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Why do we calculate inventory ageing?

CA Mayur R M (Chartered Accountant) (60 Points)

31 October 2012

Guys, i just want to know that why do we calculate Inventory Ageing?.......And what if the inventory ageing calculated by the management is wrong and there are price details for certain stock items missing in the inventory ageing report generated from the ERP system implemented by the managment? What is the impact on the organization and financial statement of the organization? What would be the recommendations that we can make to the management in order to set things right ....!!!

Guys pls reply....its Urgent !!!!!

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2 Replies

Gopalkrishna Hegde ,CA,DISA (employment) (275 Points)
Replied 02 November 2012

Dear Mayur

The management always needs to have inventory ageing for the following specific reason

1) Inventory is an investment in current assets. so the funds get blocked in inventory . which would have been otherwise diverted for other expenses

2) At time without the knowledge of top managment the investment might have been made. especially in a manufacturing sector if this is so then it would draw the attention of managment in the form of internal audit report or management report

If the price details are missing then the report generated from ERP it might be misleading or incorrect. If any of these issues are present in ERP. we need to understand that there is a bug in the software which needs to be corrected

Milind M. Kulkarni (Practicing CA) (580 Points)
Replied 03 November 2012

Inventory ageing is required to identify slow moving/ non moving inventory items and make appropriate provision in the books in case they have lost their market value. If ageing and prices generated by ERP are misleading/ missing, you need to immediately escalate this to the top management of the company as well as partner of your firm handling this account. Also, please check how inventory was valued in the previous year/ at the time of last closing of accounts and how these inaccuracies were dealt with. Also, try to judge whether this is a technical issue only of ERP or that of management integrity to give a misleading picture. Please have discussions among your senior team members and decide about making appropriate recommendations.

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