Work-in-Progress is a term used to indicate something which has been started but has not yet been completed.

This term is used both in case of an asset as well as a product being manufactured.

Asset

Where there is an asset under construction, we consider it to be work-in-progress till the time the construction is completed.

Product

Where a product is being manufactured, we consider it to be work-in-progress till the production process is completed and the finished output is obtained.

We come across inventories of three kinds (a) Raw Materials, (b) Work-in-Progress and (c) Finished Goods. Whatever may be the stage of the inventory, it would be treated as an asset at the time of assessing the value of assets and liabilities of the organisation.

All inventories are clubbed under the head Closing Stock shown on the assets side of the balance sheet.

Balance Sheet of M/s as on ___

Liabilities	Amount	Amount	Assets	Amount	Amount
			Closing Stocks: Raw Materials Work-in-Progress Finished Goods	45,000 1,25,000 1,08,000	2,78,000

Capitalising Expenses

Where an expenditure incurred is treated as a part of the value of an asset, we say that the expenditure has been capitalised. Some examples:

• Installation expenses incurred for a new machine.
• Repair and renewal expenses incurred for bringing up a second hand machine purchased into use.

These may be treated as revenue natured expenses in the normal course of business. But since they are expended in relation to an asset and that too during the period prior to bringing the asset into usable condition, they are to be treated as part of the value of the asset.

Recording and Posting

• If such expenses are already recorded using accounting heads indicating expenses such as "Installation Expenses", "Repair Charges" etc, they are to be capitalised by transferring the same to the asset account.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Asset a/c To Repair Charges a/c	Dr	12,000	12,000
  [For the expenditure incurred on repairs of second hand asset debited to repair charges account capitalised by transfer to the asset account.]

  Asset a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Repair Charges a/c	12,000

• If they are not already recorded, then they are directly debited to the asset account.

  Journal

  Particulars		Amount (Dr)	Amount (Cr)
  Asset a/c To Bank a/c	Dr	12,000	12,000
  [For the expenditure incurred on repairs of second hand asset capitalised.]

  Asset a/c

  Dr Cr
  Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
  To Cash/Bank a/c		12,000

Since inventories are assets, the principle for valuation of assets is used in valuing inventories also. All the expenses incurred on the inventories before they are brought into usable condition would form part of the value of the inventories.

Usable Condition

The inventory acquiring usable condition would form the basis for deciding which of the expenses incurred in relation to inventory are to be capitalised and which not. The expenses that form the part of the value of inventory would be different for the three different types of inventory.

Raw Materials

Usable condition for raw materials would be the state where they are ready for being used in the production process. Thus, all the expenses incurred before bringing the raw material to the actual production environment would have to form part of the value of raw materials.

Ascertaining all the expenses that need to form part of the value of raw materials would be difficult and impractical. It would be possible to ascertain such expenses only till the raw materials are placed in the stores. Thus in practice, expenses relating to storage of materials and their carriage from the stores to the production environment are ignored in valuing raw materials.

In Process Accounting

In process cost accounting, by valuation of raw materials we mean valuation of the raw materials used as input for the process.

• Initial Process

  For the initial process, value of the primary and secondary materials used is the cost of purchase or acquisition. In problem solving this would be made available in the data relating to the problem.

• Subsequent Processes

  Primary material is the output of the prior process that has been transferred as input. The value of such primary materials is the value attributed to it at the time of transfer from the prior process.

  The value of secondary material used is the cost of purchase or acquisition.

Finished Goods

Usable condition for finished goods would be the state where they are ready for being sold or disposed off otherwise. Thus, all the expenses incurred before the completion of production would have to form part of the value of finished goods. By value we mean cost of goods manufactured.

The expenses incurred further to production like expenses on packing, warehousing for sale, selling and distribution expenses would form part of selling overhead which would go into the value of goods sold.

In Process Accounting

In process cost accounting, by value of finished goods we mean value of the output from the process. This is derived through calculations based on the information relating to quantities and values of various inputs, losses and outputs relating to the process.

