CA Inter P1 · Chapter 6 · Question 2 of 8
Case: Kshitij Projects Ltd's fixed price contract has a price of ₹80,00,000. Costs to date are ₹30,00,000 and estimated costs to complete are ₹60,00,000. The loss to be recognised in the current year under AS 7 is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹10,00,000
Explanation
Total expected cost = 30,00,000 + 60,00,000 = 90,00,000, which exceeds the contract price by 10,00,000. AS 7 requires an expected loss on a contract to be recognised as an expense immediately, irrespective of the stage of completion. Recognising only the proportionate loss (3,33,333) is incorrect.
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