Construction Contracts is the seventh of the accounting standard, AS 7.
The objective of the Accounting Standard 7 i.e, construction contracts is to prescribe the accounting treatment of revenue and costs associated with construction contracts.
Accounting for long-term construction contracts involves a question as to when revenue should be recognized and how to measure the revenue on the books of a contractor. Since the period of the construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so. Therefore, the question arises how the profit or loss of construction contract by the contractor should be determined. There may be following two ways to determine profit or loss: On year-to-year basis based on the percentage of completion or On completion of the contract.