Question: Date of taking up contract : 1 Dec 2008
Contract Price : 85 lakhs
Cost upto 31-3-2009 : 64.99 lakhs
Estimated further cost of completion : 32.01 Lakhs
On 31-3-09 How much loss is recognized & what is the provosion created?
Srinath (Chartered Accountant) (166 Points)
06 April 2011Question: Date of taking up contract : 1 Dec 2008
Contract Price : 85 lakhs
Cost upto 31-3-2009 : 64.99 lakhs
Estimated further cost of completion : 32.01 Lakhs
On 31-3-09 How much loss is recognized & what is the provosion created?
DIVYA PINCHA
(ASSISTANT MANAGER:MERCHANT BANKING)
(537 Points)
Replied 06 April 2011
Contract Price : 85 lakhs
Cost upto 31-3-2009 : 64.99 lakhs
Estimated further cost of completion : 32.01 Lakhs
Excess cost =64.99+32.01-85=12 Lakhs
Loss of12 lakhs to be regonised n provision for the same has to be created.
OTHER SUGGESTIONS WELCOME
Srinath
(Chartered Accountant)
(166 Points)
Replied 09 April 2011
The answer in my book is given "record loss of 8.04 lakhs ( 12x 64.99/97) & create Provosion for 3.96 lac"
So 12 lakh is clear the other paert is not so clear! I mean we record profits according to % completed but even losses??!
12 lac is the total foreseeable loss, however loss for current year will be .. Revenue recognised ( 67% of 85 lac i.e 56.95 lac) - Cost incurred to date (Rs.64.99) =804000 and expected loss to be recognised immediately will be 396000. OR you can also do as given in your book.
himanshu
(Student)
(64 Points)
Replied 11 April 2011
Issue 1: The loss of Rs. 12 Lacs (64.99+32.01-85) is against estimated cost of Rs. 97 Lacs out of which Rs 64.01 Lacs have been incurred:
So Current Year's loss is proportionate to cost incurred i.e. (64.99/97)*12 = 8.04 Lacs
Issue 2: Provisioning for remaining Rs. 3.96 Lacs as per AS-4, as situation existing at the Balance Sheet date.
Other Reasoning Welcome
Kind regards
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