Skip to content

CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Vardhan Constructions Ltd. is computing revenue for a construction contract under the percentage of completion method as per the Income-tax Act, 2025. Which statement is correct?

Contract revenue includes retention money, and contract costs are not reduced by incidental income in the nature of interest, dividends or capital gains. Hence the statement combining both rules is correct, and the others contradict section 57(3).

  1. AContract revenue excludes retention money until it is released
  2. BContract costs are reduced by incidental interest income earned on advances
  3. CContract revenue includes retention money and contract costs are not reduced by incidental interest, dividend or capital gainsCorrect
  4. DContract revenue includes retention money and contract costs are reduced by incidental dividends

Explanation

Section 57(3) says contract revenue shall include retention money and contract costs shall not be reduced by incidental income such as interest, dividends or capital gains. Options A, B and D each contradict one of these two rules.

Did you get it right without looking?

One question tells you little. A timed set on Income Computation and Disclosure Standards (ICDS) shows your real accuracy, how long you take and where you lose marks.

Practise Income Computation and Disclosure Standards (ICDS)Free diagnostic mock

More Income Computation and Disclosure Standards (ICDS) questions