Group Finance

Date of Approval: November 2015

Approved by: Kevin Dangerfield

Policy Owner: Group Accounting Manager

Next review date: December 2016

Version No. 2015 V1

Tooling

Purpose
This manual covers the accounting treatment for tooling and related contributions from
customers.

1 Definition

1.1 Tooling - A die, mould, stamp or other item used to adapt our equipment to the production
of specific customer products. These may range from:
• “Consumable” tooling - small, relatively inexpensive items, whose life in the machine
is short (less than 12 months) and are fully consumed during that period; to
• “Plant” tooling - substantial items with a life of over 1 year, during which the item is
regularly moved between machine and tool room, and which may even be repaired
during its life.

1.2 “Consumable” tooling is of the same nature as consumables, engineering spares,

packaging and other items which are not directly identifiable in the finished product but
which form part of the production process. Such items will be included in inventories on
purchase and expensed through cost of sales when first used for production. Normal
inventory obsolescence rules will apply to these items.

2 Accounting for “plant” tooling

2.1 “Plant” tooling costs must be capitalised in plant and equipment, except as noted in
paragraph 2.2 below. Such tooling may not be capitalised in any other balance sheet
heading.

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Morgan Advanced Materials plc. Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773
2.2 Any capitalisation of tooling must be appropriately authorised under the capital expenditure
policy and accounted for under the “Property, plant and equipment” accounting manual. In
particular, any tooling valued at under £1,000 must be expensed when incurred.

2.3 Any capitalised tooling must be written off over the lower of its useful economic life and 5
years.

2.4 Any amounts expensed must be reported in “Site Underlying Overheads” (line A10320 in
the P & L input schedule) and under “Other” on the “Overhead Analysis” schedule, line
A20980. The depreciation of any amounts capitalised must be included under
“Depreciation”, (line A10340 in the P & L input schedule).

3 Accounting for contributions for tooling costs

3.1 Businesses may receive contributions from customers to cover some or all of the tooling
costs.

3.2 The accounting treatment for such contributions must match the treatment applied to the
tooling cost. If the cost is capitalised, the contribution must be credited to “Accruals and
Deferred Income”, (line A30510 in Working Capital) and amortised using the same method
as the tooling cost. If the tooling is expensed, the contribution must be credited
immediately.

3.3 The credit must be reported under “Commissions and Royalties”, (line A10310 in the P & L
input schedule).

References

This manual is designed to be consistent with all other policies/manuals issued, in particular with
the manuals covering capital expenditure and fixed asset accounting. Any apparent conflict
between the manuals must be referred to the Director of Finance for clarification.

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Morgan Advanced Materials plc. Registered in England & Wales at Quadrant, 55-57 High Street, Windsor, Berkshire SL4 1LP UK Company No. 286773