TaxTMI 
TaxTMI 
III - Construction contracts (w.e.f. AY 2017-18)
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 purpose or use and includes : (i) contract for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tract may also deal 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 appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....truction of the additional asset should be treated as a separate construction contract when: (a) the asset differs significantly in design, technology or 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) t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ided (a) they can be separately identified; and (b) it is probable that the contract shall be obtained. When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period. 15. Contract costs that relate to future activity on the contract are 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of a contract, where the outcome of the contract cannot be estimated reliably contract revenue is recognised only to the extent of costs incurred. The early stage of a contract shall not extend beyond 25 % of the stage of completion. Changes in Estimates 21. The percentage of completion method is applied on a cumulative basis in each previous year to the current estimates of contract revenue and contract costs. Where there is change in estimates, the changed estimates shall be used in determination of the amount of revenue and expenses in the period in which the change is made and in subsequent periods. Transitional Provisions 22.1 Contract revenue and contract costs associated with the construction contr....