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Is this Long term WIP?

What if there is no contract?

The client is a one-man company which has started a trade in property renovation / redevelopment. It bought a barn in November 2017, and the converted property is expected to be ready for sale around March 2019. The company year end is 30th April.

I used to be clear in my mind that the project should be valued as at 30th April and the appropriate proportion of profit declared for accounting and CT purposes at that point. Looking at it now, I am not so sure. Although this is a long term project, it is not contract WIP, because the company is acting as principal ie carrying on the trade of buying and selling properties.

I would appreciate comments.

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By DJKL
17th Apr 2018 14:24

Unless property presold at an agreed price there is surely no means of measuring profit until a profit is actually realised, accordingly measurement of stock in trade is measured as the lower of cost and NRV.

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to DJKL
18th Apr 2018 14:56

Although the actual profit can't be measured until sale, an estimate can be made. What is the finished project estimated to sell for? Based, of course, on current information, state of the market etc.

What percentage of the project has been completed?

These are questions, I think, which a proper valuer would be able to give an opion on.

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By DJKL
to b.clarke
18th Apr 2018 15:18

Sorry, it is surely not a long term contract, the company is merely creating stock for resale, it is also not a construction contract.

FRS102 13.4 surely applies (if accounting under FRS102) and then 23.10 re revenue recognition

How can 23.14 and onwards be on point where there is no contract to sell the units, to allow otherwise would have widget manufacturers recognising profits on production rather than upon sale.

https://www.frc.org.uk/getattachment/e1d6b167-6cdb-4550-bde3-f94484226fb...

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to DJKL
19th Apr 2018 17:21

Thanks for that. I see the point of confusion now. Para 23.14 et seq applies to the rendering of services, not the production of goods. That's the key to it.

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