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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Rohan Infra Ltd is building a bridge under a construction contract for the State Roads Department. Its accountant lists the following costs for the year. Which one should NOT be included in the contract costs under AS 7?

Depreciation of a crane that is idle and not used on any contract is excluded. AS 7 allows only costs that relate directly to the contract or can be attributed to contract activity, so site supervision, specific design and specific plant insurance are included, but idle plant depreciation is not.

  1. AWages of the site supervisors engaged only on the bridge
  2. BDepreciation of a crane that is idle and not used on any contractCorrect
  3. CCost of design and technical assistance directly related to the bridge
  4. DInsurance premium on plant used specifically for the bridge

Explanation

AS 7 includes costs that relate directly to the contract, such as site labour, design costs directly related to it, and insurance of plant used on it. Depreciation of idle plant not used on any contract is not attributable to contract activity, so it is charged to the statement of profit and loss and is not a contract cost.

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