Valuation of Finished Product
This query is : Resolved
20 May 2011
Our company have five plants in different locations in India producing same product. In the FY 2010-11 one unit has purchased one semi-finished material for production of final product from other plant. Transferor plant has transferred the material on selling price (cost + profit margin). My query is
1. We should value the un-utilized transfer material at cost & book the margin as un-realized profit.
2. whether we should also exclude the profit margin from the stock of finished product where the transfer material is used. kindly also intimate the reference note.
thanks
1. We should value the un-utilized transfer material at cost & book the margin as un-realized profit.
2. whether we should also exclude the profit margin from the stock of finished product where the transfer material is used. kindly also intimate the reference note.
thanks
U S Sharma
(Expert)
20 May 2011
as the transfer value is already inclusive of profit margin, you have to show inward entry at transaction price,
at the point of sale such profit will get adjusted,
as the management is same, no impact goes to profit margin, it would be just the profit of tranferer plant in place of transferee plant. at the end of year all such profits are accumulated at P.L jointly.
at the point of sale such profit will get adjusted,
as the management is same, no impact goes to profit margin, it would be just the profit of tranferer plant in place of transferee plant. at the end of year all such profits are accumulated at P.L jointly.
20 May 2011
To be more clear on this, when you club accounts of all plant sale and purchase will be adjusted except closing stock which will be overloaded with the profit margin added by transferor plant, which needs to be offloaded by transferring it to the unrealized profit even for the material used in the finished product lying in the staock, for removing this unrealized profit from finished product a formula needs to be worked out depending upon bills of material
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