Valuation of WIP stock
This query is : Resolved
09 May 2010
What is the criteria to value the Work In progress Stock. Because practically i am facing alot of difficulty for valuation Of WIP.
Also in cost sheet we add op. stock of WIP and deduct cl. stock of WIP . But at what value we should take WIP stock in Cost Sheet.
Pls clarify
Thanks
What is the criteria to value the Work In progress Stock. Because practically i am facing alot of difficulty for valuation Of WIP.
Also in cost sheet we add op. stock of WIP and deduct cl. stock of WIP . But at what value we should take WIP stock in Cost Sheet.
Pls clarify
Thanks
09 May 2010
By valuation of work-in-progress we mean valuation of closing work-in-progress.
The value of work-in-progress is equal to the total amount of expenditure incurred on the units in progress till the time of valuation. To be able to ascertain the value this way, the expenditure incurred on the units in process at the end should be ascertainable separately, which practically is not possible almost in all cases.
* Assume that 10,000 units have been input into the production process and 2,450 units are in process at the end of the accounting period.
To ascertain the value of these 2,450 units of work-in-progress we should have recorded the expenses incurred on the 7,550 units which were completed and the rest of 2,450 units separately.
This is practically not possible and is very very rarely done.
• How is the expenditure incurred on work-in-progress units ascertained ?
The expenditure incurred on the work-in-progress units is ascertained on an estimated basis by estimating the percentage completion of the work-in-progress units with regard to the various elements of cost (expenses).
Consider a process involving Material, Labour/Labor and Overhead expenses. These three elements of cost would be present in the work-in-progress units depending on the proportion of work completed with regard to these elements.
The value of work-in-progress is equal to the total amount of expenditure incurred on the units in progress till the time of valuation. To be able to ascertain the value this way, the expenditure incurred on the units in process at the end should be ascertainable separately, which practically is not possible almost in all cases.
* Assume that 10,000 units have been input into the production process and 2,450 units are in process at the end of the accounting period.
To ascertain the value of these 2,450 units of work-in-progress we should have recorded the expenses incurred on the 7,550 units which were completed and the rest of 2,450 units separately.
This is practically not possible and is very very rarely done.
• How is the expenditure incurred on work-in-progress units ascertained ?
The expenditure incurred on the work-in-progress units is ascertained on an estimated basis by estimating the percentage completion of the work-in-progress units with regard to the various elements of cost (expenses).
Consider a process involving Material, Labour/Labor and Overhead expenses. These three elements of cost would be present in the work-in-progress units depending on the proportion of work completed with regard to these elements.
09 May 2010
to know in details with illustration visit following link---------
http://www.futureaccountant.com/process-costing/study-notes/closing-stock-in-process-account-work-in-progress-stage.php
http://www.futureaccountant.com/process-costing/study-notes/closing-stock-in-process-account-work-in-progress-stage.php
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