Work in progress is a part of cost of materials consumed as it is not a part of stock in trade so why do we again add them as an expense in the income statement as change in inventories?
Dear Student
Cost of material consumed = Opening Stock + Opening WIP + Purchases - Closing Stock - Closing WIP.
From the above formula Cost of material consumed can be shown as : Purchases + (Opening Stock - Closing Stock + Opening WIP - Closing WIP)
Now WIP is also a type of Inventory, not as stock in trade but inventory on which work is undergoing for completion to become stock in trade, therefore it is shown with the inventory in the statement of profit and loss account.
Hence for the presentation, it is shown with the change in inventory.
Regards
Cost of material consumed = Opening Stock + Opening WIP + Purchases - Closing Stock - Closing WIP.
From the above formula Cost of material consumed can be shown as : Purchases + (Opening Stock - Closing Stock + Opening WIP - Closing WIP)
Now WIP is also a type of Inventory, not as stock in trade but inventory on which work is undergoing for completion to become stock in trade, therefore it is shown with the inventory in the statement of profit and loss account.
Hence for the presentation, it is shown with the change in inventory.
Regards