Transcript Inventory, WIP, Assets and Depreciation

Accounting of Inventory,
CWIP, Assets
A.K.Sharma, CAO
ALTTC
Ghaziabad
A.K.Sharma
Inventories
Schedule VI of Companies Act, classifies
Inventories as :Stores & Spares
Loose Tools
Stock-in-Trade
A.K.Sharma
Inventories of BSNL
1. Building Materials
10. Internet equipments
2. Lines & Wires
11. Masts & Aerials
3. Cables
12. General Stores
4. O.F.Cable
13. Finished goods in TF
5. A&P
6. Telephone Instruments
7. Telegraph & Telex
Instruments
8. Installation Test Equipments
9. AC Plants
A.K.Sharma
14. Raw Materials in TF
15. Decommissioned Assets
Cost of Inventories
 On measurement of Inventories, valuation
should be at cost or net realisable value,
whichever is lower as follows :-
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Purchase price including taxes & duties(except
Cenvat credit) and freight inwards
Other expenditure directly attributable to the
purchase.
Administrative expenses that don’t contribute to
bring the inventories to their present location
shall not be included.
No under/excess valuation is done
A.K.Sharma
Cost of Inventories (Contd.)
Imported stores and spares are priced at CIF
value (based on the purchase order/invoice)
plus applicable customs duty (including
countervailing duty).
Unit price of stores & spares is worked out on
moving weighted average cost basis for the
purpose of pricing of issues by CSD
CENVAT Credit if availed must not be included
in cost of inventory
A.K.Sharma
Cost of Inventories (Contd.)
The cost of inventories of those items that
are not ordinarily interchangeable (viz A&P),
cable received on specific estimate and for
specific work, etc. would be assigned by
“Specific identification of their individual
costs”. The cost of other items of inventories
(viz cables or lines materials etc. for use on
different estimates) will be assigned by
weighted average cost formula at CSD.
A.K.Sharma
Materials Issued to Works as
on 31st March
Materials issued to the various
installations (not completed) but not
consumed as on 31st March of the
accounting year shall be listed out and
value ascertained and debited back to
the inventory under various heads and
credited to respective works in progress
as the case may be.
A.K.Sharma
Stores after Completion of
Works : Treatment
In case of installation works which have been
completed as per accounting policy, the
stores lying at site and which are no longer
required for the works will be listed out and
value ascertained and debited to the
inventory under respective heads of accounts
and credited to the respective heads of
accounts under Assets or under Works-inprogress.
A.K.Sharma
Some Important points
relating to inventory
Sim Card, Recharge coupon, VCC etc.shall not
be accounted under inventory schedule but
the detail shall be kept in the Register
prescribed for the purpose.
Debit for issue of the stores should be
transferred to the WIP/Assets immediately on
issue of the stores and not at the end of the
year which is normally done by the circles.
A.K.Sharma
Some Important points
relating to inventory(Contd)
Identify the obsolete / unserviceable / nonmoving / slow-moving inventories and proper
accounting of the same by making provision for
difference between book value and NRV of
inventory, as per existing order.
Huge inventory as reflected in the accounts.
Proper utilization is necessary. Procurement
decisions shall be taken after taking into accounts
the existing stock.
A.K.Sharma
Physical verification of
inventory
Must be carried out at the close of the year.
Authenticated records of physical verification
indicating the detail of inventory verified,
their location, quantity as per priced store
ledger, quantity physically available etc. shall
be kept and submitted to the Audit for
verification.
The difference in quantity i.e. as per books
and as per physical verification shall be
reconciled and necessary provision shall be
made for the quantity found short.
A.K.Sharma
AUDIT QUALIFICATION REGARDING
INVENTORIES
 Non-identification of obsolete / unserviceable / non-
moving / slow-moving inventories and nonaccounting of the same by making provision for
difference between book value and NRV of inventory,
as per existing order
 Non-accounting of shortage/loss of inventories
 Physical verification of inventory not done at the
close of financial year, non-reconciliation of the
difference between book value and value of assets
physically available, and non-submission of detailed
records of physical verification to the Auditor
A.K.Sharma
AUDIT QUALIFICATION REGARDING
INVENTORIES (Contd.)
 Non-accounting of inventory remaining unutilized at
the work site at the close of financial year by debiting
accode of inventory schedule and crediting relevant
accode of CWIP.
A.K.Sharma
Work – in - Progress
Expenditure chargeable to capital works is
initially booked under this head.