Work in Progress

Work in Progress is incomplete production. The extent to which production is complete in relation to work in progress is dependent on the case in consideration.

Usability for work-in-progress is being ready for use in production. At every moment work in progress is ready for being worked upon and completed. Thus, we can say that all the expenditure incurred on work in progress goes into its value.

Thus, to ascertain the value of work-in-progress we need to know the expenditure incurred on it till that time when it is being valued.

In Process Accounting

In process cost accounting, by valuation of work-in-progress we mean valuation of the work-in-progress at the end of the period for which the process account is being prepared.

To ascertain the value of work in progress, we need additional data in relation to work in progress.

By valuation of work-in-progress we mean valuation of closing work-in-progress.

The value of work-in-progress units is equal to the total amount of expenditure incurred on them till the time of valuation. To be able to ascertain the value this way, the expenditure incurred on the work-in-progress units and the other units should be ascertainable separately.

Total expenses = expenses on work in progress units + expenses on other units.

Eg : 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.

Recording and collecting information in such a way so as to give this data is practically not possible almost in all cases.

Ascertaining expenditure incurred on work-in-progress units

The expenditure incurred on 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 expenses or elements of cost.

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.

Illustration

The value of a completed unit (i.e. expenditure incurred on a completed unit) in a production process is 140 with 70 on Materials, 50 on Labour/Labor and 20 on Overhead Expenses.

There were 2,100 work-in-progress units in process at the end of the accounting period.

To ascertain the value of these work-in-progress units, an inspection was conducted on the shop floor and it was ascertained that they were 100% complete with regard to material, 60% complete with regard to labor/labour and 75% complete with regard to overheads.

Cost per unit of work in progress

Work in progress units are

• 100% complete with regard to Materials

  ⇒ Material Expenditure incurred per unit of work-in-progress

  =	100% of expenditure to be incurred on completed units
  =	70/unit × 100%
  =	70/unit

• 60% complete with regard to Labour/Labor

  ⇒ Labour/Labor Expenditure incurred per unit of work-in-progress

  =	60% of expenditure to be incurred on completed units
  =	50/unit × 60%
  =	30/unit

• 75% complete with regard to Overheads

  ⇒ Overhead incurred per unit of work-in-progress

  =	75% of expenditure to be incurred on completed units
  =	20/unit × 75%
  =	15/unit

Element cost per unit of work in progress

= Element cost per completed unit × Percentage completion of work in progress units with regards to the element

Material cost per unit of work in progress

= Material cost per completed unit × Percentage completion of work in progress units with regards to material

Total expenditure incurred on work-in-progress

=	Material + Labour/Labor + Overheads
=	70/unit + 30/unit + 15/unit
=	115/unit

	Elements of Cost			Total
	Material	Labour/Labor	Overhead Expenses
a) Complete Cost (per unit) b) % Completion c) Incurred Cost (per unit) [(a) × (b)]	70 100% 70	50 60% 30	20 75% 15	140 — 115

Value of work-in-progress units

Cost included in the value of work in progress units in the form of

Material Cost

=	Work in Progress units × material cost incurred per unit of work in progress
=	2,100 units × 70/unit
=	1,47,000

Labour/Labor Cost

=	Work in Progress units × Labour/Labor cost incurred per unit of work in progress
=	2,100 units × 30/unit
=	63,000

Overhead Expenditure

=	Work in Progress units × Overhead Expenditure incurred per unit of work in progress
=	2,100 units × 15/unit
=	31,500

Total Value of work-in-progress

=	2,100 units × 115/unit
=	2,41,500

	Elements of Cost			Total
	Material	Labour/Labor	Overhead Expenses
a) Complete Cost (per unit) b) % Completion c) Incurred Cost (per unit) (a) × (b) d) Work-in-Progress (units) e) Total Cost (c) × (d)	70 100% 70 2,100 1,47,000	50 60% 30 2,100 63,000	20 75% 15 2,100 31,500	140 — 115 2,100 2,41,500

For ascertaining the value of the work-in-progress we found out

1. The element wise cost per unit of work in progress

Then

2. The total cost per unit of work in progress
3. Total value of work in progress units

Or

2. The element wise total cost of work in progress units
3. Total value of work in progress units

Work-in-Progress units are partially completed units. If these units are expressed in terms of complete units we call them their "Equivalent Complete Units".

