CHAPTER 4

Procedure for procumbent,

handling and of inventory of
stores, spares and other financials
in AP FIBRES
INTRODUCTION:

The Inventory in Salur Jute Mill are consisting of finished goods, stocks of raw
materials, stock of stores and spares and working progress. The finished goods produced at
various by production department are sold by marketing departments and accounted by sales
Accounting section of Finance Department. As regarding raw materials concerned, the Raw
Material Department produce the materials through Materials Management Department
(hereafter referred as MM Dept.) for use by production departments and are accounted by
Raw Material Accounts Section of Finance Department. As the present study is restricted to
inventory of stores and spares, the procedure for procurement, receipt, handling and
accounting of stores and spares is detailed below.

Procurement:

Automatic Recoupment Cell (AR Cell) of stores Department Prepares indents

in respect of materials, which are of meant for common use by various user department of
company. The various user departments prepare the indents for procurement of materials,
which are not procured by AR Cell considering their usage, stock position, budgetary
position, etc. The indents so prepared needs to be approved by competent authority. On
approval, the indents are forwarded to MM Dept. for initiating procurement action.MM Dept.
invites tenders from various suppliers as per laid down procedure and finalize the lowest
suppliers. An order indicating rate, terms and conditions (hereafter referred as AT, i.e.,
acceptance of tender) placed on the on such supplier. The copy of order is sent to user
department, central stores department (CSD), Finance Department and other concerned
sections.

Handling of Stores and Spares:

The materials in respect of stores and spares, minor raw materials, etc. are received
by CSD from suppliers. SD stores them and issues for consumption. SD also identifies the
surplus, scrap materials, and disposes them. For these activities, SD follows detailed
procedure through its sections consisting of collection cell, receipt stores, Discrepancy
Receipt Stores, Claims cell, Dispatch Cell, Disposal Stores etc. The various functions and
procedure followed by CSD is given hereunder.
 Inventory management is primarily about specifying the shape and percentage of
stocked goods. It is required at different locations within a facility or within many locations
of a supply network to proceed the regular and planned course of production and stock of
materials.
The scope of inventory management concerns the fine lines between
replenishment lead-time, carrying costs of inventory, asset management, inventory
forecasting, inventory valuation, inventory visibility, future inventory price forecasting,
physical inventory, available physical space for inventory, quality management,
replenishment, returns and defective goods and demand forecasting. Balancing these
competing requirements leads to optimal inventory levels, which is an on-going process as
the business needs shift and react to the wider environment.
Inventory management involves a retailer seeking to acquire and maintain a
proper merchandise assortment while ordering, shipping, handling, and related costs are kept
in check. It also involves systems and processes that identify inventory requirements, set
targets, provide replenishment techniques, report actual and projected inventory status and
handles all functions related to the tracking and management of material. This would include
the monitoring of material moved into and out of stockroom locations and the reconciling of
the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support
etc. Management of the inventories, with the primary objective of determining/controlling
stock levels within the physical distribution function to balance the need for product
availability against the need for minimizing stock holding and handling costs.

ABC Analysis

 It is based on proposition that

 Managerial items and efforts are scare and limited.
 Some items of inventory are some important than others.

ABC Analysis
 ABC analysis classifies various inventory into three sets or groups of priority the
allocates managerial efforts in proportion of The priority the most important item are
classified into class - A, Those of intermediate importance are classified as “class - B’’ and
remaining items are classified into class - C’.

The financial manager has to monitor the items belonging to monitor the items
belonging to different groups in that order of priority and depending upon the consumptions.

The items with the highest values is given priority and soon and are more controlled
then low value item. The re - rational limits are as follows

Category percentage of items %of total cost of materials

A 05 - 10 70 - 85

B 10 - 20 10 - 20

C 70 – 85 05 - 10

Procedure

I. Items with the highest value is given top priority and soon.
II. There after cumulative totals of annual value consumption are expressed as
percentage of total value of consumption.
III. Then these percentage values are divided into three categories. ABC analysis helps in
allocating managerial efforts in proportion to importance of various items of
inventory

ABC Analysis:

Raw material (at closing stock)

YEAR AMOUNT OF RAW

MATERIALS
2013-2014 55492931
2014-2015 84751235
2015-2016 58803057
2016-2017 10238533
2017-2018 19153428
2018-2019 15795766
 Fig no:4.1

AMOUNT OF RAW MATERIALS

90000000
80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
2013 2014 2015 2016 2017 2018