The expenditure on salaries & wages of
employees engaged on construction jobs
directly related to a particular
project/work/job are debited to the work
concerned.
The expenditure of common nature not
identifiable with any project/work/job are
suitably allocated to different projects.
A.K.Sharma
CAPITAL WORK- IN -PROGRESS
Charging of overhead to CWIP must be based
on actual basis.
Administration and other general expenses,
which specifically/directly attributable to the
construction of a project or to the acquisition
of a fixed asset may be allocated to that
project/asset.
In case of self constructed assets
depreciation of machinery utilized for
construction of such assets shall be
capitalized
A.K.Sharma
CAPITAL WORK-IN-PROGRESS
(CONTD.)
Top most priority shall be given to capitalize old
projects.
Capitalization must take place as and when the
work is completed or put to use but not at the
end of the financial year which is normally done
by the circles.
In the case of Project abandoned
(duly
sanctioned by competent authority) , necessary
provision shall be created.
A.K.Sharma
CAPITAL WORK-IN-PROGRESS
(CONTD.)
For capitalizing & taking into accounts
as Fixed Asset, “Management
Certificate” will be issued by the
Management, as enjoined in note
under/items 2.2.2 to 2.2.5 of
Accounting policies of BSNL. These
Management Certificates are required
to be produced to Auditors during the
Auditing of Fixed Assets.
A.K.Sharma
Physical verification of CWIP
Must be carried out at the close of the year
 Authenticated
records
of
physical
verification indicating the detail of CWIP
verified, their location etc. shall be kept
and submitted to the Audit for verification

A.K.Sharma
Accounts of works not finished
during the year.
As enjoined in Rule 206 of FHB Vol.III,
a statement in form ACE 24A showing
the actual expenditure (Annual and
Progressive) on works remaining
unfinished at the end of the year should
be furnished to the Circle Accountant by
last week of April latest.
A.K.Sharma
Review of the pending Worksin-Progress
It is to be ensured that the Works-in-Progress
are completed well in time and converted in
to Assets.
The Works-in-Progress should be completed
at the earliest, in any case, it should also be
ensured that more than one year old item is
not allowed to remain in WIP without any
valid reason.
The date of completion/commissioning of the
work is very much relevant for the calculation
of depreciation.
A.K.Sharma
Audit Qualicications regarding
C.W.I.P.
 WIP put to use/commissioned but not capitalized in the
accounts due to non-issue or abnormal delay in issuing
commissioning certificate by the project executing
authority
 WIP capitalized on a date which is different from the date
of actual commissioning/put to use causing over/under
charging of depreciation.
 Excess/short capitalization i.e. the value of project/WIP
capitalized is different from the actual booking in the
concerned accode.
 Wrong booking (short or excess) of overhead charges i.e.
on percentage basis instead of actual basis.
 Expenditure of revenue nature booked under WIP and
capitalized.
A.K.Sharma
Audit Qualicications regarding
C.W.I.P.(Contd.)
 Old WIP i.e. more than two years old, not yet capitalized.
 No review / analysis of old / pending WIP made on regular
basis.
 Physical verification of WIP not done at the close of
financial year and non-submission of related records to the
Auditor.
 At the end of financial year the value of unutilized inventory
issued to the project work are not taken back to Inventory
head by passing necessary JV.
 Non submission of project wise details of incomplete
project duly reconciled with the booked figure of CWIP, to
the Audit.
A.K.Sharma
Fixed Assets
What is an Asset ?
Held with intention of being used for the
purpose of producing or providing goods and
service.
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Not held for sale in the normal course of business
Expected to be used for more than one accounting
period
A.K.Sharma
Fixed Assets in Financial
Statements
Fixed assets shall be shown in financial
statement either at historical cost or revalued
price.
Historical cost of acquired fixed assets
consists of the following :
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Purchase price
Import duties and other non-refundable taxes.
Any directly attributable cost of bringing the asset
to the working condition for its intended use.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Directly attributable cost
 Site preparation
 Delivery and handling cost
 Installation cost
 Professional fees
 Expenditure incurred on start up and commission of the project
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including the expenditure on test runs less income by sale of
products.
Administrative and other general overheads
Amount of Govt. grants received /receivable against fixed asset
should deducted from the cost of fixed asset.
Loss/gain on deferred payment on foreign currency liability.
