Hi Team,
I have doubt in IPCC May 2016, Accounting (Paper 1) Question (1) (a). Where the question was asked based on AS -7 .
Where , escalation clause were given without mentioning approval of customer. If we assume customer not approved, we do not
take into account. Suppose, If we assume customer approved , how to handle it?? The following is the question. Please have a look and give me clarity on this.
Question 1, a
Uday Constructions undertake to construct a bridge for the Government of Uttar Pradesh. The construction commenced during
the Financial Year ending 31.03.2016 and is likely to be completed by the next Financial Year. The contract is for a fixed price of
` 12 Crores with an Escalation Clause. The costs to complete the whole contract are estimated at ` 9.50 Crores. You are given
the following information for the year ended 31.03.2016.
• Cost incurred upto 31.03.2016 = `4 Crores.
• Cost estimated to complete the contract = ` 6 Crores
• Escalation in Cost by 5%, and accordingly the Contract Price is increased by 5%.
You are required to ascertain the state of completion and state the Revenue and Profit to be recognized for the year as per AS–7.
Regards,
Chandrakumar. K
CAclubindia
