Contract Accounts

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Nishant Kumar (Querist)
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21 May 2011 Is any treatment required to be made in the contract account related to escalation clause?

Also,

What treatment is made if the total estimated contract cost is more than the contract price???

Please Help.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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21 May 2011 1. provision need to provide for extra claims as per escalation clause terms during the particular reporting period

2. In case estimated contract cost exceeding the contract price , the provision for future loss need to be provided in the contract starting period itself as per AS-7

Nishant Kumar

Nishant Kumar (Querist)
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21 May 2011 thank you sir, but, the provision that has to be made for escalation clause would be made from the Profit & Loss A/c...i guess???? Would that be shown in the Contract Account???

Thank You!!!

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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21 May 2011 As per my opinion Escalation related to the particular contract need to be shown in contract account

Nishant Kumar

Nishant Kumar (Querist)
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21 May 2011 Thank You Sir! And what about the provision for future estimated loss? Would that be made from Profit & Loss? Would that be shown in the Contract Account???

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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21 May 2011 yes, provision for future loss also need to be adjusted in contract account only

Dr: Provision for future loss a/c
Cr: Contract a/c

Nishant Kumar

Nishant Kumar (Querist)
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21 May 2011 Thank You Sir!

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