Scenario on AS 7 and AS 9 Application
Vanguard Builders Limited, a construction and service entity, entered into two distinct contracts during the financial year 2024-25. Contract 1 involves the construction of a commercial complex for ₹1,000 lakhs under a fixed-price contract. Construction started on 1 April 2024. As of 31 March 2025, cumulative costs incurred amounted to ₹300 lakhs. The estimated further costs to complete the complex are ₹450 lakhs. Vanguard uses the percentage of completion method based on the proportion of contract costs incurred for work performed to date relative to total estimated contract costs. In Contract 1, progress billings raised during the year were ₹380 lakhs, out of which ₹320 lakhs were actually collected by 31 March 2025. Contract 2 involves providing specialized maintenance services for a client over a two-year period from 1 October 2024 to 30 September 2026 for a total fixed fee of ₹120 lakhs. Service performance occurs evenly over time. Furthermore, on 15 March 2025, Vanguard sold specialized building materials for ₹50 lakhs (cost ₹40 lakhs) to a customer. Delivery was made on 15 March 2025, but the agreement permits the customer to return unsold materials within 30 days. Based on reliable past experience, Vanguard estimates that 10% of these materials will be returned. The company follows AS 7 and AS 9 for its financial reporting.
