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Builders accounting Policy

aasita (ACA) (387 Points)

17 June 2010

Which Accounting standard builders need to follow ?Percentage Completion method or project completion method?How revenues and expenses are to be accounted for builders?

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3 Replies

CA CS CIMA Prakash Somani (Landmark Group) (23512 Points)
Replied 17 June 2010

Method that recognizes profit on a long-term construction contract as it is earned gradually during the construction period. This approach is preferred over the Completed Contract Method because it does a better job of matching revenue and expense in the period of benefit. It should be used when reliable estimates of the degree of completion are possible. It is more realistic and levels out the earnings. Under the method, the measure of revenue to be recognized each year is equal to percentage completed x contract price. One approach to estimate the percentage completed is based on the following relationship:

Any revenue that had been recognized in a prior period is subtracted from the cumulative total in arriving at the current period's income.

A learner (Corporate Accounts ) (345 Points)
Replied 17 June 2010

Agree with Mr. Prakash..Matching concept is apt to follow..

Practically...% completion is available as now a days consultants and architects certify the construction and then only construction company gets revenue against RA bills..

So its easy to get % completion and applythe matching concept

Regards,

amandco (Practise) (21 Points)
Replied 28 August 2011

This method is for contractors in terms of AS-7. What about builder? AS-7 specifically excludes builders from the same. in that case AS-2 will apply and WIP cannot be inflated with profit amount.