Inventory policy for seed division and Impact there on Flashcards
- PURPOSE
AP 1- Seeds division
AP 2: why do we mention–, against over-inflated or inaccurate stock valuations recorded in accounts
means ultimately correct disclosure?
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AP- 3: How it is supported?
1.1 This document sets out the revised policy by Rallis India Limited to safeguard the proper use of the Company’s resources,
against over-inflated or inaccurate stock valuations recorded in accounts and to ensure compliance with the law and relevant regulations.
It is supported by the procedures for dealing with provision for stock write off and disposal, which offer more detailed guidance.
- BACKGROUND
Do not read this
- 1 Rallis India Limited holds a significant amount of inventories and each individual inventory holding department has a responsibility to manage risk and economic benefit by ensuring optimal stock holdings are held to support operations.
- 2 This policy for dealing with the provision for stock write off and disposal, forms part of internal control and corporate governance arrangements.
3 REGULATORY FRAMEWORK & RESPONSIBILITIES–
What are the changes suggested now?
Why we are talking about age/Mvt/Scrap/expected mvt?
Cant` we delete movement? Expected Mvt we understand—that may be required because future sale may be required to map.
1 Compliance with the Financial Regulations is a requirement for all who have responsibility for the administration or management of Inventory.
Above is telling who are responsible.
- 2 The policy complies AS 2 (Accounting Standard for Inventories), which gives clear directions for valuation of inventories.
Uncertanity:-about existence/NRV/Usage:
If there is uncertainty about the existence of stock, the net realisable value of the stock is less than the cost, or there are concerns that the stock will not be sold, than a stock provision should be set up. There are various methods that can be applied to help calculate the stock provision.
Proivision calculation method: AS - 2 recommends calculations ‘based on predetermined criteria’ to produce the provisions to reduce stock from cost to net realisable value and for those calculations to take account of, as appropriate, the following circumstances of the stock: - Age - Movements during the last year - Expected future movements - Estimated scrap values
. BACKGROUND TO THE PROPOSED CHNAGES TO THE EXISTING POLICY:
- As per the past trend, it is observed that out of the inventory being written off in Q1, major portion pertains to the inventory arising out of the sales returns of the previous year.
- As seeds are living organisms which are subject to deterioration in quality over efflux of time, it is important to keep the stocks in ideal storage conditions to improve the life. However, it is a fact that such inventory (sales returns) will be under the external environment in the godown of distributors/retailers and are subject to quick deterioration in quality due to poor handling and storage. It takes normally 4 to 5 months until the sales returns are received at the plant from the time it is sent to the market.
- The quality verification which is normally carried out in June/December involves detailed quality study of each of the lot and it takes minimum 3-4 weeks to complete this process. As Jan-Mar is the peak season involving Quality validation of incoming fresh seeds, it will not be possible to do this detailed verification during the last quarter. Further, there are opportunities to blend the old stocks with new arrivals in selected crops.
- Current policy does not cover parent seeds and pack mates related provisions.
- The present inventory provisioning policy does not factor the expected loss of life of inventory due to such poor handling and as a result there is a gap between the quarterly provision and actual loss post quality verification.
- In case of reproceesed stock, In SAP, Mfg date is overwritten with the date of reprocessed date
- There was no reference about reprocessed stock in In case of reprocessed stock, present inventory provision policy was not mentioning anything clear about the shelf life calculation i.e. in present scenario provision was made on the SAP based Manufacturing date instead of the actual manufacturing date based derived from Batch number logic which resulted into lower provision.
- The present inventory provisioning policy does not factor the Utilization of the Inventory in to future years. To mitigate the same every year utilization working needs to done considering 5 years LTSP sales numbers twice a year. Based on the inputs from the Business heads and derived numbers provision needs to be made. (Update provision amount )
- In order to mitigate the gap and to make adequate provision for the inventory write off at the end of the financial year, there is a need to revise the provisioning policy.
- PROPOSED PROVISION:
Based on the discussion with Business heads and Quality Heads their exp. Of industry benchmark etc. we propose the following inventory provisioning at the end of every quarter, to be effective from Q1’ 23:
Sl No Crop Ageing in Years % of volume loss 1 Rice / Millet / OP Peddy >2 years 25 > 3 years 50 >4 years 75 > 5 years 100
2 Corn > 1 year 10
> 2 years 30
>3 years 100
3 Cotton >2 years 10
>3 years 20
>5 years 50
>7 years 100
4 Vegetables > 2 years 25
> 3 years 50
> 4 years 100
6 Sunflower, Jower and Mustard Business inputs needed
7 Parent Seeds Same as Hybrid Seeds as mentioned above
Packing Material Stores and spares
- STOCK WRITE OFF
It is to be done in consultation with business head i.e. yogesh
Opp. for Blending to be explored.
Proper safegaurding of the stocks.
