26 January 2024
As per AS7 of ICAI: When an uncertainty arises about the collectability of an amount already included in contract revenue, and already recognised in the statement of profit and loss, the uncollectable amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense rather than as an adjustment of the amount of contract revenue.
Now my questions are: 1. how should i classify(group) this expense? does it fall under direct or indirect expense. please note that the uncollectability arises due to final measurement and not a bad debt situation. 2. Incase the revenue is recognised during mid year reconstiution of firm should i follow the above guidelines if the adjustment is to be done in the same accounting year? Example: the construction contract was taken up during april 2023. Reconstitution of firm happens on Dec,2023 and at that time the initial contract amount was recognised as revenue, now the work finished on Jan., 2024 itself and during final measurement slight variation in amount is noticed and that necessitate an adjustment of recognised revenue. Now given that this whole thing is happening in the same accounting year and year end profit and loss is not prepared yet, but mid year p&l due to reconstitution was prepared, shouldi i follow the Accounting guideline qouted above and recognise the uncollectable amount as expense or adjustment of revenue is permitted? if expense need to be recognised, will it be a direct expense or indirect?
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