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).
If the client is in a precarious financial position and
unlikely to be able to pay for the work it is equally unlikely that
the work-in-progress has any real value. As with stock, it is
necessary to consider each item of work-in-progress to confirm that
its net realisable value exceeds its costs and, if not, to write it
down to that value. In the case of work-in-progress there is
normally only one 'customer' for the work so the net realisable
value will depend on an assessment of what that customer can be
expected to pay for it. However, the concept cannot be taken too
far. What is needed is not an assessment of what the customer will
pay for the work in its current state; the assumption that the work
will be completed needs to be made.
In some cases it may not be possible to arrive at a value for
work-in-progress. Mason v Innes [1967] 44TC326 established that an
author cannot have work-in-progress at least before he has entered
into a contract with a publisher for the book and HMRC accept
this.
