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Doubt ?? - AS 7 Const. Contracts, please help

Krish (CA Final ) (3331 Points)

26 April 2011

PQR Ltd. agrees to construct a shopping complex at a contract price of Rs. 10 Crores. The cost of the project was estimated at Rs. 8 Crores over the construction period of two years. Comment on the following.

- If the estimate of cost has been revised to Rs. 10.5 Crore, and the work on the construction has not started by the end of first year, should any loss be recognised for the first year.

Please help me out.

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7 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 26 April 2011

AS PER AS - 7, IF THERE IS AN INCREAE IN THE COST IT SHOULD BE IMMEDIATELY RECONIZED AS AN EXPENSE IN THE BOOKS.

REGARDS,

DEVENDRA K

CA Karan Joshi (ACA) (149 Points)
Replied 31 May 2011

the above answer is ..correct...

AS 7 ..clearly says that any increase of estimated increase in cost of contract should b IMMEDIATELY recognised...!!

thus even if work is nt started the loss shall be recognized.

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 31 May 2011

Originally posted by : Devendra
	AS PER AS - 7, IF THERE IS AN INCREAE IN THE COST IT SHOULD BE IMMEDIATELY RECONIZED AS AN EXPENSE IN THE BOOKS. REGARDS, DEVENDRA K

Agreed with Devendra's view

HARPREET SINGH (Chartered Accountant) (79 Points)
Replied 31 May 2011

0.5 Cr of the loss should be provided in P&L even constuction has not started.

Thanks

Vivek Mehta (CA, DISA,CS, MBA) (I am in Practice and also giving understanding and guidance to the Students of CA Final and IPCC for various subjects esp for Direct Tax.) (1629 Points)
Replied 31 May 2011

The Loss of 0.5 Cr need to recoginised immediately, had the increase in cost not exceeding the contract price than its not required to recoginse the increase in cost as loss in P&L a/c