Price adjustment, changes in duties or similar factors.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Historical cost of self-constructed fixed assets
– Such fixed asset, which is constructed by
in-house efforts, is called self-constructed
fixed asset. Cost of self-constructed fixed
assets ; includes the following : All cost which are directly related to the specific asset.
 All costs that are attributable to the construction activity
should be allocated to the specific assets.
 Any internal profit included in the cost should be
eliminated
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Fixed assets acquired at consolidated
price

Cost of each fixed asset should be
determined on a fair basis as per valuation
by competent valuers.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Improvements and Repair
There are two accounting treatments of cost of
improvement and repairs. These accounting
treatments depend upon the following conditions:
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After the improvements and repairs, expected future
benefits from fixed assets do not change. The expenses of
improvements and repairs are charged to profit & loss
account.
After the improvement and repairs, expected future
benefits from fixed asset will increase beyond the
previously assessed standard performance. These
expenses on improvements and repairs are included in the
gross book value of fixed asset.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Addition or extension of capital nature to an
existing asset.
 If integral part of existing asset – it is generally added
to gross book value of existing assets.
 If separate identity and capable to be used after the
disposal of existing asset – it is accounted for separately.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Retirement and disposals
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Fixed assets are deleted from the financial
statement either on disposal or on
expected economic benefit.
Gains or losses arising on disposal are
generally recognized in profit & loss
account.
A.K.Sharma
Fixed Assets in Financial
Statements(Contd.)
Disclosure
 Gross and net book values of fixed assets at
the beginning and at the end of accounting
period showing additions, disposal, acquisition
and other movements.
 Expenditure incurred on account of fixed assets
in the course construction or acquisition
A.K.Sharma
Types of Asset
Tangible – Assets having physical
substance that can be seen and
touched
Intangible Assets – Assets not
having any physical substance but
future economic benefits are expected
to flow from them to the enterprise.
A.K.Sharma
Fixed Assets of BSNL
1.
2.
3.
4.
Land
Buildings
Apparatus & Plant
Motor Vehicles &
Launches
5. Cables
6. Lines & Wires
7. Subs Installations
8. Installation Test equipments
9. Office Machinery & Equip.
10. Electrical Fittings & App.
11. Furniture & Fixtures
12. Computers
13. Masts & Arials.
A.K.Sharma
Fixed Assets : Recognition
Land – Land is capitalized as and when
possession of the land is taken and the final
payment is made. In case title deeds are not
finalized the effect of the same will be
indicated.
Buildings – A building is said to have been
completed as and when it is ready for use as
per Management Certificate. In case of
buildings which are purchased, they are
capitalized as and when the possession is
handed over.
A.K.Sharma
Fixed Assets :
Recognition(contd.)
Cables - Cables include all types of U/G
cables with related terminals, PCMS etc.
The related expenditure to put cable
into use will comprise the cost of Cable
Asset. This asset is recognized when it
is ready to be connected.
A.K.Sharma
Fixed Assets :
Recognition(contd.)
Apparatus & Plant – A&P include Auto/Electronic and
New Technology exchange systems with related
equipments (viz) HDFs, Engine Alternators Power
plants, Batteries etc. Junction equipments
Transmission equipments of all technologies
including coaxial equipments, terminal, repeater
carrier equipments, VFT terminals, PCM equipments,
multiplexing equipment data modems, Microwave
Radio Relay equipments, Terminal Equipments
relating to ISDN video etc. These are recognized
when ready to be used for the purpose it is installed
A.K.Sharma
Fixed Assets :
Recognition(contd.)
Lines & Wires – This consists of overhead
lines GI, wires, Posts, Insulated wiring of subs
premises, jumper wire, brackets, line cards of
all type including cost of execution of related
works.
Motor Vehicles – These are recognized on
possession itself.
A.K.Sharma
Fixed Assets :
Recognition(contd.)
Electrical Fittings & Electrical Appliances – At
the time of original construction, Electrical
installations etc. installed along with building
works as a part of Building project are
treated as part of building asset and
recognized accordingly.
Electrical fittings carried out independently
and Appliances installed subsequently are
only covered by this caption
A.K.Sharma
Fixed Assets :
Recognition(contd.)
Office Machinery & Equipment Generally covers Photostat Machines,
Fax machines, Typewriters etc. These
are capitalized on acquisition.
Computers – Computers are capitalized
when acquired and when to be used as
stand alone.
A.K.Sharma
A.K.Sharma