I am attempting to calculate Work in Progress over a years end for a media production company, who make programs for TV transmission. This process that has been complicated by Covid delays in completion of projects and delays in payment until just before revised transmission dates. this has led to paper losses in the last financial year, and inflated profits during the current year. Any sugestions as to a formula\process for calculating this will be hugely appreciated!
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If the programmes were largely complete and the contract secure (ie buyer couldn't walk away), you should probably have recognised revenue on this work in the prior year rather than holding it in WIP.
You might find it helpful to refer to FRS102 s23.14 and following sections (can be freely downloaded from FRC website).
Good advice. It does sound like the work falls into this revenue recognition approach. If the percentage complete method is used then a formulae should easily be ascertained. Long term contracts usually have some form of milestone payments so there is lots to consider.
If the programmes were largely complete and the contract secure (ie buyer couldn't walk away), you should probably have recognised revenue on this work in the prior year rather than holding it in WIP.
I read it that the OP is presently working on finalising the prior year's accounts, so hopefully no horse bolted yet.
Indeed the case. This is just the last stage of finalisation. Horse is safely stabled, I enquired to assess whether there is a consensus on which approach is most suitable. I now figure that “percentage of completion” is the most suitable…….. which is reassuring, as it was my thoughts prior to the original post!
Thanks all……. Sometimes miss the office advice!
This is an example of why accounting for profit on a cash basis is rubbish. Without access to the records of the business I cannot help you in calculating WIP. However I do not think it is a formula you want but an understanding of the business, identifying the direct costs, which will be WIP if not yet sold. Could still have a loss due to overheads.
This is Noddy in Toyland stuff ..think about it
Because of Noddy's lack of understanding of how Toyland works?
Are these commissioned programmes subject to stage payments? If so there should be a production budget and it should be quite easy to calculate the WIP.
If they have been produced speculatively and are yet to be sold then it’s even easier, surely
What is the company's accounting policy?
There are 2 main methods:
1. All revenue and costs recognised on delivery. In this case all costs are treated as work in progress and all revenue received is deferred. They are all released to P&L on delivery of the programme.
2. Revenue and profits are recognised love the term of the production. The simplest method is to use the costs expended as a proportion of the total budget to calculate the progress.
The first method mentioned is not permitted under FRS102 or FRS105.
(It might just about be permitted if the revenue can't be reliably estimated. But then you'd have to write down the WIP to recoverable amount)
I agree but a few of the very large production companies are using this method. I wonder how it is being accepted by the Big 4 auditors?