How to Write Down WIP for an Onerous Construction Contract
Reducing the WIP balance when a project is confirmed as loss-making and the WIP value exceeds recoverable amount.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Loss on Onerous Contract | Expense (+) | 180,000.00 | - |
| Work-in-Progress (WIP) | Asset (-) | - | 180,000.00 |
💡 Accountant's Note
When WIP costs exceed the remaining revenue to be earned, the excess cannot remain as an asset. It must be written down immediately under the prudence principle (IAS 37).
Practitioner & Systems Framework
💻 ERP Architecture
Reduce the WIP balance in the Job Costing module and book the loss to the P&L. Ensure the project's EAC is updated so the system stops recognizing false margins in future months.
⚠️ Audit Flags
Impairment testing. Auditors require rigorous proof that the carrying value of WIP is recoverable. Delaying write-downs of bad projects is a primary focus area during construction audits.
📄 Required Documentation
Detailed Estimate at Completion (EAC) showing project loss, WIP carrying value schedule, and board/management authorization for the write-down.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.