This is a part of series of articles where we explain the ICDS & certain differences between the ICDS and corresponding Notified AS. We have covered ICDS-I vs AS-1 & ICDS-II vs AS-2 in our previous writes. In this article, we shall take up the ICDS III and its comparison with the corresponding AS.
ICDS III deals with the determination of income earned from construction contracts. For this ICDS, construction contracts are classified under fixed-price contracts and cost-plus contracts.
Fixed Price Contract– The contractor agrees to receive fixed rate per unit of output or fixed price for the whole contract.
Cost Plus Contract – The cost with a defined percentage markup on the cost is reimbursed to the contractor.
The recognition of contract revenue will be done when there is a 100% guarantee that the contract revenue will be collected. Contract revenue shall include initial amount agreed on the contract, retention money, claims, incentive payments and variations, if any. If the contract revenue amount becomes uncollectible after recognizing it as income in the books of accounts then such amount will be written off as an expense and not as an adjustment to the contract revenue amount.
Contract Cost shall include:
The Contract revenue and expense should be recognized as revenue and expense based on the stage of completion of the contract. This method is called percentage of completion method. The stage of completion of the contract shall be determined with reference to the part of contract costs incurred to complete a certain set of activities up to the reporting date, surveys of work performed and the physical part of contract work completed.
In the initial stages of contract, when the revenue cannot be estimated with certainty then the revenue should be recognized to the extent of contract cost. The initial stage of the contract shall not extend beyond 25 % of the stage of completion.
The contractor should disclose:
|Sl. No.||Basis||ICDS III||AS 7|
|1.||Contract revenue||Contract revenue includes retention money||It does not specifically mention about retention money as part of contract revenue.|
|2.||Borrowing cost||Borrowing cost forms part of the contract cost.||AS 7 does not specifically provide for borrowing cost being part of the contract cost.|
|3.||Initial stage of contract||Initial stage of contract shall not extend beyond 25% of the total contract completion stage.||It does not define any percentage for the initial stage of contract.|
|4.||Expected loss||ICDS does not provide for recognition of any expected loss.||All the expected losses should be recognized fully and not in proportion to percentage of completion.|
For further reading on these series, check out our next article on ICDS IV.