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.
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
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.
| Originally posted by : Devendra | ||
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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 |
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Agreed with Devendra's view
0.5 Cr of the loss should be provided in P&L even constuction has not started.
Thanks
i agree with all above, actual loss should not be considered only provision is made. effect of both are same i.e transfer to P& L A/c.
whole loss to be recognised during current year.
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