AS7 - Accounting for Construction Contracts

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Rajat (Querist)
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03 February 2009 I recently read somewhere that AS7 (% completion method) is not mandatorily applicable to construction companies who develop housing/commercial on its own account and then sell to public. In other words these construction companies are not bound to compulsorily follow % completion method. Is it true?

Is AS7 applicable only to contractors who undertake construction contract for their clients.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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24 September 2011 AS 7 is not applicable to developers. The reason being that AS 7 defines construcion contract as a contract which is specifically negotiated for the construction of an asset.

The developers do not enter into a construction contract with their buyers. They undertake construction on their own account and later sell the property to the buyers.

They, therefore enter into an agreement for sale.

Therefore, AS 7 is not applicable.

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