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An Analysis of AS-7 “Construction Contracts” PDF Print E-mail
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Submitted by VIJAY SAINI   

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An Analysis of AS-7 “Construction Contracts”

Introduction &Objective

· Applicable to all contracts entered into on after 01-04-2003 and is mandatory in nature. Should be applied in accounting in the financial statement of contractor.

· Objective is allocation of contract revenue and cost to the accounting periods in which construction work is performed.

Definitions

A. Construction Contract

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

· It includes contracts for the rendering of service , which are directly related to the construction of an asset, contract for destruction or restoration of assets and the restoration of environment following the demolition of assets

B. Fixed price contracts

· Contractor agrees to fixed contract price, or a fixed rate per unit of output subject to cost escalation clauses.

C. Cost plus Contract

· Contractor is reimbursed for allowable or defined costs, plus percentage of these costs or a fixed fee.

· Some construction contracts may contain features of fixed price contract and cost plus contract, for example, in the case of a cost plus contract with an agreed maximum price.

Combining and Segmenting Construction Contracts

· This AS is applied separately to each construction contract unless it is necessary to apply to a group of contract together in order to reflect the substance of a contract or a group of contracts.

· If a contract covers a number of assets, the construction of each asset should be treated as a separate contraction contract when :-

Ø Each asset is subject to separate proposals , negotiation and the contractor or customer have been able accept to reject that part of the contract relating to each asset and ;

Ø Cost and revenues of each asset can be identified.

· A group of contracts, whether with a single customer to with several customer, should be a treated as a single construction contract when :-

Ø Group of contracts is negotiated as a single package ,

Ø Contracts are closely interrelated that they are , in effect , part of a single project with an overall profit margin, and

Ø Contracts are performed concurrently or in a continuous sequence.

· Construction of additional asset (if any), may be treated as separate construction contract when :-

Ø Asset differs significantly in design, technology or function from the asset covered by the original contract.

Ø Price of the asset is negotiated without regard to the original contract price.

 

Contract Revenue

· Initial amount of revenue agreed in the contract and,

· Variations in contract work, cost escalation clause, claims and incentive payments to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.

· The amount of contract revenue may increase or decrease from one period to the next.

· The amount of contract revenue may decrease as a result of penalties arising from delays caused by the contractor in completion of contract.

Contract Cost

· Directly attributable to the specific contract. Direct costs may be reduced by any incidental income that is not included in correct revenue, E.g. Sale of surplus materials.

· Indirect costs are allocated on the basis if recovery rate. The allocation is based on the normal level of construction activity.

· Such other costs are specifically chargeable to the customer under the terms of the contract.

· It also includes borrowing costs as perAS-16.

· Costs that cannot be attributed or allocated to contract activity or for which reimbursement is not specified in the contract (in the case of cost plus contract) are excluded.

· Costs incurred in securing the contract are also included as part of the contract cost, if it is probable that the contract will be obtained. However, if such cost is recognized as an expenses in the period in which they are incurred, they are not included in contract cost when the contracts obtained in a subsequent period.

Recognition of contract revenue and expenses

When the outcome of a construction contract can be estimate reliably , contract revenue and contract costs associated with construction contract should be recognized as revenue and expenses respectively by reference to the Percentage of completion of the contract activity at the reporting date. However, an expected loss on the construction contract should be recognized as an expenses immediately.

Outcome can be estimated reliably if all the following condition are satisfied

A. In the case of fixed price contract:

· Total contract revenue can be measured reliable.

· It is probable that economic benefits associated with the contract will flow to the enterprise.

· Contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably.

B. In case of cost plus contract:

· It is probable that the economic benefits associated with the contract will flow to the enterprise.

· Contract costs can be clearly identified and measured reliably.

Percentage Completion Method

A. The recognition of revenue and expense with reference to stage of completion of a contract.

B. If any contract cost incurred relates to future activity on the contract, is recognized as an asset provided it is probable that they will be recovered. ( often classified as WIP )

C. When an uncertainty arises about the collectability of an amount already recognized as contract revenue , the uncollectible amount is recognized as an expense rather than as an adjustment to contract revenue.

D. Stage / percentage of contract maybe determine in a variety of ways :

· Proportion of contract cost (that reflect work performed) incurred up to the reporting date to estimate total contract cost.

· Surveys of work performed.

· Completion of physical proportion of contract work.

E. This method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs.

When the outcome cannot be estimate reliably

· Revenue should be recognized only to the extent of control costs incurred of which recovery is probable.