AMOUNT OF RAW MATERIALS

Interpretation: The above graph shows the amount of raw materials at cost. In 2013 the cost
of raw material is 55million.In 2014, the cost of raw materials is increased to 84millions
which is huge amount spend on raw materials. It has been decreased to 58million in 2015 and
I go on decreasing until 2016 i.e., 10millions. In 2017 it has increased to 19millions and
in 2018 it has again dropped to 15millions

Stock in process (at closing stock):-

YEAR AMOUNT OF STOCK in PROCESS

2013 12221365
2014 15904740
2015 10122600
2016 5080125
2017 4512456
2018 6280124
 AMOUNT OF STOCK IN PROCESS
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2013 2014 2015 2016 2017 2018

AMOUNT OF STOCK IN PROCESS

Interpretation: The above graph shows that the work in progress at cost. In 2014 the cost of
material is 15million and decreased in the year 2015 by 10million and it goes on decreasing
till 2017 by 4million and in 2018 it has been increased to 6million.

Finished goods at closing stock:

YEAR AMOUNT OFFINISHED GOODS

2013 21661187
2014 15603939
2015 21655493
2016 NILL
2017 7022867
2018 23857989
FINISHED GOODS AT CLOSING STOCK
30000000

25000000

20000000

15000000

10000000

5000000

0
2013 2014 2015 2016 2017 2018

FINISHED GOODS AT CLOSING STOCK

Interpretation: The above graph shows the amount of finished goods at cost. In
2014, the cost of material is 15million.It is increased to 21million in the year
2015. There is no closing stock for finished goods in the year 2016 and in the
year 2017, it is decreased to 7millions. In the year 2018, it has increased to
23million.

Stores, spares & consumables (closing stock):

YEAR AMOUNT OF COST OF STORES AND SPARES

2013 9455020
2014 9404712
2015 15857372
2016 1178008
2017 9915007
2018 9681785

Chart Title
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
2013 2014 2015 2016 2017 2018

Column2
Interpretation
:

The above graph shows the amount of stores and spares at cost. In 2014 the consumable
is 9million and it is highly increased to 15million in the year 2015.The form maintains
goods in proper way bit it decreased to 11million in the year 2016 and it is decreased to
9.9million in the year 2017 and in the year 2018 it is decreased to 9.6million.
Raw materials consumed:
YEAR AMOUNT OF RAWMATERIAL CONSUMED
2013 231631289
2014 247557099
2015 297051407
2016 32072549
2017 5080125
2018 268727545

RAW MATERIALS CONSUMED

350000000

300000000

250000000

200000000

150000000

100000000

50000000

0
2013 2014 2015 2016 2017 2018

RAW MATERIALS CONSUMED

Interpretation:

The above graph shows consumption of raw materials. The consumption of raw
material in the year 2014 is 247million the consumption of raw material increased
in the year 2015 by 297millions.And it is decreased to 32million in the year 2016
and it is again decreased to 5million in the year. And it again increased to
26million which is a great change.
 Balance sheet as on 2013-2014 OF AP FIBRES LIMITED
S.N0 PARTICULAR 31ST MARCH 2014 31ST MARCH 2013
1 EQUITY AND LIABILITIES IN RUPEES IN RUPEES
  1.Shareholders Funds    
  (a) Share Capital 69500000 69500000
  (b) Reserves and Surplus 3535238 10952370
    65964762 80452370
       
  2.Share Application Money Pending allotment 10000000 5000000
       
  3. Non-current Liabilities    
  (a) Long Term Borrowings 106012283 81193347
  (b) Deferred Tax Liability (net) 1042619 5103013
    107054902 86296360
       
  4. Current Liabilities    
  (a).Short Term Borrowings 74956920 60120503
  (b).Trade payables 86789300 57783577
  ( c).Other Current Liabilities 29510379 27179295
  (d). Short Term Provisions 3995682 4354094
    195252282 149437469
  TOTAL 378271946 321186199
       
2 ASSETS    
  1.Non -Current Assets    
  (a) fixed assets    
  (I) Tangible Assets 111907968 94544404
  (II ) Capital Work In Progress 306912 0
  (b) Non-Current Investments 14426630 3004830
  (d) Long term Loans and Advances 3855764 3824089
    130497274 101373323
       
  2. Current Assets    
  (a) current investment 1674208 1227720
  (b) Inventories 132929843 104745006
  (c) Trade Receivables 30363350 31464543
  (d) Cash and Cash Equivalents 9273071 23688903
  (e) Short Term Loans and Advances 73534201 58686704
 
