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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Sagar Infra Ltd undertook a fixed price contract for Rs 80 lakh to build a warehouse for Kiran Traders. Costs incurred to date: Rs 30 lakh; estimated further cost to complete: Rs 30 lakh. Stage of completion is determined by the proportion of cost incurred to total estimated cost. What revenue should be recognised to date under AS 7?

Revenue recognised is Rs 40 lakh. The stage of completion is cost incurred Rs 30 lakh divided by total estimated cost Rs 60 lakh, which is 50 percent, and this is applied to the contract value of Rs 80 lakh under the percentage of completion method.

  1. ARs 30 lakh
  2. BRs 40 lakhCorrect
  3. CRs 60 lakh
  4. DRs 80 lakh

Explanation

Total estimated cost = 30 + 30 = Rs 60 lakh. Stage of completion = 30/60 = 50%. Revenue = 50% x 80 lakh = Rs 40 lakh. Rs 30 lakh is merely the cost incurred, not revenue.

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