Hi all,
Please clarify whether Marketing expenses incurred for a particular project can be considered direct costs for calculation of percentage completion method as per AS 7.
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Construction contracts
Replies (1)
No. Marketing expenses (or selling expenses) cannot be considered as part of direct cost. Para 19 of AS-7 reads as under:
"Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include:
(a) general administration costs for which reimbursement is not specified in the contract;
(b) selling costs;
(c) research and development costs for which reimbursement is not specified in the contract; and
(d) depreciation of idle plant and equipment that is not used on a particular contract"
Point (b) explicitly excludes selling costs from direct cost / contract related costs and hence should not be considered for percentage of completion
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