Advice on profit computation, Revenue recognition and Inventory
ARRIVE PROFIT PRIVATE LIMITED is a company which is doing business of Constructing apartmets/Villas
Company started on 01.04.2012 and carried on following activities:-
- Agreement with Land Owner as below:
(i) Company will construct 15 Villas on his Land out of which 7 will be handed over to land owner and remaining will be sold by the company itself.
(ii) Goodwill of Rs. 35,00,000 will be paid to Land owner.
- The Company completed 2 villas on 31.03.2013 with expenditure including Material of Rs. 1,70,00,000 of Which 1,00,00,000 Material which includes 5.5% Vat, 50,00,000 includes 5% VAT and Remaining includes VAT @ 14.5%
- Company spent Rs. 1,25,00,000 for Designing on Which service Tax 12.36 included and paid other cost for all the villas Rs. 1,00,00,000.
- Company received advances of Rs. 1,00,00,000 and 10,00,000 from its customer for booking of Two Villas.
- Selling price of 1 Villa is Rs. 2,00,00,000
- Approximate construction cost of 1 Villa is Rs. 1,00,00,000
- It is expected to complete all villas in 5 years.
- As per Law company should sell the Villas by charging VAT and Service Tax.
- You are required to advice on profit computation and Revenue recognition.
- Also comment on the Inventory.
The accounting of ARRIVE should be done keeping in mind the AS-7.
Revenue recognisation, Inventory and profit should be calculated as per Accounting Standard-7.