This guidance relates to accounting periods before the issue by the Accounting Standards Board (ASB) of Urgent Issues Task Force (UITF) Abstract 40 in March 2005. UITF 40 applies for accounting periods ending on or after 22 June 2005. Further guidance is at BIM74200 onwards. See in particular Appendix 2 paragraph 1 in BIM74275 in relation to the ICAEW’s guidance TAX30/98 (see BIM74130).
The proper valuation of professional work-in-progress depends on
the correct application of accountancy principles to the facts.
A proper basis of valuation must take into account the
particular circumstances of the individual firm. Different firms in
what may appear to be the same line of business may properly adopt
different bases of valuation if their circumstances are different.
For example, Firms A and B may both describe themselves as
‘estate agents and chartered surveyors’ but this does
not necessarily mean that they must adopt the same basis for
valuing work-in- progress. If Firm A does mainly surveying and
valuation work and Firm B does mainly property sales then a basis
of valuation that is acceptable for A may well not be acceptable
for B.
The valuation of work-in-progress is on the basis of the
lower of cost and net realisable value. Guidance on the practical
factors to consider was issued by the Institute of Chartered
Accountants in England and Wales and The Law Society. This is
reproduced at
BIM74130 and
BIM74150.
In some circumstances it may be appropriate to consider that
professional work in progress should be treated as long term
contracts. The valuation in these cases will not be made on the
basis of lower of cost and net realisable value but will include an
element of profit. For long term contracts see
BIM33025.
