(i) AP Ltd., a construction contractor, undertakes the construction of commercial complex for Kay Ltd. AP Ltd. submitted separate proposals for each…

(a) (i) As per AS 7 'Construction Contracts', when a contract covers a number of assets, the construction of each asset should be treated as a separate construction contract when: (a) separate proposals have been submitted for each asset; (b) each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and (c) the costs and revenues of each asset can be identified. Therefore, AP Ltd. is required to treat construction of each unit as a separate construction contract as the above-mentioned conditions of AS 7 are fulfilled in the given case. (ii) Cost of construction incurred till date ₹ in lakhs 32.50 Add: Estimated future cost 15.10 Total estimated cost of construction 47.60 Percentage of completion till date to total estimated cost of construction = (32.50/47.60)×100 = 68.28% Proportion of total contract value recognised as revenue for the year ended 31st March, 2024 per AS 7 (Revised) = Contract price x percentage of completion = 45 lakh x 68.28% = 30.73 lakhs. Total cost of construction ₹ in lakhs 47.60 Less: Total contract price (45.00) Total foreseeable loss to be recognized as expense 2.60 According to AS 7, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately.