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CMA Intermediate · Cost Accounting · Contract Costing

A construction firm in Pune uses the percentage of completion method for a long-term contract. Under AS 7 (Construction Contracts), revenue and costs are recognised in the statement of profit and loss when:

Under AS 7, contract revenue and costs are recognised by reference to the stage of completion at the reporting date, provided the outcome of the contract can be estimated reliably. Recognition does not wait for handover, final certification or full cash receipt from the customer.

  1. AThe outcome of the contract can be estimated reliably, by reference to the stage of completion at the reporting dateCorrect
  2. BThe contract is fully completed and handed over to the customer
  3. CCash is received from the contractee in full
  4. DThe contractee issues the final completion certificate only

Explanation

AS 7 requires contract revenue and costs to be recognised by reference to the stage of completion when the outcome can be estimated reliably. Waiting for handover is the completed contract method, which AS 7 does not permit when the outcome is reliably estimable. Cash receipt timing does not drive recognition.

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