In the construction industry, managing long-term projects often involves navigating complex financial processes, including revenue recognition and cost management. Two critical concepts are Work in Progress (WIP) and Amounts Recoverable on Contracts (AMROC). These tools ensure transparent financial reporting, compliance with accounting standards, and accurate reflection of a company’s financial health.  

Here’s everything that you need to know brought to you by the experts at Bracey’s Accountants. 

1. Why Should You Care About Accurate WIP and AMROC Reporting? 

Accurate calculation and reporting of WIP and AMROC provide a clear picture of financial performance and position. They help: 

• Align revenue recognition with project progress. 

• Prevent misstating profits or assets. 

• Build stakeholder confidence through transparent reporting. 

2. What is ‘Work In Progress’ (WIP)?

Work in Progress represents the value of partially completed goods or services that are not yet ready for delivery or billing at the balance sheet date. This is classified as an asset that represents the costs incurred on ongoing projects that are yet to reach completion.

Key Components of WIP Calculation:

1. Direct Costs: These include materials, labour, and subcontractor costs directly attributable to the project. 

2. Overheads: A proportion of relevant indirect costs, such as supervision or site management, can be allocated to WIP. 

3. Progress Percentage: WIP may be valued based on the percentage of completion of a project. 

3. What Is ‘AMROC’? 

This represents the portion of contract revenue earned but not yet invoiced by the balance sheet date. It arises under construction contracts or similar agreements where revenue is recognised over time. 

The key components of Amounts Recoverable Calculations are: 

1. Contract Value: The agreed total value of the contract. 

2. Revenue Recognised: Determine the amount of revenue earned to date based on: 

• Output Measures: Milestones or physical progress achieved. 

• Input Measures: Costs incurred relative to estimated total costs. 

3. Invoicing to Date: Deduct the amount already invoiced from the revenue recognised to determine the recoverable balance. 

The Calculation Formula for AMROC is as follows (Total Contract Value × Percentage of Completion) − Invoiced Amounts.

4. How Do You Do Step By Step Calculations?

• Step 1: Determine Costs Incurred to Date – including direct and allocated costs relevant to the project. 
• Step 2: Estimate Total Contract Costs – forecast the remaining costs required to complete the project. 
• Step 3: Calculate Percentage of Completion – Percentage of Completion = (Estimated Total Costs / Costs Incurred to Date​) ×100.
• Step 4: Recognise Revenue –  Multiply the total contract value by the percentage of completion to determine the revenue recognised to date. 
• Step 5: Account for Invoiced Amounts – Subtract invoiced amounts from revenue recognised to calculate amounts recoverable. 

5. How Do You Ensure Accurate Reporting?

1. Accuracy: Ensure estimates of costs and progress are accurate and based on reliable data.
2. Documentation: Maintain detailed records of contracts, costs, and milestones to support calculations.
3. Professional Judgement: Exercise sound judgement when estimating progress and applying accounting policies. 

By mastering WIP and AMROC with Bracey’s Accountants, you can enhance your financial management, support decision-making, and maintain compliance with accounting standards. Contact us now for a free 30-minute online consultation with one of our WIP and AMROC experts.