Dear members,
I have come across audit of a small supermarket proprietorship concern. The assessee has not maintained any inventory stating that It has a very vast inventory hence it is not possible for him to maintan such inventory consumpution.
I would like to know If he can be exempted from maintaing. Also, are their any adverse consecuences under Income Tax Act. Also, What is the general trend in supermarket account like how do supermarkets maintain their accounts.
Thank You.
@ Rohit Tulsiyan
If he does not keep a record of his inventory conumption, then you should go through the following points:
1. How is he able to identify DAD stock? (Damaged and Defectives)
2.How is he able to get hold of his Inventory Shrinkage? (Loss/Destruction/Theft of Inventory)
3. Is any record kept with security for the Goods Inwarding Process? Like Security Inward Register, Lorry Receipts.These records may help you reconstruct the Inventory at his warehouse for a perticular month (But it's an extensive exercise)
4.Does he prepare any GRN (Goods Recieved Note) for the stock that he recieves from the suppliers? get hold of those
5.How does he identify discrepencies in receipt of goods from suppliers, like does he prepare any discrepancy report from them?
Normally in Supermarkets, accounting for Inventory is DONE with the help of Item Codes and they are feeded into the system and stock movement is captured accordingly.
You have to be more specific in what you are asking, what are the deficiencies you have noticed in the Inventory part of audit?
Yes implications under the Income Tax Act is quite obivious, as you have some reporting requirements on stcok and their correct valuations in the balance sheet, so as long as you have not been able to identify the precise problems in Inventory and reconcile them then surely you will have a problem with the tax audit report.
Thank you for your reply. I aplogise for such a delayed reply. Actully he has not maintained anything and though its a supermarket, its very small but huge inventory items in less quantity. Besides its a small firm hence its not cost effective to maintain every thing as same is done by thr owner himself. Can we do something in this regard.
Thank You.
CAclubindia
