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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Vishwa Builders Ltd. has a fixed price contract for Rs 200 lakh. Up to the end of Year 1, costs incurred were Rs 60 lakh, of which Rs 10 lakh relates to materials purchased and delivered to site but not yet used in construction (not specially made for the contract). Estimated further costs to complete are Rs 100 lakh (excluding that unused material). What contract revenue is recognised in Year 1?

Invalid question.

  1. ARs 50 lakhCorrect
  2. BRs 60 lakh
  3. CRs 75 lakh
  4. DRs 62.5 lakh

Explanation

Costs reflecting work performed exclude unused materials: 60 - 10 = Rs 50 lakh. Total estimated cost = 50 + 10 unused material is still to be used, so cost to complete 100 includes work only; total = 50 + 100 = Rs 150 lakh. Stage = 50/150 = 1/3. Revenue = 200 x 1/3 = Rs 66.67 lakh, not among the options, so the data must be read as: the unused Rs 10 lakh is included in the remaining Rs 100 lakh? That contradicts the statement. Hence this question is invalid.

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