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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Malwa Engineers undertakes a contract. Which of the following costs would be excluded from contract costs under AS 7 because they cannot be attributed to contract activity?

General administration costs for which reimbursement is not specified in the contract are excluded from contract costs. AS 7 treats these as not attributable to contract activity, whereas insurance of site assets, directly related design costs and depreciation of plant used on the contract are all included in contract costs.

  1. AInsurance of contract assets used on the site
  2. BCosts of design and technical assistance directly related to the contract
  3. CGeneral administration costs for which reimbursement is not specified in the contractCorrect
  4. DDepreciation of plant and equipment used on the contract

Explanation

AS 7 excludes general administration costs for which reimbursement is not specified in the contract, along with selling costs, R&D not reimbursable, and depreciation of idle plant. Insurance, design costs and depreciation of plant used on the contract are directly attributable or allocable contract costs.

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