    247774672 219812876
  TOTAL 378271946 321186199
 Profit and loss a/c as on 2013-2014 of AP FIBRES LIMITED
S.NO PARTICULAR 31ST MARCH 2014 31ST MARCH 2013
1 INCOME IN RUPEES IN RUPEES
  Manufacturing Sales 446177563 442111984
  Trading Sales 6391931 25421384
  Other Income 4760276 4269513
  Total revenue 457329770 471802880
       
2 EXPENSES    
  Cost of raw Materials Consumed 247557099 231631289
increase/decrease in inventories of finished
3995400 6037846
  goods
  purchase of trading 5777003 25572429
  Manufacturing expenses 69996617 81957535
  Employee benefits expenses 101121212 91466694
  Finance Costs 10699905 3083058
  Depreciation 19411306 18424325
  Other Expenses 17319230 17188027
  Total Expenses 475877772 463285510
  Profit/Loss for the period -18548002 8517370
  Tax expenses    
  1.Current tax 0 -4091176
  income tax of earlier years 0 0
  2. Deferred tax 0 0
  DTA Provided/ Reversed 3351758 0
  DTL Reversed/ Provided 708636 1672551
  Profit/Loss for the period -14487608 6098745
Earnings per equity share face value of Rs100
  each    
  1) Basic -20.85 8.78
  2) Diluted -20.85 8.78

Calculation of inventory ratios of the year 2013-2014

1. Finished goods turnover ratio:
Annual sales 46,75,33,368
= = = 3.93
Average inventory 11,88,37,424
2. Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 21,98,12,876-14,94,37,469 = 7,03,75,407
11,88,37,424
= = 1.68
7,03,75,407
3. Raw material turnover ratio:
Material consumed
=
Average Inventory
23,16,31,289
= = 1.94
11,88,37,424
4. Inventory turnover ratio:
Net Sales 47,18,02,880
= = = 3.97
Average Inventory 11,88,37,424
5. Inventory conversion period:
No of days ∈a year
365 days
= turn = = 91days
Inventory 3.97
ratio
6. Inventory to assets ratio:
Inventory 10,47,45,006
= = = 0.32times
Toatal Assets 32,11,86,199
 Balance sheet as on 2014-2015 OF AP FIBRES LIMITED
ANDHRA PRADESH FIBRES LIMITED
Balance Sheet as at
Note As at 31st As at 31st
Particulars
No. March , 2015 March, 2014
I E Q U I T Y AND L I A B I L I T I E S In Rupees In Rupees
1 Shareholders Funds
(a) Share Capital 2.1 79500000 69500000
(b) Reserves and Surplus 2.2 (41442072) (3535238)
38057928 65964761

2 Share Application Money Pending allotment 2.3 0 10000000

3 Non-current Liabilities
(a) Long-Term Borrowings 2.4 111612388 106012283
(b) Deferred Tax Liability (Net) 2.5 0 1042619
111612388 107054902
4 Current liabilities
(a) Short-Term Borrowings 2.4 70967083 74956920
(b) Trade Payables 2.6 54815702 86789300
(c) Other Current Liabilities 2.7 58804174 29510379
(d) Short-Term Provisions 2.8 3569859 3995682
188156818 195252282
TOTAL 337827134 378271946
II ASSETS
1 Non-current Assets
(a) Fixed Assets 2.9
(i) Tangable Assets 101817177 111907968
(ii) Capital Work In Progress 578350 306912
(b) Non Current Investments 2.10 2329830 14426630
(c) Deferred Tax Asset (Net) 2.5 16232779 0
(d) Long Term Loans and Advances 2.11 3918489 3855764
124876625 130497274
2 Current assets
(a) Current Investment 2.12 1203472 1674208
(b) Inventories 2.13 102427276 132929843
(c) Trade Receivables 2.14 30840411 30363350
(d) Cash and Cash Equivalents 2.15 7569222 9273071
(e) Short Term Loans and Advances 2.16 70014282 68703182
(f) Other Current Assets 2.17 895845 4831019
212950509 247774672
TOTAL 337827134 378271946
Significant accounting policies and notes on
accounts 1&2
 Profit and loss a/c as on 2014-2015 of AP FIBRES LIMITED
ANDHRA PRADESH FIBRES LIMITED
Statement of Profit and Loss for the period ended
Note As at 31st As at 31st
Particulars No. March , 2015 March, 2014
I INCOME In Rupees In Rupees
Manufacturing Sales 477361937 446177563
Trading Sales 798826 6391931
Other Income 2.18 22456331 4760276
Total Revenue 500617094 457329770
II EXPENSES
Cost of Raw Materials Consumed 2.19 297051407 247557099
(Increase)/Decrease in Inventories of Finished 2.20 (225154) 3995400
goods and Work in Progress
Purchase of Trading 799034 5777003
Manufacturing Expenses 2.21 101671179 69996617
Employee Benefits Expense 2.22 114975876 101121212
Finance Costs 2.23 17806316 10699905
Depreciation 2.9 10114691 19411306
Other expenses 2.24 13605977 17319230
Total Expenses 555799326 475877772
Profit/(Loss) before tax -55182232 -18548002
Tax expenses:
1. Current tax 0 0
2. Deferred tax 0 0
DTA Provided/(Reversed) (710893) 3351758
DTL Reversed/(Provided) 17986291 708636
Profit/(Loss) for the period -37906834 -14487608
Earnings per equity share:
1)    Basic 2.30 (48.36) (20.85)
2)    Diluted (48.36) (20.85)
Significant accounting policies and notes on
accounts 1&2
Calculation of inventory ratios of the year 2014-2015

