Complex ways in which business is conducted.

44 Paragraphs + appendix. Bold Paragraph are 12.

Revised in 2002 applicable from 1st April 2003.

Standard It facilitates comparability, reduces number of options.

What about service contracts ?

Contracts are of two types 1. Fixed Price Contracts and Cost plus contract.

Contract with one entity for construction of number of petrol pumps. Each petrol
pump will be required to be seperately treated as a separate contract.

Hotel project, Sugar Mill on turnkey basis.

What about costs incurred prior to award of the contract ? Para 20 of the AS
Direct Costs to be reduced by incidental income.
Attributable Costs: Insurance, costs of designs and technical assistance,
overheads.
Costs which cannot be allocated:

The standard also provides 4 parameters for determination as to when the outcome

Three methods prescribed for determining the stage of completion.

Para 28 It is necessary to have an effective internal financial budgeting &

reporting system.

As a prudent policy, the standard requires for provision of loss at the first instance
irrespective of the stage of contract. It may so happen that in the first year, there
may be profit and in second year it may turn out to be loss affair and in the

D+E
480
1435
Progressive billing I
100
180

145
160

580
70

520
55

380
1235

Old Standard
Para 9.8
Normally, the profit is not recognised in fixed price contract unless the
work on a contract has progressed to a reasonable extent. Ordinarily, this test is not
considering as having been satisfied unless 20% to 25% of the work is completed.
Para 17.2 (Standard Part)
Profits in case of fixed price contracts normally should not be recognised unless the

Builder Vs Contractor : Issue settled by guidance note issued by the Institute. It

stresses on the transfer of significant risks and rewards and states that in such
contracts price is the main risk which gets transferred on the execution of the