Construction Contracts - only for AY 2016-17

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s of accounts. In the case of conflict between the provisions of the Income-tax Act, 1961('the Act') and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Scope 1. This Income Computation and Disclosure Standard should be applied in determination of income for a construction contract of a contractor. Definitions 2 (1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified: (a) "Construction contract" is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....l with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. 4. Construction contracts are formulated in a number of ways which, for the purposes of this Income Computation and Disclosure Standard, are classified as fixed price contracts and cost plus contracts. Some construction contracts may contain characteristics of both a fixed price contract and a cost plus contract, for example, in the case of a cost plus contract with an agreed maximum price. Combining and Segmenting Construction Contracts 5. The requirements of this Income Computation and Disclosure Standard shall be applied separately to each construction contra....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... function from the asset or assets covered by the original contract; or (b) the price of the asset is negotiated without having regard to the original contract price. Contract Revenue 9. Contract revenue shall be recognised when there is reasonable certainty of its ultimate collection. 10. Contract revenue shall comprise of: (a) the initial amount of revenue agreed in the contract, including retentions; and (b) variations in contract work, claims and incentive payments: (i) to the extent that it is probable that they will result in revenue; and (ii) they are capable of being reliably measured. 11. Where contract revenue already recognised as income is subsequently written off in the books of accounts as uncollectible, the same shal....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... recognised as an asset. Such costs represent an amount due from the customer and are classified as contract work in progress. Recognition of Contract Revenue and Expenses 16. Contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. 17. The recognition of revenue and expenses by reference to the stage of completion of a contract is referred to as the percentage of completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attri....