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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Konark Builders enters into a fixed price contract to construct a bridge for a contract price of ₹50,00,000. At the end of Year 1, costs incurred to date are ₹12,00,000 and estimated further costs to complete are ₹28,00,000. The stage of completion is determined as the proportion of costs incurred to date to total estimated cost. How much contract revenue should be recognised for Year 1 under AS 7?

Revenue is ₹15,00,000. Total estimated cost is ₹40,00,000, so the stage of completion is 30 percent (12 lakh divided by 40 lakh). Applying this to the contract price of ₹50,00,000 gives the revenue to be recognised for the year under the percentage of completion method of AS 7.

  1. A₹12,00,000
  2. B₹15,00,000Correct
  3. C₹20,00,000
  4. D₹10,00,000

Explanation

Total estimated cost = 12,00,000 + 28,00,000 = ₹40,00,000. Stage of completion = 12/40 = 30%. Revenue = 30% × 50,00,000 = ₹15,00,000. Option ₹12,00,000 wrongly equates revenue with cost incurred, and ₹20,00,000 wrongly uses 40% (12 over 30).

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