Difference Between AS 7 and Ind AS 11

Accounting Standard 7 prescribes the principles of accounting for construction contracts in the financial statements of contractors. The focus of the standard is on principles of revenue recognition by the contractors.

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.

A construction contract may be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use; examples of such contracts include those for the construction of refineries and other complex pieces of plant or equipment.

Ind AS 11 - Construction Contracts

Ind AS 11 prescribes the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed.

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Difference Between AS 7 and IndAS 11

AS 7 Ind AS 11
Contract revenue is measured at consideration received or receivable (without considering the fair value) Contract Revenue is measured at the fair value of the consideration received or receivable
As per AS 7, costs that can be attributed to “Contract Activity in general” and which can be allocated to specific contracts are considered as Contract Costs.  Such costs include borrowing costs as per AS 16. Ind AS 11 does not include borrowing costs as a part of Contract Cost.
Does not deal with accounting for Service Concession Arrangements.

Appendix A of Ind AS 11 deals with accounting aspect involved in such arrangements.

Appendix B of Ind AS 11 deals with disclosures of such arrangements.

Scope of IND AS 11

The Standard shall be applied in accounting for construction contracts in the financial statements of contractors. 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.

The requirements of this Standard are usually applied separately to each construction contract. However, in certain circumstances, it is necessary to apply the Standard to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.