Prior Period Adjustment/Expenses means the expenses incurred for previous year (Say 09-10) for which you had not made provision in the books of account and now your balance sheet is finalized and after finalize you have got these bills so you now have to book the same in current year (say 10-11). That is called prior period adjustment/expenses. 

Hi Himanshu

Point No. 1: What is Prior Period Item?

They are result of errors / omissions in the preceding financial years, accounted for in the current year. Therefore, the example quoted by you is not covered by AS 5 - Prior Period Item.

Point No.2: If not prior period item, what else?

The information seems to suggest that it is covered by AS 7 Accounting for Construction Contract. Therefore, in terms of AS 7, the anticipated loss of Rs.5 Lakhs should be provided for immediately. The information may also be considered under AS 4, events after Balance Sheet date, for appropriate disclosure.

Rineesh