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CA Intermediate · Advanced Accounting · AS 7 Construction Contracts

Yamuna Engineers Ltd. has a fixed price contract of Rs 100 lakh. At year-end, costs incurred are Rs 40 lakh, which include Rs 6 lakh of materials purchased and delivered to site but not yet used. Estimated further costs are Rs 50 lakh (total estimated cost Rs 90 lakh including the unused materials). Under AS 7, what is the contract revenue for the year?

Revenue is about Rs 37.78 lakh. Unused materials of Rs 6 lakh are excluded when measuring completion, so work done is Rs 34 lakh out of Rs 90 lakh estimated cost, about 37.78 percent of the Rs 100 lakh price.

  1. ARs 37,77,778 approximatelyCorrect
  2. BRs 44,44,444 approximately
  3. CRs 40,00,000
  4. DRs 30,00,000

Explanation

Materials not yet used in the work are excluded from costs incurred when computing the stage of completion. Costs incurred for work done = 40-6 = 34 lakh. Total estimated cost = 90. Completion = 34/90 = 37.78%. Revenue = 37.78% x 100 = Rs 37.78 lakh. Rs 44.44 lakh wrongly uses 40/90.

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