Section 57: revenue recognition for construction and service contracts

The general rule: percentage of completion method

Section 57(1) provides that profits and gains from a construction contract, or a contract for providing services, are determined on the basis of the percentage of completion method, subject to Section 57(2), and as per the income computation and disclosure standards notified under Section 276(2).

Exceptions for certain service contracts

Section 57(2) carves out two situations where a different method applies specifically to contracts for providing services:

• Project completion method - if the duration of the service contract is not more than ninety days.
• Straight line method - if the contract involves an indeterminate number of acts over a specified period of time.

Common rules across all three methods

Section 57(3) applies two rules regardless of which method (percentage of completion, project completion, or straight line) is used: contract revenue must include retention money; and contract costs must not be reduced by incidental income such as interest, dividends or capital gains.

Frequently asked questions