Consider the same illustration as above.

Illustration

The value of a completed unit (i.e. expenditure incurred on a completed unit) in a production process is 140 with 70 on Materials, 50 on Labour/Labor and 20 on Overhead Expenses.

There were 2,100 work-in-progress units in process at the end of the accounting period.

To ascertain the value of these work-in-progress units, an inspection was conducted on the shop floor and it was ascertained that they were 100% complete with regard to material, 60% complete with regard to labor/labour and 75% complete with regard to overheads.

Value of Work in Progress units using Equivalent Complete Units

The total value of work in progress can also be ascertained using the concept of equivalent complete units.

Work in progress units are

• 100% complete with regard to Materials

  ⇒ Equivalent Complete Units with regard to Material

  =	100% of work-in-progress units
  =	2,100 units × 100%
  =	2,100 units

  ⇒ Material cost incurred on 2,100 w-i-p units

  = Material Cost of 2,100 complete units

• 60% complete with regard to Labour/Labor

  ⇒ Equivalent Complete Units with regard to Labour/Labor

  =	60% of work-in-progress units
  =	2,100 units × 60%
  =	1,260 units

  ⇒ Labour/Labor cost incurred on 2,100 w-i-p units

  = Labour/Labor Cost of 1,260 complete units

• 75% complete with regard to Overheads

  ⇒ Equivalent Complete Units with regard to Overheads

  =	75% of work-in-progress units
  =	2,100 units × 75%
  =	1,575 units

  ⇒ Overheads cost incurred on 2,100 w-i-p units

  = Overheads Cost of 1,575 complete units

	W-I-P Units	Percent (%) Complete	Equivalent Complete Units	Cost Per Completed Unit	Total Cost
a) Material b) Labour/Labor c) Overheads	2,100 2,100 2,100	100% 60% 75%	2,100 1,260 1,575	70 50 20	1,47,000 63,000 31,500
d) Total	2,100				2,41,500

For ascertaining the value of the work-in-progress we found out

1. The element wise equivalent completed units
2. The element wise total cost of work in progress units
3. The total value of work in progress units

If needed, the element wise cost per unit of work in progress can be ascertained using the total cost.

Element cost per unit =

Element Total Cost

Work in progress units

The value of closing work in progress is carried forward to the subsequent accounting period.

value of work in progress is incomplete output

All expense incurred in relation to the process are debited to the process account. The value of closing work-in-progress is expenses incurred on the units which have not yet reached the output stage. To be able to ascertain the expenses/cost incurred on completed output, these expenses have to be deducted/eliminated from the total expenses. This is done by crediting the value of closing work in progress to the Process a/c.

Process Work-in-Progress a/c is not used

Where no process work-in-progress a/c is used, the value of closing work in progress is credited as a carried forward balance in the Process a/c itself.

In such case, the posting in the Process a/c would read By Balance c/d.

Process a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Balance c/d	2,100	2,41,500
To balance b/d	2,100	2,41,500

The posting is supported by the closing entry recorded at the end of the accounting period.

Journal

Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c – – To Machinery a/c – To Process a/c –	Dr Dr Dr	– – –	– – 2,41,500 –
[For the value of assets and liabilities carried forward]

The value of process work in progress at the end would be an asset to the organisation and would appear in the Balance sheet.

