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Work in Progress

Lower of cost or NRV or at selling price

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Hi All,

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

Replies (6)

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Hallerud at Easter
30th Aug 2017 10:54

If say reporting under FRS102 then a read through section 23 might assist re Revenue Recognition. The reporting framework being used has to be your starting position.

Would have also linked you to FRS105 but the FRC site seems to have been rewritten and cannot seem to get it (access denied)!!!

Thanks (1)
By ireallyshouldknowthisbut
30th Aug 2017 11:28

Review the materials you learned in class would be my comment.

And dont keep starting new user ID's to post different bits of homework.

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Replying to ireallyshouldknowthisbut:
By Marion Hayes
30th Aug 2017 13:00

confused ireallyshouldknowthisbut - this OP started 26 August 2009 - are there lots more you have seen since?

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Replying to Marion Hayes:
By ireallyshouldknowthisbut
30th Aug 2017 14:15

I didn't look a the users history, and may well have to eat the pie of humbleness as the other posts seem genuine.

if so apologies to Jigs.

I was prompted due to the other post made at the same time today which was clearly an exam question having looked at the bottom of this post which look just like an exam to me, the top half much less so.

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By Jigs
30th Aug 2017 22:36

Wow, wasn't expecting that reply , definitely isn't an exam question just a tax person looking for some clarity !

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Replying to Jigs:
Hallerud at Easter
31st Aug 2017 08:29

So you will appreciate that tax tends, unless expressly stated otherwise , to follow accounts treatment.

And these days, once we get onto accounts, the start has to be , what framework is being used to prepare the accounts? (Though I am not sure if Revenue Recognition under FRS105 is different to that under FRS102 re long term contracts and WIP, would need to get hold of FRS105 to check)

I personally think that the nonsense of a company potentially having two different taxable profits depending upon accounting framework chosen (financial instruments anyone) is plain daft, but I don't write standards ( though I have thought that when I retire I ought to revert to reading academic journals and then write snide letters from the sidelines, signed Enraged of Edinburgh- catch is these days I doubt I will understand the Journal articles )

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