We ,aluminiun sheet plant, are importing work roll, conventionally treated as capex , somewhere opex.
If rolls get undersized due to machining issue there is loss of work roll life
Is it a revenue exp or be adjusted in capitalisation?
Settlement by credit note or reducing unit price...which is ideally correct?
Please guide
After you manufacture? Yes settlement with reimbursement and reducing price afterwards will help. Coming to scrappage, conversion costs include direct expenses and waste is a direct expense. So it can be capitalised. To be sure I will go through costing gaap and get back if anything different is mentioned.
This import buy is from USA. Due to machining issue(eg specs mismatch), though this can be used at Indian buyers plant but with a lower economic life period.
There are 2 arguments.
One school of thought wants to adjust exporter's offer of compensation towards a loss of life,,in unit price itself..
My reading..
As life of work roll is linked to its usage in production and not in terms of year,, importer should account for PO defined value and compensation (by credit note, ad shipment has already taken place and agreement of this compensation amt takes place later on --so no back end Invoice correction) in the books of account separately...to give a true reflection of both the incidences.
However I am not having Accounting standard,
Institute guideline/ advisory,,case laws,,leading audit firms view points), IFRS , COST ACCOUNTING STD etc
Kindly guide me.
https://icmai.in/upload/Students/Syllabus-2008/StudyMaterial/Cost_Mgmt_Ac.pdf
Please follow this. I also studied many text books and this is pretty easy to understand. In page 34-35 you have the info.
the control accounts here is easy to understand. It’s reliable as it’s icmai publication.
I did not understand me thing though, what is useful life? Who is manufacturing? Is anyone manufacturing in India? I want to know exactly what product it is please.
Thank you.
This is work roll, used in aluminium sheet plant.
USA based Union Electric ,Akers manufacture this.
There is no manufacturer of such rolls in India.
Life of roll is unlike calendar years. It depends upon usage say one roll can produce 1 lakh tone of aluminium sheets.
Trust I am clear.
I am from Kolkata
Thank you For the details. Shelf life is not our cost accounting. It is capitalised into closing inventory as warehousing charges are related to production. This inventories standard authors are also mentally ill because storage costs are necessary. Before another production stage? All costs are absorbed and it is necessary. You can follow IndAS 2 for standards.
No standard however mentions about the reality- I have seen those rolls while travelling on trains. They are lying there for years. But they are used after five years. Then the storage costs are expensive and must they be capitalised or not? These people are alcoholics who wrote this standard without clarity.
Finally, if the shelf life is decreasing, you have spoilage treatment. Use JIT to order. There can be n school of thought bigger than this.
CAclubindia
