Accounting for gold savings scheme

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This query is : Resolved

CA Subin VR (Querist)

13 September 2011 We are in Gold Jewellery retail business has stock of 1000kg of gold on March 31, the average value of one gram is Rs. 1850/-. We conducts a Gold Savings Scheme, where the customers can deposit cash, on which they will get credit of gold weight upon the then prevailing market rate and customers can redeem this gold weight as and when they wish. (eg: a customer deposit Rs. 2000 on Jan 1, 2011 and his account is credited one gram gold, the then market rate of one gram gold was Rs. 2000). On March 31, outstanding gold weight in this particular scheme is 50kg gold, of which the average booked rate is 1950. These 50kg gold is not earmarked (specifically identified) in the 1000kg closing stock as the customers are yet to come. Market rate of gold as on March 31st is 2050. The auditors has made a provision of Rs. 50lakhs ((2050-1950)*50kg) for this gold savings scheme considering the market price as these gold are not earmarked in the closing stock. whether the auditors are right ? Please establish your answer. You can also depend on AS, AAS or any guidance note.

CA Sumat Singhal

CA Sumat Singhal (Expert)

17 September 2011 Yes auditor is right. As per AS 29 and IAS 37 the amount recognised as provision shall be best estimate of the expenditure required to settle the obligations at BS date.
Hope above ans will help u.
Regards,
Sumat Singhal.

CA Subin VR

CA Subin VR (Querist)

20 September 2011 But you may please note that we are holding stock @ 1850 for 1000kg. "provision shall be best estimate of the expenditure required to settle the obligations" - as we are holding stock @ 1850 whether that provision is required ?