Balance Sheet

Liabilities	Amount	Assets	Amount
		Process	2,41,500

Other Balances

The Process a/c may also carry the value of closing balances of Process Raw Materials as well as Process Stock as a balance in the process account itself. In such case a single Balance c/d posting may represent all the values carried forward or there would be multiple postings with the label Balance c/d, each indicating a distinct value.

Process a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Balance c/d By Balance c/d By Balance c/d	1,400 2,100 800	14,000 2,14,500 72,000
To balance b/d To balance b/d To balance b/d	1,400 2,100 800	14,000 2,14,500 72,000

Say 1,400 units represents closing stock of material, 2,100 units the closing work in progress and 800 units the closing process output.

The posting is supported by the closing entry recorded at the end of the accounting period containing the Process a/c multiple times.

Journal

Particulars		Amount (Dr)	Amount (Cr)
Creditors a/c – – To Machinery a/c – To Process A a/c To Process A a/c To Process A a/c –	Dr Dr Dr	– – – –	– – 14,000 2,14,500 72,000 –
[For the value of assets and liabilities carried forward]

The Balance sheet would also show the Process a/c multiple times.

Balance Sheet

Liabilities	Amount	Assets	Amount
		Process A Process A Process A	14,000 2,14,500 72,000

Process Work-in-Progress a/c is used

The Process Stock a/c, if at all used is only for the purposes of recording the closing work-in-progress.

only for recording closing Work-in-Progress

The value of closing work in progress is transferred from the Process a/c to the Process Work in Progress a/c.

Journal

Particulars		Amount (Dr)	Amount (Cr)
Process Work-in-Progress a/c To Process a/c	Dr	2,14,500	2,14,500

Process a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
			By Process Stock a/c	2,100	2,14,500

The Process Work-in-Progress a/c is used only for recording the closing work in progress, carrying it over to the subsequent period and transferring the work in progress back to the Process a/c of the subsequent period. It has a balance only on the last day of the accounting period and the first day of the accounting period if a balance has been brought forward from the previous accounting period till it is transferred to the Process a/c.

Process Work-in-Progress a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process a/c	2,100	2,14,500	By Balance c/d	2,100	2,14,500
	–	–		–	–
To Balance b/d	2,100	2,14,500

isn't Process Work-in-Progress used all throughout the accounting period

Unlike Process Material a/c and Process Stock a/c which can be used all throughout the accounting period to record transactions relating to inflow and outflow of materials and inflow and disposal of outputs respectively, Process Work-in-Progress a/c has no utility during the course of the accounting period.

The Process Work-in-Progress is part and parcel of the Process a/c. At the end of the accounting period, the closing balance of work in progress is transferred to the Process Work-in-Progress a/c to enable giving it a clear label and being identified as an asset. Process Work in Progress is easily recognisable as an asset compared to Process.

How the opening work in progress is brought into books is dependent on the entry recorded for brining the closing work in progress into books at the end of the previous period.

No separate Process Work-in-Progress a/c

Where there is no separate Process Work-in-Progress a/c, the opening work in progress would be present as an opening balance in the Process a/c itself. It is brought into books through the opening entry recorded at the beginning of the accounting period.

Journal

Particulars		Amount (Dr)	Amount (Cr)
Machinery a/c – Process a/c – To Creditors a/c – –	Dr Dr Dr Dr	– – 2,14,500 –	– – –
[For the value of assets and liabilities brought forward]

Process a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d	2,100	2,14,500

Process Work-in-Progress a/c is used

The opening balance in the Process Work-in-Progress a/c represents the opening work in progress relating to the process.

only for recording closing work in progress

Since the Process Stock a/c, is used only for the purposes of recording the closing work-in-progress, the opening balance in the account is transferred to the Process a/c at the beginning of the accounting period.

Process Work-in-Progress a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Balance b/d	2,100	2,14,500	By Process a/c	2,100	2,14,500

Process a/c

DrCr
Particulars	Quantity (in Units)	Amount	Particulars	Quantity (in Units)	Amount
To Process Stock a/c	2,100	2,14,500