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Accounting of Inventory, CWIP, Assets. A.K.Sharma, CAO ALTTC Ghaziabad. Inventories. Schedule VI of Companies Act, classifies Inventories as :- Stores & Spares Loose Tools Stock-in-Trade. Inventories of BSNL. Building Materials Lines & Wires Cables O.F.Cable A&P

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Accounting of inventory cwip assets

Accounting of Inventory, CWIP, Assets

A.K.Sharma, CAO

ALTTC

Ghaziabad

A.K.Sharma


Inventories
Inventories

Schedule VI of Companies Act, classifies Inventories as :-

  • Stores & Spares

  • Loose Tools

  • Stock-in-Trade

A.K.Sharma


Inventories of BSNL

  • Building Materials

  • Lines & Wires

  • Cables

  • O.F.Cable

  • A&P

  • Telephone Instruments

  • Telegraph & Telex Instruments

  • Installation Test Equipments

  • AC Plants

10. Internet equipments

11. Masts & Aerials

12. General Stores

13. Finished goods in TF

14. Raw Materials in TF

15. Decommissioned Assets

A.K.Sharma


Cost of inventories
Cost of Inventories

  • On measurement of Inventories, valuation should be at cost or net realisable value, whichever is lower as follows :-

    • 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
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 contd1
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 31 st march
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
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-in-progress.

A.K.Sharma


Some important points relating to inventory
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
Some Important points relating to inventory(Contd)

  • Identify the obsolete / unserviceable / non-moving / 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
Physical verificationof 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
AUDIT QUALIFICATION REGARDINGINVENTORIES

  • Non-identification of obsolete / unserviceable / non-moving / slow-moving inventories and non-accounting 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
AUDIT QUALIFICATION REGARDINGINVENTORIES (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
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
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
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 contd1
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
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
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 works in progress
Review of the pending Works-in-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
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
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
Fixed Assets

What is an Asset ?

Held with intention of being used for the purpose of producing or providing goods and service.

  • 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 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 :-

    • 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
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 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 contd1
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 contd2
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 contd3
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:-

  • 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 contd4
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 contd5
Fixed Assets in Financial Statements(Contd.)

Retirement and disposals

  • 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 contd6
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
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

7. Subs Installations

8. Installation Test equipments

9. Office Machinery & Equip.

10. Electrical Fittings & App.

11. Furniture & Fixtures

12. Computers

13. Masts & Arials.

  • Land

  • Buildings

  • Apparatus & Plant

  • Motor Vehicles & Launches

  • Cables

  • Lines & Wires

A.K.Sharma


Fixed assets recognition
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
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 contd1
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 contd2
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 contd3
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 contd4
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


Thank you

A.K.Sharma


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