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CA Raj Doshi (Practising CA) (8782 Points)

15 March 2016

1. What are the basics / bases for classification of inventories into Raw materials, work in progress, and finished goods? 2. An electroplating industry receives machine parts from manufacturing industry which is dipped in chemicals and applied scintific process - Is this inventory for the electroplating industry ? under what head ? 3. Chemicals which are used in the process of electroplating as on 31st March is it WIP or RM ? 4. Chemicals stored in drums and other spares tools fixtures - is it raw material or finished goods ? Please provide answer with proper backing. Also give practical solutions generally adopted by Auditors , if any. Thanks in Advance. Raj C Doshi

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3 Replies

Amit M Bafna (74 Points)
Replied 15 March 2016

1.Material which are used for manufacturing the products are RM

2.Finished goods which are incomplete i.e., partial work done and further work is required to convert the same into FG are WIP.

3.Goods which are ready to remove from factory are FG.

Meetu Sinha Ray (Sr. Manager Finance and Accounts) (23 Points)
Replied 16 March 2016

The Machine parts are not our stock, it will be third party stocks and will not reflect in our books, except in excise records. The chemicals in their basic state is RM for the electroplating company The mixture /processed chemical ready to use for electroplating is WIP , the material /mixture which is currently in use for electroplating is also WIP. FG is the used and ready to dispatch products, which are laying in the factory not picked up by the engineering units( FG valuation will be only the coating cost/material and overhead) no way it should be the value of parts of engineering goods/parts. Traditionally, these units bifurcate their goods in RM and FG only, As WIP valuation is difficult to prove at each stage for excise purpose.