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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Meridian Infra Ltd is building a flyover for a state government under a construction contract. Its accountant is listing the costs for the contract cost record. Which of the following costs would NOT be included in contract costs under AS 7, as the contract does not specifically permit its reimbursement?

Head office general administration costs are excluded from contract costs because AS 7 permits them only where the contract specifically provides for reimbursement. Site supervisor wages, depreciation of plant used on the contract and contract insurance are directly attributable or allocable to the contract and are included.

  1. AWages of site supervisors working at the construction site
  2. BDepreciation of cranes used exclusively on the flyover contract
  3. CPremium paid to insure the contract works
  4. DGeneral administration costs of the head officeCorrect

Explanation

AS 7 includes costs directly related to the contract (site labour including supervision, depreciation of plant used on the contract) and costs attributable to contract activity in general, such as insurance, that can be allocated to it. General administration costs are excluded unless the contract specifically reimburses them. The other three are included.

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