FIFO ensured especially for these stocks
pre determined criteria based on QC reqiourement/regulatory requirements
FIFO basis issuance ensure
7.1 The Stock write off to be done based on the recommendation of QC department, with the same reviews made for special circumstances.
Usable stock with NIL Value:
In addition to this a decision has to be made whether the stock item is still usable by the department but has no value. If this is the case the item can be written off but remain in stock in a separate area. This is only reasonable if there is sufficient space in the store and the item is sufficiently small to still keep in stock.
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It can then be issued out over a longer period of time or it can be written back in to stock if a future need is identified.
IND AS-2—specifically allows this. OK.
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7.2 The Process Owner should be forwarded details of this write off as a process, to record for future reference and for auditing purposes.
Process owner menas—-< Finance or business? Who will send to whom?
Who should approve–clear business /operating/quality hed only.
7.3 To comply with the Financial Control Framework the Factory Head / Depot In charge must ‘retain evidence that the stock written off has been properly approved with the reason for the decision stated’.
- DISPOSAL OF STOCK
- 1 As the Financial authority lies with the Head of Department, so does the ultimate responsibility for disposal of written off and unusable items of stock. However, the Store Supervisor, overseen by the Departmental Administrator, will undertake the actual physical disposal. (Check for disposal committee)
- 2 If the item of stock is still usable but no longer required by the department then it should be offered to other similar departments before disposal takes place. Other alternatives should be considered such as school or charity donations prior to disposal.
- 3 Once disposal has been agreed, the item should be removed from the physical stock location and counted to compare with the quantity held on the stock management system and any adjustments to the quantity accounted for. Disposal will have to necessarily comply with all applicable regulations (local or otherwise) and should consider community aspects as well. All users responsible for adjustments should carry out the stock write off process in SAP MM / FI Module to ensure the system is updated for the reduction in stock held. If this is an obsolete line that will not be used again by the department, Seeds Purchasing Committee should then be informed and asked to remove the item from the list assigned to their department on the module. If the stock is managed through an alternative system this should also be updated to reflect the write off deduction in stock held and possible deletion of identification line number.
- 4 The item should then be disposed off in consultation with local Finance Head and concurrence of Corporate Internal Audit team within three to six months of provisioning. Any exceptions in timelines will have to be approved by HO Finance. If the item is a hazardous substance or a chemical then the Health and Safety Executive guidelines should be adhered to. For future reference and auditing purposes the Head of Department should retain documentation of these types of disposals.
- 5 There may be costs incurred for disposal of an item and pooling these types of disposals at regular pre-determined intervals with other departments should be considered wherever possible.
- 6 If the item has an attractiveness or resale value outside the Company, but it is not appropriate to keep it any longer, the items of stock should be defaced, ripped, etc so they have no resale value.
- 7 ‘In-house’ checking of all disposals should be administered by the Head of Department to ensure compliance, which should be available for review by the Process Owner and/or auditors on a regular basis.
- 8 For realisation value calculation should take competitive quotations whenever disposal decision has been taken. Bids need to invited via Super procure or ARIBA. For inventory valuation while making provision realisation value / salvage value should be netted off based on latest available quotations or PY average rate.
Check below:
As per the past trend, it is observed that out of the inventory being written off in Q1, major portion pertains to the inventory arising out of the sales returns of the previous year.
• As seeds are living organisms which are subject to deterioration in quality over efflux of time, it is important to keep the stocks in ideal storage conditions to improve the life. However, it is a fact that such inventory (sales returns) will be under the external environment in the godown of distributors/retailers and are subject to quick deterioration in quality due to poor handling and storage. It takes normally 4 to 5 months until the sales returns are received at the plant from the time it is sent to the market.
check
What do u mean by
If there is uncertainty about the existence of stock, the net realisable value of the stock is less than the cost, or there are concerns that the stock will not be sold, than a stock provision should be set up
check
What do u mean by:
There are various methods that can be applied to help calculate the stock provision. AS - 2 recommends calculations ‘based on predetermined criteria’ to produce the provisions to reduce stock from cost to net realisable value and for those calculations to take account of, as appropriate, the following circumstances of the stock:
check
what do u mean by:
• The quality verification which is normally carried out in June/December involves detailed quality study of each of the lot and it takes minimum 3-4 weeks to complete this process. As Jan-Mar is the peak season involving Quality validation of incoming fresh seeds, it will not be possible to do this detailed verification during the last quarter. Further, there are opportunities to blend the old stocks with new arrivals in selected crops.
check
what is the process for reproseesed stock?
- In case of reproceesed stock, In SAP, Mfg date is overwritten with the date of reprocessed date
- There was no reference about reprocessed stock in In case of reprocessed stock, present inventory provision policy was not mentioning anything clear about the shelf life calculation i.e. in present scenario provision was made on the SAP based Manufacturing date instead of the actual manufacturing date based derived from Batch number logic which resulted into lower provision.