· Contract costs should be recognized as an expense in the period in which they are incurred.

· When outcome becomes reliable, percentage of completion method will be applicable.

Recognition of expected losses

· When it is probable that total contract costs will be exceed total contract revenue, the expected loss should be recognized as an expense immediately, irrespective of stage of completion.

Disclosure

· Control revenue recognized as revenue in the period.

· Method used to determine the contract revenue recognized during the period.

· Method used to determine stage of completion.

· Aggregate amount of costs incurred & recognized profit (less recognized loss ) up to the reporting period.

· Amount advance received and retentions.

· Gross amount due from & due to customers as an asset & liabilities respectively. Gross amount due from customer. (To be calculated separately for each contract).

[(Cost incurred+ Recognized profit- recognized loss) – Progress billing]

Negative balance of above will be treated as gross amount due to customer.

· Contingencies in accordance with AS-29, if any. For example warranty costs, penalties or possible losses.

By- Vijay Saini

 
Declaration Forms for CST Transactions PDF Print E-mail
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Submitted by Vaibhav Bhadu   

 

Declaration Forms for CST Transactions

During the course of Inter-state sale/purchase a Registered Dealer needs to issue/receive certain declarations to avail concessional rate of tax or exemption from tax, these declaration forms are C, E1, E2, F, H, I and J.

These forms are printed and supplied by the Registered Dealer’s respective Tax assessing authorities (generally the CST assessments are done by VAT assessing authorities). These forms are to be prepared in triplicate. All the Types of Statutory Forms and their usage is explained as below:-

Form C

All the registered dealers will issue 'Form C' at the time of purchasing goods from another registered dealer. The issue of 'Form C' by the purchasing dealer will ensure that the goods being purchased are covered under his registration certificate and the CST can be charged at lower rates by selling dealer. The selling dealer, on the basis of this 'Form C', charges CST @ 2% or lower rate as applicable and submits the same to his assessing authorities as a proof or cause for lower collection of CST.

The submission of Form C is mandatory and one Form can cover all transaction in each Quarter

Form E1

Form E1 is used for making subsequent sales in the course of interstate sale/purchase by the first or original purchaser of goods. This Form should always be accompanied with 'Form C'. The Form E1 is used for first subsequent sales by transfer of document of title to goods.

Form E1 is issued by the selling dealer to the dealer who is making subsequent sales for claiming the exemption from payment of CST to the subsequent buyer. The first subsequent seller of goods receives 'Form E1' and submits it to the department to claim exemption from CST for any sale made to other interstate registered dealer.

Form E2

Form E2 is used for claiming the exemption from payment of CST. In case where the registered dealer purchases goods from one registered inter-state dealer and sells the same while in transit, to another registered inter-state dealer, the sales will be exempted from CST on submission of 'Form E2' to the department. The 'Form E2' is used to claim exemption from payment of CST to the seller who is a subsequent or last inter-state dealer of goods.

Form F

Form F is used for claiming exemptions on the interstate movement of goods as Stock/Branch Transfer, transfer to consignment agent or goods sent outside the state for job work also. The 'Form F' is issued by the Branch or Agent who is receiving goods from another state to the Transferor of goods. The transferor of goods can claim exemption from CST on submitting the Form to the department.

This 'Form F' is compulsory for claiming the transfer as Stock/Branch Transfer and no Tax/CST will be paid. In the absence of 'Form F', all such transfers will be treated as normal interstate sales and CST will be levied at the rate applicable. The Dealer has the option to submit one 'Form F' for all the interstate Stock/Branch Transfer for a month with supporting annexure if required.

One Form F for one month is required while Form C can cover transactions for the quarter.

Form H

Form H is used by the seller for claiming the exemption on making penultimate sales (immediately preceding sale to exports). Sales made during the course of export are exempt from CST. The penultimate sale is also deemed to be in course of export and is exempt from CST. The dealer exporting goods will have supporting documents like customs documents, bank certificate, airway bill/bill of lading, shipping bill etc. However, the penultimate seller will not have any direct evidence to prove that the sale made is exempt from tax. In such cases, the actual exporter has to issue a certificate to the penultimate seller in form H.

Form I

Form I is used for claiming the exemption from CST on the sales made to any Special Economic Zone (SEZ). The buying dealer issues 'Form I' to the selling dealer. The selling dealer needs to submit the same (Form I) to the department to claim all the export benefits available to original exporter in SEZ area.

