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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Ganga Engineering Ltd. is building a bridge under a fixed price contract of Rs 300 lakh. At the reporting date, cost incurred is Rs 90 lakh and estimated further cost is Rs 135 lakh. The company has received Rs 100 lakh as progress billing and Rs 20 lakh as advance, both from the customer. Using cost-to-cost, what is the revenue recognised for the year (first year)?

Revenue recognised is Rs 120 lakh. Total estimated cost is Rs 225 lakh, so the stage of completion is 40 percent, and 40 percent of the Rs 300 lakh contract price is Rs 120 lakh. Progress billings and advances received do not affect the amount of revenue recognised.

  1. ARs 120 lakhCorrect
  2. BRs 90 lakh
  3. CRs 300 lakh
  4. DRs 100 lakh

Explanation

Total estimated cost = 90 + 135 = Rs 225 lakh. Progress = 90/225 = 40%. Revenue = 40% x 300 = Rs 120 lakh. Billings (Rs 100 lakh) and advances do not determine revenue under AS 7, so Rs 100 lakh is wrong.

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