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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Malwa Constructions Ltd. has a contract for Rs 90 lakh. Up to the reporting date, costs incurred are Rs 54 lakh, which include Rs 6 lakh of materials purchased and delivered to site but not yet used. Estimated total cost is Rs 100 lakh including these materials. Using the cost proportion method, what is the stage of completion?

The stage of completion is 48 percent. Materials delivered to site but not yet used are excluded from costs incurred when measuring progress, so Rs 48 lakh is divided by estimated total cost of Rs 100 lakh.

  1. A48%Correct
  2. B54%
  3. C60%
  4. D90%

Explanation

Under AS 7, costs of materials not yet used in the contract are excluded when computing stage of completion. Costs counted = 54-6 = 48 lakh. Stage = 48/100 = 48%. Using 54% wrongly includes unused materials.

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