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As 7 clarification
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
Replies (2)
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)
thank u so much sir this question s breaking my head 4 d past 1 week nd finally got appropriate answer thnk u so much
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