05-29-2007, 07:26 PM
Dear,
You cannot simply find out some active market for WIP in its original from and as such it would be quite difficult to find out its NRV. It has to be based upon some estimation and reliable judgement.
I tell you what happens practically. As per stage of completion some portion of WIP is straight a way valued at raw material cost being entirely at initial stage while some portion of WIP is valued at Finished goods cost thereby reducing it to certain extent dependent upon the stage of completion. Now the thing which matters is the stage of completion and not the cost becoz cost of finished goods after reducing by a percentage of completion stage has been taken to value it. This way the WIP shows its value as finished good as the impact of its being in process has been incorporated by reducing its value. The NRV of finished goods can therefore be compared to the cost assigned to WIP by considering it finished goods.
Just for example if as a standard, 1000 KG WIP has to result into 200 meters of cloth (and the given stage of process is 75%). The cloth's cost is Rs 28/meter and NRV is say Rs 30 per meter. Now if there is 500 KG WIP in process, at that particular stage, at the end of the period its cost and NRV could be compared as under
Cost of WIP 500 x (200/1000) = 100 meters x 28 x 75% = Rs. 2,100
and its NRV,
NRV of WIP 500 x (200/1000) = 100 meters x 30 x 75% = Rs. 2,250
If there would have been 100 meters in finished goods its NRV would have been Rs 3000 but being in WIP its NRV is 2250.
This way NRVs are calculated and compared to meet IAS 2.
This is just an example to simplify the matter. I know valuation in textiles is done differently and is not so simple.
However, if you try to find out real market/selling price for WIP, it would be totally impracticable.
Regards,
Kamran
You cannot simply find out some active market for WIP in its original from and as such it would be quite difficult to find out its NRV. It has to be based upon some estimation and reliable judgement.
I tell you what happens practically. As per stage of completion some portion of WIP is straight a way valued at raw material cost being entirely at initial stage while some portion of WIP is valued at Finished goods cost thereby reducing it to certain extent dependent upon the stage of completion. Now the thing which matters is the stage of completion and not the cost becoz cost of finished goods after reducing by a percentage of completion stage has been taken to value it. This way the WIP shows its value as finished good as the impact of its being in process has been incorporated by reducing its value. The NRV of finished goods can therefore be compared to the cost assigned to WIP by considering it finished goods.
Just for example if as a standard, 1000 KG WIP has to result into 200 meters of cloth (and the given stage of process is 75%). The cloth's cost is Rs 28/meter and NRV is say Rs 30 per meter. Now if there is 500 KG WIP in process, at that particular stage, at the end of the period its cost and NRV could be compared as under
Cost of WIP 500 x (200/1000) = 100 meters x 28 x 75% = Rs. 2,100
and its NRV,
NRV of WIP 500 x (200/1000) = 100 meters x 30 x 75% = Rs. 2,250
If there would have been 100 meters in finished goods its NRV would have been Rs 3000 but being in WIP its NRV is 2250.
This way NRVs are calculated and compared to meet IAS 2.
This is just an example to simplify the matter. I know valuation in textiles is done differently and is not so simple.
However, if you try to find out real market/selling price for WIP, it would be totally impracticable.
Regards,
Kamran
