Accounting for product in barrels

[Ken]

Folks,

Any accountants out there?

Just want to make sure I'm not missing anything as I set up ledger accounts.... If I have Product aging for years in barrels, I treat it as WIP valued at cost regardless of the estimated sale value which should go up over time? Estimated cost to finish is not relevant unless total cost to complete is estimated to exceed sale value in which case you write down the value of the WIP in inventory?

Thanks,

Ken

[GMB]

Hi Ken,

You're doing it the right way.

WIP is valued at actual cost while it does not represent "a final product" yet AND if the actual costs are reasonably believed to be below (or equal to) the future selling price.

If it becomes clear that the costs exceed the "reasonably believed" selling price, the stock should then be revalued to not more than the selling price. However, this should be disclosed and noted in the financial statements.

If, for example, you dispose of WIP (i.e. it went bad) it should be treated as an expense at the same value as it's actual cost and also be disclosed and noted IF it happened over two reporting periods. (I.e. if you carried it as WIP on your balance sheet in one fiscal year, reported it as WIP, and then wrote it off the next financial year).

Once the WIP reaches "final product" status, inventory stock are credited and WIP debited - again at the value of actual cost.

Numerous examples exist where the above was not done (deliberately) to present "inflated" balance sheet wealth (and bullshit shareholders) ... with most of the "inflators" being exposed and criminally prosecuted. Since the Enron fiasco, these practises are now closely watched....

Folks,

Any accountants out there?

Just want to make sure I'm not missing anything as I set up ledger accounts.... If I have Product aging for years in barrels, I treat it as WIP valued at cost regardless of the estimated sale value which should go up over time? Estimated cost to finish is not relevant unless total cost to complete is estimated to exceed sale value in which case you write down the value of the WIP in inventory?

Thanks,

Ken

[Ken]

Thank you. I appreciate the help. I figure if I set things up properly now, makes things easier in the future.

Regards,

Ken

Hi Ken,

You're doing it the right way.

WIP is valued at actual cost while it does not represent "a final product" yet AND if the actual costs are reasonably believed to be below (or equal to) the future selling price.

If it becomes clear that the costs exceed the "reasonably believed" selling price, the stock should then be revalued to not more than the selling price. However, this should be disclosed and noted in the financial statements.

If, for example, you dispose of WIP (i.e. it went bad) it should be treated as an expense at the same value as it's actual cost and also be disclosed and noted IF it happened over two reporting periods. (I.e. if you carried it as WIP on your balance sheet in one fiscal year, reported it as WIP, and then wrote it off the next financial year).

Once the WIP reaches "final product" status, inventory stock are credited and WIP debited - again at the value of actual cost.

Numerous examples exist where the above was not done (deliverately) to present "inflated" balance sheet wealth (and bullshit shareholders) ... with most of the "inflators" being exposed and criminally persecuted. Since the Enron fiasco, these practises are now closely watched....