IAS 2 INVENTORIES : COST OF INVENTORIES OF A SERVICE PROVIDER

9. COST OF INVENTORIES OF A SERVICE PROVIDER

Where providers of services have ‘inventories’, they usually comprise work in progress that has not yet been billed to clients. Costs relating to sales and general administrative personnel are not included, but recognised as expenses in the period that they are incurred. The cost of inventories should not include profit margins that will be charged when the work is billed.

Example: work in progress Your firm is an architect’s practice. You record staff time on time sheets. At the end of the period, you have some unbilled work in progress of 485 hours for various clients. These should be valued as inventory at the cost of salaries, social security and pensions. The total cost = $100 per hour. A charge for supervisory staff can also be included (33 hours in this example), but not a charge for general administrative overheads, nor profit margin.
	I/B	DR	CR
Staff costs	I		485.000
Inventory-work in progress	B	485.000
Supervisory staff costs	I		33.000
Inventory-work in progress	B	33.000
Allocation of staff costs to work in progress