Clause 4 (ii) of CARO 2003 regarding Maintaining Inventory
Clause 4(ii) of Companies Auditor Report Order requires that Auditor should insure whether difference in physical inventory verification is properly adjusted.
What does that mean? And what effect the adjustment will have on Excise and VAT?
And if it hits Profit and Loss Account, should it be seperatly disclosed as extra ordinory item?
OR it should be given a normal adjustment? And also what effects it will have on income Tax?
As per me:
It should not have effect on VAT or Excise sinc Excise deals with Manufacturing and VAT with Sales.
Also Income Tax should allow it. And no need to show it as Extra ordinary item since it adjusted due to applicable general accounting policies of CARO.
What you think of it?
Shortage or Excess inventory should be investigated by the company
Reasons may be Items lying in WIP, FOC sales or promotion expenses where the inventory entries are not passed, theft, abnormal loss etc
After investigating, if still some items are not reconciled, accounting entry is as follows
1. Material Consumption A/c Dr
To Inventory A/c
2. Inventory A/c Dr
To Material Consumption A/c