Advanced AccountingQuestion 5298 of 305
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1. What is the stage of completion of contract on the basis of proportion of contract costs incurred to the total estimated contract costs at the end of year 1 and Year 2 respectively?

Options

AYear 1: 23.5 % and Year 2: 66%
BYear 1: 23.5 % and Year 2: 65%
CYear 1: 25 % and Year 2: 66%
DYear 1: 25 % and Year 2: 65%
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Correct Answer

✅ Option B — Year 1: 23.5 % and Year 2: 65%

All Options:

  • AYear 1: 23.5 % and Year 2: 66%
  • BYear 1: 23.5 % and Year 2: 65% ✓
  • CYear 1: 25 % and Year 2: 66%
  • DYear 1: 25 % and Year 2: 65%

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Detailed Solution & Explanation

To calculate the stage of completion of the contract under AS 7 at the end of Year 1 and Year 2:
1. Year 1: Cost incurred to date = ‘ 35.25\displaystyle `\,35.25 crore. Total estimated cost = ‘ 150\displaystyle `\,150 crore.
Stage of Completion (Year 1)=35.25150×100%=23.5%\text{Stage of Completion (Year 1)} = \frac{35.25}{150} \times 100\% = 23.5\%2. Year 2: Variation added a 3rd tower, increasing contract price by ‘ 80\displaystyle `\,80 crore and total estimated costs by ‘ 75\displaystyle `\,75 crore. Total estimated cost = 150+75=‘ 225\displaystyle 150 + 75 = `\,225 crore.
- Cost incurred during Year 2 = ‘ 148.5\displaystyle `\,148.5 crore (including unused material of ‘ 2.25\displaystyle `\,2.25 crore).
- Cumulative cost incurred to the end of Year 2 = Cost in Year 1 (35.25\displaystyle 35.25) + Cost in Year 2 (148.5−2.25\displaystyle 148.5 - 2.25 unused) = 35.25+146.25=‘ 181.5\displaystyle 35.25 + 146.25 = `\,181.5 crore.
Stage of Completion (Year 2)=181.5225×100%=65%\text{Stage of Completion (Year 2)} = \frac{181.5}{225} \times 100\% = 65\%
Hence, **Option B** is the correct answer.

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