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Mayanka Agrawal (Querist)
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28 September 2013 we are in construction business as a company and use to transfer all exp. on non current investment under capital wip
as projet is long term
problem:
upto time we have not sown in inventories

what we can do?

Sachin

Sachin (Expert)
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28 September 2013 As you are in construction business, finished construction, which is ready to sale is inventory. The construction which is not finished and is in process is to be categorized as WIP under inventory. The material which is in stock at site can be shown as Raw material in stock separately.

Mayanka Agrawal

Mayanka Agrawal (Querist)
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01 October 2013 thanks for your reply,

but actualy we are not showing it as inventory previously and showing it as non current ivestments as work in progress

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 In the construction business, it's common to capitalize expenses related to long-term projects as part of the cost of work in progress (WIP) under non-current investments, especially when projects span multiple accounting periods. However, if you haven't been showing these costs as inventories (i.e., Work-in-Progress) previously, and they were classified under non-current investments, it may impact the accuracy of financial reporting.

### **Steps to Rectify the Accounting Treatment:**

1. **Review the Accounting Policy:**
- Ensure that your accounting policy for capitalizing construction costs is in line with relevant accounting standards and regulations, such as Ind AS 16 (Property, Plant, and Equipment) or the relevant IAS/IFRS, and consider any guidance on construction contracts if applicable.

2. **Correct Classification:**
- **Reclassify Expenses:** Since the expenses are related to construction and should be part of WIP, reclassify these amounts from non-current investments to inventories under WIP. This will reflect the correct treatment of these costs as they relate to ongoing construction projects.

3. **Adjust Financial Statements:**
- **Restate Financials:** If the amounts previously classified as non-current investments were significant, you may need to restate your financial statements for the periods affected. This involves adjusting the opening balances of inventories and non-current investments for the relevant periods.
- **Disclosure:** Ensure proper disclosure of the adjustments in the notes to the financial statements, explaining the nature of the reclassification and its impact on the financials.

4. **Implement Proper Controls:**
- **Accounting Procedures:** Update your accounting procedures to ensure that all future construction costs are properly classified as WIP in inventories. This should include maintaining detailed records of project costs and ensuring they are accurately recorded.
- **Review and Reconcile:** Regularly review and reconcile the WIP accounts to ensure that all relevant expenses are captured and properly classified.

5. **Consult with an Accountant or Auditor:**
- **Professional Advice:** Given the potential complexity of reclassification and its impact on financial statements, consult with an accountant or auditor. They can provide guidance on the correct accounting treatment, assist with adjustments, and ensure compliance with applicable accounting standards.

6. **Internal Controls and Documentation:**
- **Strengthen Controls:** Implement robust internal controls for tracking and recording construction expenses. Maintain detailed documentation to support the classification and valuation of WIP.
- **Document Changes:** Document the reasons for reclassification and the impact on financial statements for internal and external stakeholders.

### **Accounting Treatment under Ind AS or IFRS:**

- **Work-in-Progress (WIP):** Under Ind AS 16 or IAS 16, costs related to construction that are directly attributable to bringing an asset to its intended use should be capitalized as part of WIP until the project is complete.
- **Non-Current Investments:** These typically refer to investments in other entities or assets not held for trading. Costs that are part of ongoing construction should not be classified under non-current investments but rather as WIP in inventories.

### **Example of Reclassification:**

- **Before Reclassification:**
- **Non-Current Investments:** ₹100L
- **No WIP in Inventories**

- **After Reclassification:**
- **Non-Current Investments:** ₹50L (after deducting the portion transferred)
- **Inventories (WIP):** ₹50L (added to reflect the work-in-progress)

By reclassifying the expenses properly and implementing the correct accounting procedures, you can ensure accurate financial reporting and compliance with accounting standards.