit of 10% of the estimated cost at the
time of the submitting his tender in the form of demand draft. This amount is to be retained by
the Client as Initial security deposit.
 The contractor needs to be paid a mobilization advance of Rs 16 lakhs at initially, which can
be recovered in four equal installments, beginning with the third running bill.
 An amount equivalent to 5% of the gross amount due is to be retained in each bill towards
(additional) security deposit.
 50% of the total security deposit is to be returned to the contractor at the end of 6 months
after the project has completed, and the remaining part after another 6 months.
 10% recovery is to be made towards Income tax. Payment to the department of income tax is
to be made at the end of the project.
 The contractor submits monthly bills on the first day of the following month
 On the client’s side, it takes about 20 days to process a bill, and payment is made only on the
last day of the same month in which the bill is submitted.
 Client maintains his funds with the bank and is paid an interest of 5% compounded monthly.
 Rate of interest on borrowing from the bank is 15% per annum, compounded monthly

Tasks
1. Clearly show how much cash the client needs at different points in time as the
project progresses.
2. How much money does the client need to borrow at different points of time, and
what will be his TOTAL liability at the completion of the project (say at the end
of month 24).

Clearly outline all the assumptions you make in your analysis.