1. Finished goods turnover ratio:

Annual sales 45,25,69,494
= = = 3.84
Average inventory 11,76,78,559
2. Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 24,77,74,672 – 19,52,52,282 = 5,25,22,390
11,76,78,559
= = 2.24
5,25,22,390
3. Raw material turnover ratio:
Material consumed
=
Average Inventory
24,75,57,099
= = =2.10
11,76,78,559
4. Inventory turnover ratio:
Net Sales 45,73,29,770
= = = 3.88
Average Inventory 11,76,78,559
5. Inventory conversion period:
No of days ∈a year
365 days
= turn = = 94.07days
Inventory 3.88
ratio
6. Inventory to assets ratio:
Inventory 13,29,29,843
= = = 0.35times
Toatal Assets 37,82,71,946
 Balance sheet from 2015-2016 of AP FIBRES LIMITED
ANDHRA PRADESH FIBRES LIMITED
Balance Sheet as at
As at 31st As at 31st
Particulars
March 2016 March 2015
I E Q U I T Y AND L I A B I L I T I E In Rupees In Rupees
1 S
Shareholders’ Funds
(a) Share Capital 2.1 79500000 79500000
(b) Reserves and Surplus 2.2 (125737964) (41442072)
46237964 38057928

2 Share application money pending allotment 0 0

3 Non-current Liabilities
(a) Long-Term Borrowings 2.4 96482495 11161238
(b) Deferred Tax Liability (net) 2.5 8 0
96482495 11161238
4 Current liabilities 8
(a) Short-Term Borrowings 2.4 11422987 70967083
(b) Trade Payables 2.6 954744162 54815702
(c) Other Current Liabilities 2.7 44713920 58804174
(d) Short-Term Provisions 2.8 2986169 3569859
21667413 18815681
TOTAL 0
27132892 8
33782713
II ASSETS 3 4
1 Non-current Assets
(a) Fixed Assets 2.9
(i) Tangible Assets 95025076 10181717
(ii) Capital Work In Progress 578350 7 578350
(b) Non-Current Investments 2.10 1654830 2329830
(c) Deferred Tax Asset (Net) 2.5 52911938 16232779
(d) Long Term Loans and Advances 2.11 4577183 3918489
15474737 12487662
2 Current assets 7 5
(a) current investment 0 1203472
(a) Inventories 2.13 30467048 10242727
(b) Trade Receivables 2.14 17667192 6 30840411
(c) Cash and Cash Equivalents 2.15 2725286 7569222
(d) Short Term Loans and Advances 2.16 64935376 70014282
(e) Other Current Assets 2.17 786645 895845
11658154 21295050
TOTAL 27132892
6 9
33782713
3 4
 Profit and loss a/c from2015-2016 of AP FIBRES LIMITED
S.NO PARTICULAR 31ST MARCH 2016 31ST MARCH 2015
1 INCOME IN RUPEES IN RUPEES
  Manufacturing Sales 49645138 477361937
  Trading Sales 4198054 798826
  Other Income 2326880 22456331
  Total revenue 503010072 500617094
2 EXPENSES    
  Cost of raw Materials Consumed 382209471 297051407
increase/decrease in inventories of finished
26992424 225154
  goods
  purchase of trading 4134788 799034
  Manufacturing expenses 71041855 101671179
  Employee benefits expenses 104455454 114975876
  Finance Costs 14426465 17806316
  Depreciation 7965307 10114691
  Other Expenses 12450389 13605977
  Total Expenses 623676153 555799326
  Profit/Loss for the period -120666081 -55182232
  Tax expenses    
  1.Current tax    
  income tax of earlier years -308970  
  2. Deferred tax    
  DTA Provided/ Reversed 10872711 710893
  DTL Reversed/ Provided -2602001 17986291
  Profit/Loss for the period -24305322 -37906834
Earnings per equity share face value of Rs100
  each    
  1) Basic 106.03 48.36
  2) Diluted 106.03 48.36
Calculation of inventory ratios of the year 2015-2016
1) Finished goods turnover ratio:
Annual sales 48,37,53,868
= = = 7.28
Average inventory 6,64,47,162
2) Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 21,29,50,509-18,81,56,818 = 2,47,93,691
6,64,47,162
= = 2.68
2,47,93,691
3) Raw material turnover ratio:
Material consumed
=
Average Inventory
8,47,51,235
= = 1.27
6,64,47,162
4) Inventory turnover ratio:
