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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Vindhya Infra Ltd has a fixed price contract of ₹80,00,000. At the end of Year 1: costs incurred ₹30,00,000, estimated further cost to complete ₹50,00,000, so total estimated cost is ₹80,00,000. During Year 1 costs incurred include ₹6,00,000 of material bought specifically for the contract and not yet used (stored on site). Stage of completion is based on contract costs incurred reflecting work performed. What is the revenue for Year 1?

Revenue is ₹24,00,000. Cost of material that is stored on site but not yet used is excluded from costs incurred when measuring stage of completion. Costs reflecting work done are ₹24,00,000, which is 30 percent of the total estimated cost of ₹80,00,000, and 30 percent of the price is ₹24,00,000.

  1. A₹30,00,000
  2. B₹24,00,000Correct
  3. C₹28,50,000
  4. D₹22,50,000

Explanation

Costs of material not yet used are excluded from costs incurred in determining stage of completion. Work-performed cost = 30,00,000 − 6,00,000 = ₹24,00,000. Stage = 24/80 = 30%. Revenue = 30% × 80,00,000 = ₹24,00,000. Using ₹30,00,000 includes unused material and overstates revenue.

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