Economics · Financial Accounting
'Global Infra Ltd' is executing a construction contract valued at 5,000 crore. As of March 31, 2025, cumulative costs incurred are 2,000 crore, and estimated further costs to complete are 2,000 crore (total estimated cost = 4,000 crore, percentage of completion = 50%). Progress billings received stand at 1,800 crore. The company issued 10% Debentures of 500 crore at a 5% discount (25 crore discount) and holds a Securities Premium balance of 100 crore. A pending lawsuit of 50 crore has a 60% probability of outflow. What is the correct accounting treatment?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Recognize revenue of 2,000 crore; write off the discount against General Reserve; and disclose the lawsuit only as a contingent liability.
- 2Recognize revenue of 2,500 crore; write off the 25 crore discount against Securities Premium; and create a provision of 50 crore for the lawsuit.✓
- 3Recognize revenue based on billings (1,800 crore); write off the discount against P&L; and ignore the lawsuit.
- 4Recognize revenue of 5,000 crore immediately; keep the discount as a fictitious asset; and ignore the lawsuit.
Correct answer
Recognize revenue of 2,500 crore; write off the 25 crore discount against Securities Premium; and create a provision of 50 crore for the lawsuit.
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