Skip to content

CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Himalaya Infra Ltd is building a bridge under a construction contract. Up to the reporting date it has incurred: direct materials ₹12,00,000; direct labour ₹8,00,000; insurance of the contract site ₹50,000; design costs directly related to the contract ₹1,50,000; general administration costs not reimbursable under the contract ₹2,00,000; and selling costs ₹70,000. What amount is treated as contract cost under AS 7?

Contract cost is ₹22,00,000, being materials, labour, site insurance and directly related design costs. AS 7 excludes general administration costs that are not reimbursable under the contract and selling costs, because these are not attributable to contract activity.

  1. A₹22,00,000Correct
  2. B₹24,00,000
  3. C₹22,70,000
  4. D₹24,70,000

Explanation

Contract costs include costs directly related to the contract (materials, labour, site insurance, design costs). Here that is 12,00,000 + 8,00,000 + 50,000 + 1,50,000 = ₹22,00,000. General administration costs not reimbursable and selling costs are excluded. ₹24,00,000 wrongly adds the administration costs, and ₹22,70,000 wrongly adds the selling costs.

Did you get it right without looking?

One question tells you little. A timed set on AS 7 Construction Contracts shows your real accuracy, how long you take and where you lose marks.

Practise AS 7 Construction ContractsFree diagnostic mock

More AS 7 Construction Contracts questions