Rose Constructions undertake to construct a bridge for the Government of Uttar Pradesh. The construction commenced during the financial year ending…

CA Intermediate · Advanced Accounting · RTP · January 2025
Rose Constructions undertake to construct a bridge for the Government of Uttar Pradesh. The construction commenced during the financial year ending 31.03.2024 and is likely to be completed by the next financial year. The contract is for a fixed price of 12 crore with an escalation clause. You are given the following information for the year ended 31.03.2024: Cost incurred upto 31.03.2024 4 crore Cost estimated to complete the contract 6 crore Escalation in cost was by 5%. Hence, the contract price is also increased by 5%. You are required to ascertain the stage of completion and compute the amount of revenue and profit to be recognized for the year as per AS 7.

Suggested Answer and Working Notes:

₹ in crore Cost of construction of bridge incurred upto 31.3.2024 4.00 Add: Estimated future cost 6.00 Total estimated cost of construction 10.00 Contract Price (12 crore x 1.05) 12.60 crore Stage of completion Percentage of completion till date to total estimated cost of construction = (4/10)×100 = 40% Revenue and Profit to be recognized for the year ended 31st March, 2024 as per AS 7: Proportion of total contract value recognized as revenue = Contract price x percentage of completion = 12.60 crore x 40% = 5.04 crore Profit for the year ended 31st March, 2024 = 5.04 crore -4 crore = 1.04 crore.

Topics: AS 7

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