I am looking for some clarity around work in progress. I understand this is generally valued at the lower of cost & NRV, but there are also times where it should be treated as accrued income at the selling price dependant on the stage of completion:
My question is twofold, and I will use a few examples to help with the questions:
1.) When is it WIP and when is it accrued income?
e.g a builder has some contracts which span his year end (31/03).
There are two jobs in question here, one he finished in april (next financial year) but was in progress at the year end. Calculations have been carried out looking at costs to date/total contract value/invoiced to date etc., lets say he only invoiced it on completion in April and we have calculated that we should provide for 50% of Selling price. The job is in progress, so should this be WIP or accrued income? If WIP, surely the accounting policy talking about lower of cost & NRV is incorrect?
The second job is larger job and we calculate that the interim invoice issued on 01/04 relates to all work carried out up until 31/03, again is this WIP or accrued income?
2.) What types of work should be provided at the lower of cost & NRV or based on the selling price, thus including some element of profit?
Based on the answer of 2), what would be the case for the following companies:
a.) An event management company. i.e they spend several months planning for an event which may only be for a couple of days but they receive some money up front and incur various costs prior to the event.
b.) A company providing bespoke furniture, they manufacture the furniture inhouse and then install it.
Thanks in advance for any comments