No, construction works-in-progress are not current assets. A current asset is any asset that will provide an economic benefit for or within one year. A construction work-in-progress is recorded in a company’s balance sheet as a part of the PP&E, or property, plants, and equipment account. PP&E has a useful life of longer than one year, so construction works-in-progress and other PP&E costs are considered non-current assets.
Are Construction Works-In-Progress a Current Asset? FAQs
A Construction Work-In-Progress (CWIP) is the asset associated with unfinished construction projects that have not yet been completed or put into service. This may include both tangible and intangible assets, such as labor and material costs, that are related to the project.
Yes, a CWIP can be classified as a current asset in some cases, depending on the amount of time it will take to complete the project and put it into service. Generally speaking, if the completion date is expected to be within 12 months, then it would be considered a current asset.
Classifying a CWIP as a current asset can help to provide businesses with an accurate representation of their financial health. This is because it allows them to recognize the value of the work being done on a project and its impact on the business’s liquidity.
The primary disadvantage of classifying a CWIP as a current asset is that it may not accurately reflect the total cost of completing the project. This is because some costs, such as interest expenses or delays in construction due to events outside of the business's control, may not be factored into the current asset value.
A CWIP is typically classified as an intangible asset on the company’s balance sheet and is amortized over its estimated useful life until the completion of the project. The accountant will also need to account for any changes in estimates related to labor, material costs, or other costs associated with the construction project. Additionally, any losses resulting from delays or cost overruns should be recognized when they occur.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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