AS - 07 - Construction Contracts

Percentage of completion method governs construction contract revenue recognition and immediate recognition of expected losses.

Revenue and costs of construction contracts are allocated to periods by reference to the stage of completion using the percentage of completion method when the outcome can be estimated reliably; otherwise revenue is recognised only to the extent of recoverable costs and costs are expensed as incurred. Contract revenue includes initial contract amounts plus variations, claims and incentives only if probable and reliably measurable. Contract costs comprise direct, allocable and contractually chargeable costs, with expected losses recognised immediately. Required disclosures cover recognised contract revenue, methods used, costs and profits to date, advances, retentions and gross amounts due from or to customers.