BIM33020 - Stock: meaning of: what is work in progress

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).

Meaning of work in progress

The term ‘work in progress' does not have a defined meaning and in practice is applied to three different types of uncompleted items:

• manufactured products,
• contracts for services,

and

• long term contracts, see BIM33025.

Manufactured products covers uncompleted products in which the manufacturer retains title to the materials incorporated in the product. The uncompleted work is represented by a physical asset capable of sale by the manufacturer and to which a ‘net realisable value,' as envisaged in paragraph 21 of SSAP9 ( BIM33140), may be attributed.

Contracts for services covers uncompleted services, including:

• Contracts for the production of a physical asset such as a building, where title in the materials used by the contractor generally passes to the customer as they are incorporated in the product. The contractor does not own the physical asset rather the contractor has only the rights under the contract.
• Contracts for services including professional services supplied by lawyers, accountants, architects etc, where the uncompleted services are not represented by any significant physical asset capable of sale.

Except where they are long term contracts (see BIM33025), uncompleted contracts for services should be valued at their cost so that a profit or loss is not recognised for tax purposes until the contractual obligations required have been completed.