Ind AS 11, Construction Contracts | Ind AS 11 Vs AS 7 (all details)

Ind AS 11, Building Contracts: Ind AS 11 recommends the accounting treatment of profits and costs associated with building and construction contracts. Because of the nature of the activity undertaken in building agreements, the date at which the contract activity is entered into and the date when the activity is completed usually fall into various accounting durations. For that reason, the main problem in accounting for construction agreements is the allowance of agreement profits and contract costs to the accounting periods in which building and construction work is performed.

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Scope of Ind AS 11

The Basic shall be used in accounting for construction agreements in the monetary declarations of contractors. A construction contract is a contract specifically worked out for the construction of an asset or a combination of possessions that are closely interrelated or interdependent in regards to their style, innovation and function or their supreme function or use.

The requirements of this Standard are normally used individually to each building and construction contract. In certain scenarios, it is needed to apply the Standard to the

individually recognizable components of a single agreement or to a group of agreements together in order to reflect th e compound of a contract or a group of agreements.

Contract profits shall make up: (a) the initial quantity of revenue agreed in the contract; and (b) variations in contract work, claims and incentive

payments: (i) to the degree that it is probable that th ey will lead to income; and (ii) they can being reliably determined. Contract earnings is measured at the fair worth of the factor to consider received or receivable.

Contract costs shall consist of: (a) costs that relate directly to the specific contract; (b) costs that are attributable to contract activity in basic and can be allocated to the agreement; and (c) such other expenses as are specifically chargeable to the consumer under the regards to the agreement.

Recognition of contract revenue and expenses

When the result of a construction agreement can be estimated reliably, agreement profits and agreement expenses connected with the building contract shall be acknowledged as income and expenses respectively by referral to the stage of completion of the agreement activity at the end of the reporting period.

When the result of a building contract can not be approximated reliably:

( a) income shall be acknowledged just to the level of contract costs sustained that it is probable will be recoverable; and (b) contract costs will be recognised as an expense in the period in which they are sustained

Acknowledgment of predicted losses

When it is probable that overall contract costs will exceed overall agreement income, the anticipated loss will be identified as an expense right away.

An entity shall divulge the amount acknowledged as contract earnings in the period, the technique utilized to figure out the agreement revenue acknowledged and stage of completion of agreements in progress.

For the agreements in progress at the end of the duration, an entity shall divulge the aggregate costs sustained and recognised earnings to date, the quantities of retentions and advances got.

Appendix A of Ind AS 11 provides assistance on accounting by operators for public-to-private service concession arrangements. It sets out concepts for acknowledgment and measurement of the commitments and associated rights in service concession plans. The Appendix prescribes that an operator shall

not identify the general public service infrastructure (within the scope of this appendix) as its Residential Or Commercial Property, Plant and Equipment due to the fact that the contractual service plan does not convey the right to control using the infrastructure. It just provides operator the access to run the infrastructure to provide civil service on behalf of the grantor.

The operator will represent earnings and costs connecting to construction or upgrade services in accordance with Ind AS 11 and those relating to operation services in accordance with Ind AS18 The factor to consider got or receivable will be acknowledged at its reasonable worth. The consideration might be rights to a monetary property or an intangible property.

The operator recognises a monetary possession to the extent that it has an unconditional contractual right to get money or another monetary asse t from or at the instructions of the grantor for the construction services. The operator will identify an intangible possession to the degree that it gets a right (a license) to charge users of the general public service.

Distinction Between Ind AS 11 and AS 7

Ind AS 11 does not consist of obtaining costs as a part of Contract Cost. Appendix A of Ind AS 11 offers with accounting element involved in such plans.

Appendix B of Ind AS 11 deals with disclosures of such plans.

Advised Articles

  • Ind AS 40 Financial Investment Home
  • Indian Accounting Requirement (IndAS 2)
  • IND AS 36 Problems of Assets
  • IndAS 1 Discussion of Financial Statement
  • IndAS 7 Statement of Cash Flows
  • IndAS 8 Accounting Policies
  • CA Final RTP
  • CA Final Mock Test Documents
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