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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Konkan Infra Ltd. entered into a fixed price contract for Rs 80 lakh to build a warehouse. Estimated total contract cost is Rs 60 lakh. Costs incurred to date are Rs 24 lakh, and the stage of completion is measured by the proportion of costs incurred to estimated total cost. Under AS 7, what contract revenue should be recognised to date?

Contract revenue to date is Rs 32 lakh. The stage of completion is costs incurred Rs 24 lakh divided by estimated total cost Rs 60 lakh, which is 40 percent, and this percentage is applied to the fixed contract price of Rs 80 lakh.

  1. ARs 24 lakh
  2. BRs 32 lakhCorrect
  3. CRs 40 lakh
  4. DRs 48 lakh

Explanation

Stage of completion = 24/60 = 40%. Revenue = 40% x Rs 80 lakh = Rs 32 lakh. Rs 24 lakh is only the cost incurred, which would be recognised as revenue only under a zero-profit approach, not the percentage of completion method.

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