AS-7 – Construction Contracts

The objective of this Accounting Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. The Standard prescribes only percentage of completion method for recognising the revenue, which justifies the accrual system of accounting.

A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

Construction contracts are formulated in a number of ways which for the purposes of this standard are classified as fixed price contracts and cost plus contracts. Some construction contracts may be a mix of both a fixed price contract and a cost plus contract.