Net Sales 50,06,17,094
= = = 7.53
Average Inventory 6,64,47,162
5) Inventory conversion period:
No of days ∈a year
365 days
= turn = = 48.47days
Inventory 7.53
ratio
6) Inventory to assets ratio:
Inventory 10,24,27,276
= = = 0.30times
Toatal Assets 33,78,27,134
 Balance sheet from 2016-2017 of AP FIBRES LIMITED
S.N0 PARTICULAR 31ST MARCH 2017 31ST MARCH 2016
1 EQUITY AND LIABILITIES IN RUPEES IN RUPEES
1.Shareholders Funds
(a) Share Capital 79500000 79500000
(b) Reserves and Surplus 150043286 125737964
70543286 46237964
2. Non-current Liabilities
(a) Long Term Borrowings 96482495 100892757
96482495 100892757

3. Current Liabilities
(a).Short Term Borrowings 137358317 114229879
(b).Trade payables 53775729 54744162
( c).Other Current Liabilities 36973862 44713920
(d). Short Term Provisions 2986169 2986169
231094077 216674130
TOTAL 257033286 271328923
2 ASSETS
1.Non -Current Assets
(a) fixed assets
Tangible Assets 88233059 95025076
Capital Work In Progress 578350 578350
(b) Non-Current Investments 1654830 1654830
( C) Deferred Tax Assets (Net) 61182648 52911938
(d) Long term Loans and Advances 4586183 4577183
156235070 154747377

2. Current Assets
(a) Inventories 40135643 30467048
(b) Trade Receivables 9249782 17667192
( c) Cash and Cash Equivalents 679536 2725286
(d) Short Term Loans and Advances 50165772 64935376
€ Other Current Assets 567483 786645
100798216 116581546
TOTAL 257033286 271328923
 Profit and loss a/c as on 2016-2017 of AP FIBRES LIMITED
S.NO PARTICULAR 31ST MARCH 2017 31ST MARCH 2016
1 INCOME IN RUPEES IN RUPEES
  Manufacturing Sales 31005617 496485138
  Trading Sales 4085629 4198054
  Other Income 1099258 2326880
  Total revenue 36190504 503010072
2 EXPENSES    
  Cost of raw Materials Consumed 32614504 382209471
increase/decrease in inventories of finished
6455198 26992424
  goods
  purchase of trading 5440050 4134788
  Manufacturing expenses 5963454 71041855
  Employee benefits expenses 12291265 104455454
  Finance Costs 9251134 14426465
  Depreciation 5811293 7965307
  Other Expenses 3850034 12450389
  Total Expenses 68766536 623676153
  Profit/Loss for the period -32576032 -120666081
  Tax expenses    
  1.Current tax   0
  income tax of earlier years 0 -308970
  2. Deferred tax   0
  DTA Provided/ Reversed 10872711 37910794
  DTL Reversed/ Provided -2602001 -1231635
  Profit/Loss for the period -24305322 -84295892
Earnings per equity share face value of Rs100
  each    
  1) Basic 30.57 106.03
  2) Diluted 30.57 106.03
Calculation of inventory ratios of the year 2016-2017
1) Finished goods turnover ratio:
Annual sales 50,06,83,192
= = = 9.04
Average inventory 5,53,69,167
2) Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 11,65,81,546-21,66,74,130 = -10,00,92,584
5,53,69,167
= = (-0.55)
−10,00,92,584
3) Raw material turnover ratio:
Material consumed
=
Average Inventory
38,22,09,471
= = 6.90
5,53,69,167
4) Inventory turnover ratio:
Net Sales 50,30,10,072
= = = 9.08
Average Inventory 5,53,69,167
5) Inventory conversion period:
No of days ∈a year
365 days
= turn = = 40.19days
Inventory 9.08
ratio
6) Inventory to assets ratio:
Inventory 3,04,67,048
= = = 0.11times
Toatal Assets 27,13,28,923
Balance sheet from 2017-18 of AP FIBRES LIMITED
S.N0 PARTICULAR 31ST MARCH 2018 31ST MARCH 2017
1 EQUITY AND LIABILITIES IN RUPEES IN RUPEES
  1.Shareholders Funds    
  (a) Share Capital 79500000 79500000
  (b) Reserves and Surplus 172015070 150043286
    92515070 70543286
  2. Non-current Liabilities    
  (a) Long Term Borrowings 89174329 96482495
    89174329 96482495
       
