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As 7 clarification

R.Vishnuprakash (chartered accountant) (192 Points)

27 April 2012

Hi this is vishnu i hv hv a doubt, in as 7 it is said that for identifying incentives income iT is placing following condition 1 contract should be in reasonably advance stage 2 probablity of meeting performance standards should be more 3 incentive should should be be measured my doubt doubt is, ,is it voilating prudence concept because here we are identifying revenue and recognising -based based on percentage of completion method for anticipated future inflow

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@ CA. $ahar$h @ (Student) (338 Points)
Replied 27 April 2012

Dear vishnu,

Whenever we make a contract then it is legally binding.so prima facie the other party is bound to pay the money.......prudence concept says consider future losses but never consider the future gains.Here the percentage is computed either by the amount of costs incurred or by the certificate of a valuer.Now either ways you have done the service, the amount of revenue can be measured in a proper manner and are expected to receive the money (because of the contract). So there is no point of prudence here.I mean, there is no expected loss and we are not considering the future gain.the gain has happened as part services have been rendered even if the amount will be received in future (accrual concept)