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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Narmada Constructions Ltd. has a fixed price contract of Rs 200 lakh. Year 1: costs incurred Rs 60 lakh, estimated further costs Rs 90 lakh. Year 2: cumulative costs incurred Rs 135 lakh, estimated further costs Rs 45 lakh. Using the cost-to-cost percentage of completion method, what is the contract revenue to be recognised in Year 2 alone?

Year 2 revenue is Rs 70 lakh. Cumulative completion is 75 percent of Rs 200 lakh, giving Rs 150 lakh, and the Year 1 revenue of Rs 80 lakh is deducted to arrive at the current year's revenue.

  1. ARs 150 lakh
  2. BRs 70 lakhCorrect
  3. CRs 75 lakh
  4. DRs 80 lakh

Explanation

Year 1: total cost 150; completion 60/150 = 40%; revenue 80 lakh. Year 2: total cost 135+45 = 180; completion 135/180 = 75%; cumulative revenue 150 lakh. Year 2 revenue = 150 - 80 = Rs 70 lakh. Rs 150 lakh is cumulative, not the year's figure.

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