Exchange Fluctuation and AS 7

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prafull kumar (Querist)
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25 May 2010 Dear Sir,

Can you please explain whether exchange fluctuation will be included or not in contract cost while recognizing profit on contract?

Regards:
Prafull Kumar
CA Final

CA Kishore Tallam

CA Kishore Tallam (Expert)
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26 May 2010 No. As per AS 7, Contract costs should comprise: (a) costs that relate directly to the specific contract (b) costs that are attributable to contract activity in general and can be allocated to the contract and (c) such other costs as are specifically chargeable to the customer under the terms of the contract.
But foreign exchange fluctuation cannot be attributed to any of the above categories and hence it cannot be considered as contract cost and it should be charged off to revenue.