However when the outcome of a construction cannot be estimated reliably then, (a) revenue should be recognized only to the extent of contract cost incurred of which recovery is probable, and (b) contract costs should be recognized as an expense in the period in which they are incurred. An expected loss on the construction contract should be recognized as an expense. When it is probable that total contract cost will exceed total contract revenue the expected loss should be recognized as an expense immediately For Example: The profit to be recognized as per AS 7 in the current period with regard to the following information is calculated as under: 299,00,000 Contract price Cumulative figures: To end of previous period-profit recognized To end of current period-total costs Cost of work certified Estimated future costs to completion Estimated rectification costs 12.25.000 349,50,000 36,00,000 27,00,000 10% of contract price 117, 299,00,000 Contract Price Less: Costs to date Costs to complete Rectification costs Estimated contract profit 349,50,000 27,00.000 9.90.000 86.40.000 12. 60.000 Profit to date = Cost of Work Certified * Estimated Profit Estimated Total Cost 3600,000 86,40,000 x1260.000 - 25,25,000 Profit in current period - 5,25,000 - 52,25,000 = 3,00.000, Illustration 8 XYZ contractors obtained a contract to construct a house for 8,00,000. Work was started on 1st January, 2013 and it was estimated that contract would take 15 months to complete. Work is proceeding as per schedule and the details upto 31st December 2013 are as follows: Materials and stores 1,87,000 Wages Paid 2.70,000 Plant hire charges and other expenses 60,000 Establishment charges 54,000 Material unused 11,000 Work Certified 6,00,000 Cash received 5,40,000 Work not yet certified (at cost) 20,000 It is further estimated that the following further expenses will be required to complete the work: Additional material: 25,000; Wages : 20,000; Sub Contract cost :