Accounting Procedures

Accounting policy for treatment of stock /fixed asset loss or damages 1. Accounting procedure for FG – Packed / Bulk cement damage On event of inventory damage due to fire, flood, etc., reduce the inventoryvalue to the extent of cost of the good lost by debiting Stock Loss account & crediting Inventory account .On claim being preferred with the insurance company , the accounting entry is passed debiting to claim receivable account (Cost of the goods lost less salvage and policy excess) . The difference between the Claim preferred & claim settled by the Insurance company, need to be recovered from the C & F agent as per the agreement with C&F agent (Claim preferred ,less Claim received, Less Salvage retrieved). If the difference can not be recovered from C&F agent, then shall be accounted as Loss on Insurance Claim. Damage can happen at branch level for the following reasons: a. Standardizations loss of cut & torn, clotted bags These damages needs to be accounted on approval being taken by the head of RMO and DM based on LOA. Damages arising out of fire, flood, etc., are subject to insurance claim. This needs to be properly accounted and the following procedure needs to be adhered to: Entry to be passed at respective RMOs I.

At the time of accounting shortages with due approval T-code: MB1A Movement type: 201 Debit : Stock loss – Damages (New GL) xxxx XXXXMO4190 Credit : Inventory xxxx Entries to be passed at Corporate Office

II.

At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE Credit : Insurance Claim a/c. (New GL, Income) xxxx

III.

At the time of receiving the claim Debit : Credit: xxxx

Bank a/c. xxxx 1421201003- RECEIVABLE - CLAIM INSURANCE

xxxx

IV.

At the time of short receipt of insurance claim Debit: C&F agent/Loss on Insurance Claim (New GL, Expn) XXXX SH4190 Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

V.

In case of Salvage value recovered Debit :Inventory A/c Credit: Stock Loss – Damaged (New GL)

2. Accounting procedure for Damages of raw materials, coal in plant Damages of raw materials can happen due to following reasons: a. Damages due to Fire, flood, accident, etc., Damages arising out of fire, flood ,etc., are subject to insurance claim. This needs to be properly accounted and the following procedure needs to be adhered to: I.

At the time of accounting shortages/ damages with due approval T-code: MB1A Movement type: 201 Cost Center : respective expenditure cost center ** Debit : Stock loss – Damages/Shortages (New GL) xxxx ( cost object **) Credit : Inventory xxxx Entries to be passed at respective plants

II.

At the time of claiming insurance Debit : Credit :

III.

1421201003- RECEIVABLE - CLAIM INSURANCE Insurance Claim a/c. (New GL, Income)

At the time of any receiving the claim Debit : Bank a/c. xxxx Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

xxxx xxxx

IV.

At the time of short receipt of insurance claim Debit: Loss on Insurance Claim (New GL, Expn) xxxx ( cost object **) Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

3. Accounting procedure for shortages/damages of spares (not identifiable in FA register) On event of machinery breakdown / damage, cost of repair/replacement to be debited to repairs account. No accounting treatment is required in FA register. No requirement of CENVAT reversal as the spare is not removed in as such condition. Replacement of spares covered under insurance claims need to be accounted by adopting the following procedure – Entries to be passed at respective plants 1. At the time of accounting the consumption of spares T-code: MIGO Movement type: 201/261 Cost Center : respective expenditure cost center / Maintenance order** Debit: object **) Credit:

Stk/Var. account

xxxx

Inventory a/c.

( cost xxxx

2. At the time of claiming insurance Debit : Credit :

1421201003- RECEIVABLE - CLAIM INSURANCE Insurance Claim a/c. (New GL, Income)

3. At the time of any receiving the claim Debit : Bank a/c. xxxx Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx 4. At the time of short receipt of insurance claim

xxxx xxxx

Debit: Loss on Insurance Claim (New GL, Expn) xxxx ( cost object **) Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

4. Accounting procedure for shortages/damages of fixed assets (Identifiable in FA register) On event of fixed asset damaged and identifiable in FA register, then the asset to be removed from FA register and necessary entry to bepassed in financial books Debiting Loss on Removal of fixed asset & Provision for Depreciation & Crediting the Gross block of Asset removed . No requirement of CENVAT reversal as the asset is notremoved in as such condition. Fixed assets damaged due to Fire, Flood, Accident, etc., are covered under insurance claims and need to be accounted by adopting the following procedure. If the spare has damaged without putting in to use, the Cenvat credit taken at the time of receipt needs to reverse.

I.

II.

At the time of accounting the replaced Fixed assets Debit : Fixed Asset a/c. Credit : Asset Under Construction a/c xxxx

xxxx

At the time of de-capitalizing the damaged Fixed assets Debit : 7021500000- LOSS ON SALE /DAMAGE OF FIXED ASSETS xxxx (With relevant cost object) Debit: Provision for Depreciation xxxx Credit : Fixed Asset a/c. xxxx

III.

At the time of claiming insurance

Debit : 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx Credit : Insurance Claim a/c. (New GL, Income) xxxx IV.

At the time of any receiving the claim Debit : Bank a/c. xxxx Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

V.

At the time of short receipt of insurance claim Debit: Loss on Insurance Claim (New GL, Expn) XXXXAO4200 Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

VI.

xxxx

Entry to passed in order to nullify the impact of short / excess arising due to booking of loss on sale /damage of FA on WDV basis In case of Shortage Debit: Insurance Claim a/c. (New GL, Income) xxxx Credit: 7021500000- LOSS ON SALE /DAMAGE OF FIXED ASSETS xxxx (With relevant cost object) In case of Excess (Reversal of the above entry to be passed)

In case of any materials damages before capitalization of final asset, it is suggested to follow the scenario 2 i.e, accounting procedure for shortages/damages of raw materials in plants

I.

At the time of accounting shortages/ damages with due approval T-code: MB1A Movement type: 201 Cost Center : respective expenditure cost center ** Debit : Stock loss – Damages/Shortages (New GL) xxxx ( cost object **) Credit : Asset under Construction a/c. xxxx And other entries follow the same sequence as discussed above.

5. Accounting for shortages / damages for incoming materials received under marine insurance policy Items damaged / shortages which are covered under marine insurance policy needs to be treated as under: I.

At the time of receiving the material Debit: Debit: Credit:

II.

Inventory (With quantity invoiced) Cenvat clearing a/c.(in case of as such removal) Vendor

Accounting the shortage / damaged material T-code: MIGO Movement type: 201/261 Cost Center : respective expenditure cost center / Maintenance order** Debit : Stock loss – Damages/Shortages (New GL) (cost object **)

xxxx

Credit: Cenvat payable a/c. (in case of as such removal) xxxx Credit : Inventory xxxx III.

At the time of claiming insurance Debit : Credit :

IV.

1421201003- RECEIVABLE - CLAIM INSURANCE Insurance Claim a/c. (New GL, Income)

xxxx xxxx

At the time of any receiving the claim Debit : Bank a/c. xxxx Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx

V.

At the time of short receipt of insurance claim Debit: Loss on Insurance Claim (New GL, Expn) xxxx (cost object **) Credit: 1421201003- RECEIVABLE - CLAIM INSURANCE xxxx