## AS 7 – Construction Contracts: Introduction and Scope
### Who Does AS 7 Apply To?
AS 7 applies to the contractor's financial statements — not the contractee (customer). It governs how a contractor recognises revenue and expenses on long-term construction projects.
### What Qualifies as a Construction Contract?
Any contract specifically negotiated for the construction of:
- Buildings, roads, highways, bridges
- Towers, dams, multi-asset complexes
### Core Objective
Match revenue recognition to the stage of work completed each year — preventing front-loading or back-loading of profits.
### Two Types of Construction Contracts
| Type | Description |
|---|---|
| Fixed Price Contract | Contractor agrees to a fixed price; may include escalation clauses and incentive payments |
| Cost Plus Contract | Contractor is reimbursed for allowable costs plus a percentage fee on top |
### Why the Complexity?
Construction contracts often span multiple accounting periods. The challenge is determining how much revenue and cost to recognise in each period's P&L — AS 7 solves this through the Percentage Completion Method.