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Treatment of income

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Srinivas

ACCOUNTS MANAGER

21 Points Posted on 09 August 2012

Dear Member,

Please clarify my doubt regarding construction accounts.

01.IF the construction company starts , residential/commercial complexes more than one at a time, the completion of work stage wil be in different stages of each complex( 1st complex is intial stage , 2nd complex 50% completed ,3rd complex 75%completed .What is the accounting treatment.

02. IF advance received from party how much amt is treated as income and how do we determine the cost of project.

Thanking you

Regards

Sriniva

Replies (1)

Giridhar S Karandikar

Team Lead

5675 Points Posted on 09 August 2012

As per AS-7 Accounting for Construction contracts, when the PErcentage by completion method is bieng followed revenue should be recognized on the basis of Percentage of completion of contract to total cost of contract.

so in your case for 1st complex no revenue should be recognized. For 2nd stage 50% of the total cost of contract should be recognized as revenue & for teh 3rd stage 75% of the contract cost shold be recognized as revenue.

Income is not be recognized on the basis of advances received but on the basis of percentage of completion of work certified by the architect