  3. Current Liabilities    
  (a).Short Term Borrowings 173428710 137358317
  (b).Trade payables 58809900 53775729
  ( c).Other Current Liabilities 47098252 36973862
  (d). Short Term Provisions 782203 2986169
    280119064 231094077
  TOTAL 276778324 257033286
2 ASSETS    
  1.Non -Current Assets    
  (a) fixed assets    
  Tangible Assets 84507507 88233059
  Capital Work In Progress 578350 578350
  (b) Non-Current Investments 0 1654830
  ( C) Deferred Tax Assets (Net) 53989280 61182648
  (d) Long term Loans and Advances 4586183 4586183
    143661320 156235070
       
  2. Current Assets    
  (a) Inventories 55916996 40135643
  (b) Trade Receivables 34769891 9249782
  ( c) Cash and Cash Equivalents 564784 679536
  (d) Short Term Loans and Advances 41326602 50165772
  € Other Current Assets 538730 567483
    133117003 100798216
  TOTAL 276778324 257033286
       
 Profit and loss a/c as on 2017-2018 OF AP FIBRES LIMITED
31ST MARCH 31ST MARCH
S.NO PARTICULAR
2018 2017
1 INCOME IN RUPEES IN RUPEES
  Manufacturing Sales 430435862 31005617
  Trading Sales 205248 4085629
  Other Income 3048912 109925
  Total revenue 43369022 36190504
2 EXPENSES    
  Cost of raw Materials Consumed 268727545 32614504
increase/decrease in inventories of finished
18602790 6455198
  goods
  purchase of trading 207621 5440050
  Manufacturing expenses 64233808 5963454
  Employee benefits expenses 118179899 12291265
  Finance Costs 22579302 9251134
  Depreciation 5106608 5811293
  Other Expenses 8036444 3850034
  Total Expenses 448468437 68766536
  Profit/Loss for the period -14778415 -32576032
  Tax expenses    
  1.Current tax   0
  income tax of earlier years 0 0
  2. Deferred tax   0
  DTA Provided/ Reversed 8745777 10872711
  DTL Reversed/ Provided 1552409 -2602001
  Profit/Loss for the period -21971783 -24305322
Earnings per equity share face value of Rs100
  each    
  1) Basic 27.64 30.57
  2) Diluted 27.64 30.57
Calculation of inventory ratios of the year 2017-2018
1) Finished goods turnover ratio:
Annual sales 3,50,91,246
= = = 7.28
Average inventory 4,80,26,319
2) Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 10,07,98,216-23,10,94,077 = -13,02,95,861
4,80,26,319
= = (-0.36)
−13,02,95,861
3) Raw material turnover ratio:
Material consumed
=
Average Inventory
3,26,14,504
= = 0.67
4,80,26,319
4) Inventory turnover ratio:
Net Sales 3,61,90,504
= = = 0.75
Average Inventory 4,80,26,319
5) Inventory conversion period:
No of days ∈a year
365 days
= turn = = 486.6days
Inventory 0.75
ratio
6) Inventory to assets ratio:
Inventory 4,01,35,643
= = = 0.15times
Toatal Assets 25,70,33,286
 Balance sheet from 2018-2019 of AP FIBRES LIMITED
S.N0 PARTICULAR 31ST MARCH 2019 31ST MARCH 2018
1 EQUITY AND LIABILITIES IN RUPEES IN RUPEES
  1.Shareholders Funds    
  (a) Share Capital 79500000 79500000
  (b) Reserves and Surplus 206520281 172015070
    127020281 92515070
  2. Non-current Liabilities    
  (a) Long Term Borrowings 78876535 89174329
    78876535 89174329
       
