A company took a construction contract for 100 lakhs in January, 2024. It was found that 80% of the contract was completed at a cost of 92 lakhs on…
CA Intermediate · Advanced Accounting · RTP · September 2025
A company took a construction contract for 100 lakhs in January, 2024. It was found that 80% of the contract was completed at a cost of 92 lakhs on the closing date i.e. on 31.3.2025. The company estimates further expenditure of 23 lakhs for completing the contract. The expected loss would be 15 lakhs. Can the company recognise the loss in the financial statements prepared for the year ended 31.3.2025?
Suggested Answer and Working Notes:
As per paragraphs 31 and 35 of AS 7 on Construction Contracts, an expected loss on the construction contract should be recognized as an expense immediately irrespective of (i) whether or not the work has commenced on the contract; or (ii) the stage of completion of the contract; or (iii) the amount of profits expected to arise in other contracts. Hence, the company must recognize the loss immediately.
Topics: AS 7
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