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Stock valuation

Parmod Rawat (B.COM,MBA,CWA Inter) (401 Points)

10 September 2011

What is the best way to find out Work in Progress (WIP) stock valuation?

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CMA RAKESH (Service) (90 Points)
Replied 10 September 2011

Calculate % completion of In Progress material & valuate the same.

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Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 10 September 2011

Work-In-Process in construction accounting identifies the value of construction projects which are currently being worked on by the construction firm. To properly account for each project, FOUR values are needed for each project at the end of any given month (or period):

the Sales Price (excluding sales tax) for the project,
the total Cost Estimate for the project,
the Costs-To-Date,
the Billed-To-Date.

By taking the Costs-To-Date divided by the Cost Estimate, the "percentage complete" for the project is calculated. For example:

Assume a project is estimated to cost $70,000 by the time the work is complete
Assume at the end of December, $35,000 has been spent to date for the project
$35,000 divided by $70,000 is 50%, therefore, the project can be considered 50% complete at December 31.

Calculation of the Percentage complete is a valuable tool in determining how much the client should be billed - it is important that Billings, and even collection of these billings, are greater than the costs expended to do the work. This ensures that the client is directly funding the construction work, and that the contracting firm minimizes borrowing on behalf of the client. Using the example above, suppose the following: