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What is Construction Work-in-Progress?

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تم إضافة السؤال من قبل Rehan Qureshi , Financial Consultant , Self Employeed
تاريخ النشر: 2013/12/26
Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

Construction Work-in-Progress is a long-term asset account in which the costs of  constructing long-term assets are recorded. The account Construction Work-in-Progress will have a debit balance and will be reported on the balance sheet as part of a company's Property, Plant and Equipment.The costs of a constructed asset are accumulated in the account Construction Work-in-Progress until the asset is placed into service. When the asset is completed and placed into service, the account Construction Work-in-Progress will be credited for the accumulated costs of the asset and  will be debited to the appropriate Property, Plant and Equipment account.Depreciation begins after the asset has been placed into service.

Mohammad Tohamy Hussein Hussein
من قبل Mohammad Tohamy Hussein Hussein , Chief Executive Officer & ERP Architect , Egyptian Software Group

Resources used for the ongoing non-completed work being carried out.

mukkur srinivasan varadhan
من قبل mukkur srinivasan varadhan , Chartered Accountant , Chartered Accountant in practice

In constructyion , a capital asset comes into existence , after a series of activities and incurring many types of expenses.These expenses incurred are debited to this account viz., Construction work in progress account.

Mohammed Hussain Shah
من قبل Mohammed Hussain Shah , Finance Manager , Al-Naba Contracting Co. Ltd

Construction Work In Progress implies the portion of earned value not billed at the closing date. It is a term synonymous with accrued income. 

What happens is that under construction contracts a part of the value of work done at the closing date may not be reflected through progress billing owing to certain certification/valuation terms of the contract. In some cases this part of the value of work done (also referred to as Earned Value) may not be billed due to incomplete documentation like QC etc and therefore not treated as operational income. Since costs have already been incurred to achieve this unbilled part of the earned value, it is quite appropriate that a certain amount (on cost basis for conservative accounting principle) is recognized as construction work in progress. This is subsequently adjusted against billing in future period. Construction work in progress is a current asset under this situation.

Construction work in progress may also refer to an asset under construction but in that case it is better called as capital work in progress to properly convey that this work in progress is meant to create a fixed asset / investment property in future. This is a non-current asset under this scenario.

 

In common parlance construction work in progress refers to the first one given above.

 

 

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