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AS 7 Query (Escalation Clause)
Accountancy
Why isn't the further estimated cost also to be increased by 5% in this question? I.e. from 6 cr to 6.3 cr
Answers (3)
Best Answer
Sriram Somayajula Admin
Because when it is given as cost estimated to complete the contract( latest number) it is assumed that it already includes escalation. If the same amount had been computed long time ago, then there is a chance that it also needs to be escalated but in this question the computation is latest
So you mean to say that suppose rs 6 cr (which is the latest number) was not given, we would have to first subtract 4 cr from 9.5 cr (which is supposedly the initial estimate) and then add Escalation %age to 5.5 cr.
Because when it is given as cost estimated to complete the contract( latest number) it is assumed that it already includes escalation. If the same amount had been computed long time ago, then there is a chance that it also needs to be escalated but in this question the computation is latest
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