Share this content

Process of calculation of Work in Progress

Is there a formula

Didn't find your answer?

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!

Replies (11)

Please login or register to join the discussion.

avatar
By paul.benny
14th Jan 2022 17:21

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).

Thanks (1)
Replying to paul.benny:
avatar
By D V Fields
14th Jan 2022 18:55

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.

Thanks (1)
Replying to paul.benny:
Avatar
By I'msorryIhaven'taclue
16th Jan 2022 10:41

paul.benny wrote:

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.

Thanks (0)
Replying to I'msorryIhaven'taclue:
avatar
By Blaqadder
16th Jan 2022 13:03

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!

Thanks (0)
avatar
By CJaneH
14th Jan 2022 18:02

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.

Thanks (1)
avatar
By Calculatorboy
14th Jan 2022 21:51

This is Noddy in Toyland stuff ..think about it

Thanks (0)
Replying to Calculatorboy:
Avatar
By I'msorryIhaven'taclue
16th Jan 2022 10:55

Calculatorboy wrote:

This is Noddy in Toyland stuff ..think about it

Because of Noddy's lack of understanding of how Toyland works?

Thanks (0)
avatar
By Mr_awol
16th Jan 2022 13:20

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

Thanks (1)
AS
By AS
16th Jan 2022 14:42

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.

Thanks (1)
Replying to AS:
avatar
By paul.benny
17th Jan 2022 11:04

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)

Thanks (0)
Replying to paul.benny:
AS
By AS
17th Jan 2022 15:06

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?

Thanks (0)
Share this content