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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Ganga Infra Ltd is building a flyover for a state road authority under a fixed price contract and is compiling the contract costs under AS 7. Which one of the following items will NOT be included in contract costs for the flyover?

Selling costs are excluded from contract costs under AS 7. Site plant depreciation, design costs directly related to the contract, and contract insurance are all costs that relate directly to the contract or can be allocated to it. Selling costs do not qualify because they are not attributable to contract activity.

  1. ADepreciation of a crane used exclusively at the flyover site
  2. BCost of design and technical assistance directly related to the flyover
  3. CSelling costs incurred by Ganga Infra Ltd to market its construction services generallyCorrect
  4. DInsurance premium paid on the flyover site works

Explanation

AS 7 includes costs that relate directly to the specific contract, such as site plant depreciation, design and technical assistance directly related to the contract, and contract insurance. Selling costs are not attributable to contract activity or allocable to the contract, so they are excluded. Hence the selling costs are the only item left out of the contract costs.

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