Form J

Form J is used for claiming the exemption of CST in case of Interstate sales made to any United Nations, Diplomatic Missions etc. The Form is issued by purchasing dealer to the selling dealer. The selling dealer submits this Form to the department to claim the exemption.

BY Vaibhav Bhadu

 

 

 
OVERVIEW ORGANIZATIONAL HIERARCHY OF EXCISE DEPARTMRNT PDF Print E-mail
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Submitted by vipin   

OVERVIEW ORGANIZATIONAL HIERARCHY OF EXCISE DEPARTMRNT

The structure of excise department is largely similar to structure of income tax department. However, in view of the fact that the area of indirect taxes encompasses custom duties , excise duties and service tax , the department is structured in a manner that facilitates collection of all three indirect taxes.

1. CENTRAL BOARD OF EXCISE AND CUSTOM (CBEC) :

Central board of excise and customs is a statutory board constituted under the statute-the central board of revenue act , 1963 and is subordinate to the department of revenue under the ministry of finance, government of india. Recruitment to custom and excise department is through the Indian revenue services. The board consist of chairmen and other members.

The chairmen and the members are currently of the ranks of ex-officio(An ex officio member is a member of a body (a board, committee, council, etc.) who is part of it by virtue of holding another office.)  additional secretaries to the government of india.

2. CHIEF COMMISSIONER OF CENTRAL EXCISE

Immediately below the CBEC are the chief commissioner. chief commissioner are responsible for all matters under their jurisdiction and report to the CBEC as a whole.

3. COMMISSIONER OF CENTRAL EXCISE :

Executive commissioner heads the commissionerate. They are administrative in charge of the commissionerate.

The senior most of adjudication commissioner and appeals commissioner would be the executive commissioner.

4. ADDITIONAL COMMISSIONER OF CENTRAL EXCISE

Additional commissioner is equivalent to the commissioner for all purpose other than for the purpose of appellate procedures . consequently , appeals against order of additional commissioner lies with the commissioner (appeals) only whereas the appeal against the order of commissioner lies with the tribunal .

5. JOINT COMMISSIONER OF CENTRAL EXCISE

The said designation was created by notification no. 23/99-C.E dated 11-5-1999. the said notification substituted the earlier Deputy commissioner/ Deputy commissioner of central excise with joint commissioner of central excise.

6. DEPUTY/ASSISTANT COMMISSIONER OF CENTRAL EXCISE

The assistant commissioner is the highest-ranking field level authority who holds active jurisdiction over manufacturing units and is charged with the collection of duties. The assistant commissioner is also the quasi-judicial authority who normally passes order on all meters of revenue concerning units falling under the jurisdiction and for which show cause notices have been issued under various section of the act.

The only difference  between deputy and assistant commissioner is that assistant commissioner cannot issue show cause notice without the prior approval of deputy commissioner.

7. SUPERINTENDENT

Superintendent is an officer of the rank of gazetted officer .

8. INSPECTORS / SECTOR OFFICERS

 

Sector officer work under Superintendent and is not a gazetted officer. The sector officer are functional in charge day to day matters pertaining to assesses.

 
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Propreitory
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sharan govind
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RBS
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Sreedevi
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Rujal & Co
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H B A S & CO
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R N Rajesh
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Y ALOKSAI & Co
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SMARK & ASSOCIATES
Visakhapatnam
Mohit Kamra
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M Suresh
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YKC & Co.
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mspr & CO
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S K Y & Co.
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DBK&CO
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ASHOK VYAS
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jadav & co
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and associates
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ROHIT MANTRI
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Chiranjeevi&co
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M K MANTRI & CO
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SKY CONSULTANTS
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SINGH & THAKUR
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Rajan Dewan
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UNF Associates
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SINGAM ASSOCIATES
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jaydedhia
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SSRA & Co
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RPMD & CO
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Naveen Kumar A
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SASS & Co
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pwc
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SRITHAR
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Mumbai
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ASBS & CO
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Bhatreja & Co
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TPK & Co.
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Office
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AMR & Co
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VADERA AND CO
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AGPMS
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PATEL & SHAH
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Pravin
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Vive Shah
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G V R & CO
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LALIT
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P Patel & Co
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ASPN & CO
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Valacc Advisors
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DV & Associates
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Ojha & Co
Bokaro Steel City
J Divaker & Co
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SUNDAR & RAM
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Zerdi
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APR & CO
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Cajkaa.in
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dipen shah
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MGIRT & CO
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Bapuji & Venkat
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Ritesh Sharma
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FANCY BLESSON & CO.
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