Accounting Standard-7 Accounting For Construction Contracts (Key Points)

1).It may be mentioned that the standard is applicable in accounting of contracts in the books of the contractor.

    It is not applicable for construction project undertaken by the entity on behalf of its own, for example, a

    builder constructing flats to be sold.

2). It is also not applicable to Service Contracts which are not related to the construction of asset.

3).According to AS-7 (Revised) the enterprise should follow only percentage completion method.

4).Where in case the contract revenue or the stage of completion cannot be determined reliably, the cost incurred

on the contract may be carried forward as work-in-progress.

5). All foreseen losses must be fully provided for.

6).Under percentage of completion method, appropriate allowance for future contingencies shall be made.

WIP, receipt of progressive payments, advances, retentions, receivables and certain other items are required

to be disclosed.