AS-7 Construction Contracts

AS 2095 views 5 replies

Srinath

Chartered Accountant

166 Points Joined March 2011

Question: Date of taking up contract : 1 Dec 2008

Contract Price : 85 lakhs

Cost upto 31-3-2009 : 64.99 lakhs

Estimated further cost of completion : 32.01 Lakhs

On 31-3-09 How much loss is recognized & what is the provosion created?

Replies (5)

DIVYA PINCHA

ASSISTANT MANAGER:MERCHANT BANKING

537 Points Joined March 2011

Contract Price : 85 lakhs

Cost upto 31-3-2009 : 64.99 lakhs

Estimated further cost of completion : 32.01 Lakhs

Excess cost =64.99+32.01-85=12 Lakhs

Loss of12 lakhs to be regonised n provision for the same has to be created.

OTHER SUGGESTIONS WELCOME

vignesh

B-com CS CA-Final CFA-level 1 candida

1053 Points Joined March 2010

correct divya

Srinath

Chartered Accountant

166 Points Joined March 2011

The answer in my book is given "record loss of 8.04 lakhs ( 12x 64.99/97) & create Provosion for 3.96 lac"

So 12 lakh is clear the other paert is not so clear! I mean we record profits according to % completed but even losses??!

Guest

12 lac is the total foreseeable loss, however loss for current year will be .. Revenue recognised ( 67% of 85 lac i.e 56.95 lac) - Cost incurred to date (Rs.64.99) =804000 and expected loss to be recognised immediately will be 396000. OR you can also do as given in your book.

When the outcome of a construction contract can be estimated reliably, contract

revenue and contract costs associated with the construction contract shall be

recognised as revenue and expenses respectively by reference to the stage of

completion of the contract activity at the balance sheet date.

When the outcome of a construction contract cannot be estimated reliably: (a) revenue shall be recognised only to the extent of contract costs incurred that it is

probable will be recoverable; and

(b) contract costs shall be recognised as an expense in the period in which they are

incurred.

When it is probable that total contract costs will exceed total contract revenue, the

expected loss shall be recognised as an expense immediately.