  3. Current Liabilities    
  (a).Short Term Borrowings 171569201 173428710
  (b).Trade payables 115176865 58809900
  ( c).Other Current Liabilities 56477692 47098252
  (d). Short Term Provisions 0 782203
    343223758 280119064
  TOTAL 295080012 276778324
2 ASSETS    
  1.Non -Current Assets    
  (a) fixed assets    
  Tangible Assets 80662676 84507507
  Capital Work In Progress 578350 578350
  (b) Non-Current Investments 0 0
  ( C) Deferred Tax Assets (Net) 63888538 53989280
  (d) Long term Loans and Advances 4580958 4586183
    149710522 143661320
       
  2. Current Assets    
  (a) Inventories 5267667 55916996
  (b) Trade Receivables 41703183 34769891
  ( c) Cash and Cash Equivalents 428196 564784
  (d) Short Term Loans and Advances 49976367 41326602
  € Other Current Assets 585087 538730
    145369490 133117003
  TOTAL 295080012 276778324
       
 Profit and loss a/c as on 2018-2019 OF AP FIBRES LIMITED
31ST MARCH 31ST MARCH
S.NO PARTICULAR
2019 2018
1 INCOME IN RUPEES IN RUPEES
  Manufacturing Sales 409938148 430435862
  Trading Sales 1655320 205248
  Other Income 13935951 3048912
  Total revenue 425529420 43369022
2 EXPENSES    
  Cost of raw Materials Consumed 262843984 268727545
increase/decrease in inventories of finished
39335 18602790
  goods
  purchase of trading 1598379 207621
  Manufacturing expenses 55721719 64233808
  Employee benefits expenses 125168081 118179899
  Finance Costs 8197400 22579302
  Depreciation 5527352 5106608
  Other Expenses 10837638 8036444
  Total Expenses 469933889 448468437
  Profit/Loss for the period -44404470 -14778415
  Tax expenses    
  1.Current tax   0
  income tax of earlier years 0 0
  2. Deferred tax   0
  DTA Provided/ Reversed 10533009 8745777
  DTL Reversed/ Provided -633751 1552409
  Profit/Loss for the period -34505212 -21971783
Earnings per equity share face value of Rs100
  each    
  1) Basic 43.4 27.64
  2) Diluted 43.4 27.64
Calculation of inventory ratios of the year 2018-2019
1) Finished goods turnover ratio:
Annual sales 43,06,41,110
= = = 14.07
Average inventory 3,05,92,331
2) Inventory to net working capital ratio:
Average Inventory
=
Net Working Capital
= Net Working capital = current assets – current liabilities
= 13,31,17,003-28,01,19,064 = -14,70,02,061
3,05,92,331
= = (-0.20)
−14,70,02,061
3) Raw material turnover ratio:
Material consumed
=
Average Inventory
26,87,27,545
= = 8.78
3,05,92,331
4) Inventory turnover ratio:
Net Sales 4,33,69,022
= = = 1.41
Average Inventory 3,05,92,331
5) Inventory conversion period:
No of days ∈a year
365 days
= turn = = 258.86days
Inventory 1.41
ratio
6) Inventory to assets ratio:
Inventory 5,59,16,996
= = = 0.20times
Toatal Assets 27,67,78,324
 INTERPRETATIONS

FINISHED GOODS TURNOVER RATO:

The turnover rate of finished goods is the ratio of the annual sales of our business to the
average inventory of our business. An indication of how many times a company’s inventory
of finished goods is sold and replaced over a set of time.

In 2013-2014, finished goods turnover ratio is 3.93, which was not a good indicator because a
lower ratio indicates that the company does more stocking than is required. However, in
2014-2015 financial year also it has been slightly decreased in decimals i.e. 3.84 that was also
not a good indicator. When we observe in 2015-2016, it has been increased to 7.28, which is
a very high improvement in the industry. Later it was increased to 9.04 and in 2017-2018,
there was drastically change in finished goods turnover ratio i.e. 0.73 Because there was no
closing stock of finished goods in 2016-2017 which resulted in downfall of finished goods
turnover ratio in 2017-2018. However, in 2018-2019 the story of this industry was changed
differently there was huge increase in the ratio i.e. 14.07 which has been resulted in increase
of total sales.

