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CMA Intermediate · Cost Accounting · Contract Costing

Kapoor Builders has a contract priced at Rs 80,00,000. At the year end, cost incurred is Rs 36,00,000 and estimated cost to complete is Rs 44,00,000 (total estimated cost Rs 80,00,000 on current estimates). Included in cost incurred is Rs 6,00,000 of materials purchased and delivered to site but not yet used. Using the cost-to-cost method under AS 7, stage of completion excluding such unused materials, and revenue recognised to date are:

The stage of completion is 37.5 percent and revenue is Rs 30,00,000. Unused materials of Rs 6,00,000 are excluded from costs incurred, leaving Rs 30,00,000, which divided by total estimated cost of Rs 80,00,000 gives 37.5 percent of the Rs 80,00,000 price.

  1. AStage 37.5%; revenue Rs 30,00,000Correct
  2. BStage 45%; revenue Rs 36,00,000
  3. CStage 30%; revenue Rs 24,00,000
  4. DStage 37.5%; revenue Rs 28,00,000

Explanation

Unused materials on site are excluded from costs incurred for measuring the stage. Cost for stage = 36,00,000 - 6,00,000 = 30,00,000. Total estimated cost = 80,00,000, so stage = 37.5%. Revenue = 37.5% x 80,00,000 = Rs 30,00,000. Using 36 lakh gives 45%, ignoring the adjustment.

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