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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Sutlej Engineers has a fixed price contract with an original price of ₹200 lakh. The customer has approved a variation adding ₹20 lakh, which is reliably measurable. The company has also lodged a claim of ₹10 lakh for customer-caused delays, but negotiations have not reached an advanced stage. Cost incurred to date is ₹120 lakh and estimated cost to complete is ₹40 lakh. What cumulative contract revenue is recognised to date?

Cumulative revenue is ₹165 lakh. The agreed variation of ₹20 lakh raises contract revenue to ₹220 lakh, but the uncertain ₹10 lakh claim is excluded. With 75% completion (120 out of 160 total cost), 75% of ₹220 lakh gives ₹165 lakh.

  1. A₹165 lakhCorrect
  2. B₹172.5 lakh
  3. C₹150 lakh
  4. D₹120 lakh

Explanation

The approved variation is included in contract revenue but the claim is not, as it has not reached an advanced stage of negotiation. Contract revenue = 200 + 20 = ₹220 lakh. Completion = 120/160 = 75%, so revenue to date = 0.75 × 220 = ₹165 lakh. Including the claim would give ₹172.5 lakh, which is wrong.

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