INVENTORY TO NETWORKING CAPITAL RATIO:

Inventory to working capital ratio is defined as a method to show what portion of a

company’s inventories is financed from its available cash. However, the value of inventory to
working capital ratio varies from company and industry.

We can see that in 2013-2014 financial year the inventory to net working capital ratio is 1.68
that was a bit high when compared to 2012. Where it was increased to, 2.24 in 2014-2015we
can see a great change in the ratio that means higher ratio lower the liquidity of a company.
In 2015-2016, it was slightly increased to 2.68 because current assets have been decreased
and current liabilities increased when compared to 2014-2015. However, from 2016 onwards
till now i.e. 2018-2019 financial year it has been in negative because current liabilities have
increased for the company and current assets have drastically decreased. Which means lower
ratio higher liquidity of the company. Because the company is running in losses from 2016-
2017 financial year.

RAW MATERIAL TURNOVER RATIO:

It is the ratio, which was done for the purpose of how many time the company’s ability to
efficiently turn raw materials into finished products. It shows how fast the stock moves in and
out of the company.

As we can see that in 2013-2014 financial year 1.94 times in the year, which stock moves
from in and out from the company. In 2014-2015, the ratio has been increased to 2.10
because the purchases of the company have increased when compared to previous year. In
2015-2016, it has been decreased to 1.27 because of low purchases. In 2016-2017 it has been
increased to 6.90 which was very good improvement for the company because the purchases
are very high during the year. In 2017-2018 the ratio has been drastically fallen down which
was very low i.e. 0.67 because of very low purchases where done during the year. Again, in
2018-2019 it has been climbed up to 8.78 that was a great change for the company. As we
can see that from 2013-2019 we can they have increased their purchases and the company has
become very efficient in turning raw materials to finished goods due to this the finished
goods turnover ratio also have been increased to 14.07.

INVENTORY TURNOVER RATIO:

The high ratio indicates that fast moving inventories and low ratio slow moving or obsolete
inventories in stock in the company. It is the one of the most important ratio among all
inventory management ratios.

We can observe that the inventory turnover ratio in the year 2013-2014 is 3.97 that was high
when compared to previous year. After that in 2014-2015, financial year it has slightly
decreased to 3.88 which was not affected the company. Nevertheless, in 2015-2016, we can
see that huge change in the ratio that resulted in better-finished goods turnover ratio and the
ratio is 7.53. Similarly, we can observe in 2016-2017 financial year. However, in 2017-2018
it has decreased to 0.75 because of low net sales of the company, which has decreased the
raw material turnover ratio and finished goods turnover ratio. In addition, it has regaining
from the year 2018 it has increased from 0.75 to 1.41. A low ratio may also be the result in
maintaining excessive inventories needlessly.

INVENTORY CONVERSION PERIOD:

The inventory conversion period is the time required to obtain materials for a product,
manufacture it, and sell it.

We can see that in 2013-2014 financial year the inventory conversion period is 91days that
was low when compared to previous year. However, in 2014-2015 it has slightly decreased to
94days. In 2015-2016, the company because of high inventory turnover ratio has decreased
the period to 48days that was great improvement. Similarly, it has decreased to 40 days in the
year 2016-2017. But from 2017-2018 it has been increased the days of conversion period it
was very high when compared to previous years i.e. 486 days. But again from 2018-2019
financial year it has been going in order that it has taken 258days for the conversion of raw
materials to product, manufacture and sell it.

The inventory conversion period is essential for the company because the company has to
invest cash while it converts materials into sale.

INVENTORY TO ASSETS RATIO:

This ratio shows the portion of assets tied up in inventory. The inventory- to- assets ratio for
one company could be compared with that of others in the same industry.

We can observe that in 2013-2014 financial year the ratio was 0.32 that is better for the
company when compared to previous year. In 2014-2015, it was increased to 0.35 because
the total assets increased when compared to previous year. From 2015 to 2016, it was
decreased to 0.11 that was good for the company. In 2017-2018 financial year, it was slightly
increased to 0.15 because total assets have been decreased. In 2018-2019, it was again
increased to 0.20 because the total assets are increased. Generally, the lower the ratio, that is,
the smaller amount of inventory is when calculated as a percentage of total assets, the better
that company’s inventory efficiency.