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Cost of materials consumed and purchases are higher than closing stock in case metals


Rajlaxmi inc   04 March 2021

Rajlaxmi inc

 5 points

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My CA audit report query

Cost of materials consumed reported as below 

Material purchases-  22.95 lakh

Add opening stock      77.18 lakh 

Total            100.14 lakh

Less closing stock -  20.61 lakh

Consumption of materials  79.52 lakh

My question is that how can auditors say that material consumed which is not eatable and it is metal form .it can be downgraded or shown as scrap but it can not be disappeared. 

Please guide on legal way as showing less closing stock and showing higher value in material consumed  there is wrong interest of stealing the income tax by showing less profit 

Sourav

Sourav (Student)     04 March 2021

Sourav
Student 
 514 likes  8451 points

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Materials which are not consumed during the year should be shown under closing stock it cannot be shown as scrap. Materials which are in metal form should be shown as closing stock of Finished goods or closing stock of Raw materials as applicable.
Stealing Income tax by showing less profit is a fraud intentionally in financial statements as this will lead to tax evasion. Auditor should take care his due diligence and professional skills and should told the management the query as this will cause material misstatements in financial statements which could lead to demand under IT ACT in future by Authority
yasaswi gomes

yasaswi gomes (My grammar is 💯 good I)     04 March 2021

yasaswi gomes
My grammar is 💯 good I 
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Your auditor is correct. WIP is consumption of resources like material, labor and overheads. 

You need to understand two things waste & scrap

waste- is included into the finished goods and not downgraded

scrap- has a recovery value and can be measured. Here, once scrap is resold, it is credited to WIP (debit expenses). Cost principle also prescribes that, for unrealised scrap (no resale) it must be expensed. However, I will treat it as waste and include it in total cost per unit. 

Finally, nothing mentioned about income tax in Indian tax act from my googling. COS is general operating expenditure. While calculating current tax, tax department prescribed a list of deductible and non deductible expenses to derive trading income. Nothing is exempt from it and can’t cheat the system. You seem to have 1000₹ as waste. If u include it in Cos, gross profit will increase and once you expense that waste pbt will decrease. 

Rajlaxmi inc

Rajlaxmi inc   04 March 2021

Rajlaxmi inc

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You have not understood my query .

Problem is they have shown material consumed means disappeared. How can steel materials can be shown as consumed. 

Business is renting out the steel Products for reuse and not sales.

Please revisit

Rajlaxmi inc

Rajlaxmi inc   04 March 2021

Rajlaxmi inc

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Yes correct.

Please send the reference of documents to prove this as wrong .so that I can take up with Auditors 

yasaswi gomes

yasaswi gomes (My grammar is 💯 good I)     04 March 2021

yasaswi gomes
My grammar is 💯 good I 
 185 likes  3364 points

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Sry for your loss. Actually your version is more convincing that there is a mistake. The only flaw in auditing is not following the AS. You don’t need special documents because by statute, an auditor should follow local standards. You seem smart as you already know your maths, investigate at the warehouse and log in fraud or what ever necessary actions you want to like. Fortunately AS 240 doesn’t need any endorsed documents from the tax authorities to conduct an investigation. https://cleartax.in/s/standard-on-auditing-sa-240-the-auditors-responsibility-relating-to-fraud-in-an-audit-of-financial-statements#documentation

Here, the documents YOU need are evidences like bills, vouchers, expenses etc., e-mail communications and auditors rectification. All the best.

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