June 2005

VALUATION OF WORK IN PROGRESS (WIP)

With effect for accounting periods ending on or after 22 June 2005 there is new accounting guidance called UITF 40 regarding the valuation of WIP and the recognition of turnover.

UITF 40 states: "Where the substance of a contract is that the seller’s obligations are performed gradually over time, revenue should be recognised as contract activity progresses to reflect the seller’s partial performance of its contractual obligations. The amount of revenue should reflect the accrual of the right to consideration as contract activity progresses by reference to value of the work performed." In other words, if you charge customers/clients on the basis of time then the value of your WIP will be at selling price unless you can show it will be irrecoverable.

The adoption of this practice will see an advancement of profits with a consequential earlier liability to tax.

The application of this practice will impact on many business sectors including the following:

• Accountants
• Architects
• Barristers
• Builders and related trades
• Dentists
• Designers
• Doctors
• Equipment/vehicle repair shops
• Estate agents
• Farmers
• Independent financial advisers
• Insurance brokers
• IT consultants
• Letting agents
• Marketing consultants
• Printers
• Solicitors
• Surveyors

For further help and guidance please contact us.