Work in Progress (WIP)

Code: 1153
👁 Views: 13

Account Information

Financial Statement Statement of Financial Position
Normal Balance Debit

Definition

Value of products that have started the manufacturing process but have not yet been completed. This account represents the accumulation of raw material, direct labor, and manufacturing overhead costs for incomplete products.

📐 IFRS vs US GAAP Accounting Treatment

IFRS IAS 2 Work in Progress - IAS 2
✅ Recognition Criteria

IFRS: WIP is recognized as an asset when costs related to incomplete production are incurred. Future economic benefits must be expected.

📏 Measurement Basis

IFRS: Cost includes raw materials, direct labor, and manufacturing overhead (fixed and variable). Fixed overhead allocation based on normal capacity. GAAP: Same elements but LIFO permitted.

📝 Disclosure Requirements

IFRS: Disclose accounting policy, cost formula (FIFO or weighted average), and any write-down to NRV and reversal. GAAP: Disclose cost method (FIFO, LIFO, average), and LIFO reserve if applicable.

📌 Example:
Example: A manufacturer has WIP costing SAR 100,000 with market value of SAR 90,000. IFRS: Write down to SAR 90,000 (NRV). GAAP: Write down to SAR 90,000 (market) but cannot reverse later.
US GAAP ASC 330 Work in Progress - ASC 330
✅ Recognition Criteria

GAAP: WIP is recognized as an asset when costs are incurred.

📏 Measurement Basis

GAAP: Measured at lower of cost or market. LIFO, FIFO, or weighted average permitted.

📝 Disclosure Requirements

GAAP: Disclose cost method (FIFO, LIFO, average), and LIFO reserve if applicable.

📌 Example:
Example: Company has WIP costing SAR 100,000 with market value SAR 90,000. Written down to SAR 90,000 and cannot be reversed.
⚠️ Key Difference Between IFRS and US GAAP

IFRS: Measured at less than cost or net realizable value (NRV). GAAP: Measured at less than cost or market value (LCM) with LIFO permitted. Key difference: GAAP allows LIFO but does not allow the reversal of impairment losses, while IFRS prohibits LIFO but allows the reversal of impairment losses.

❓ Frequently Asked Questions

Q: What is work in progress (WIP)?

A: Value of products that have started the manufacturing process but have not yet been completed. Includes raw materials, direct labor, and manufacturing overhead.

Q: How is work in progress valued?

A: Valued at the lower of cost or net realizable value, and updated at the end of each accounting period.