CHAPTER-V

Which chapter and verse to present analysis and interpretation of data collected
from primary i.e., observations, interactions and discussions with officials, who
are monitoring the inventory activities and secondary sources being records, files,
financial statements, in house journals and other existing published materials.
Inventory Accounting:

Inventory accounting is the accounting, which details with the transaction of

inventory starting from raw materials to the finished goods. In order to have
better grouping of materials, their evaluations and to have good accounting
ledger, this inventory accounting is useful. is inventory in the 3F is done through
online
 Online is an integration system, which allows good moment like posting.
 A document must be generated and stored in the system for every
transaction event that causes a change in stock.
 All the materials are divided into 99 groups and each group have subgroup
with define code of 10 digits. first three digits specify the group of the
material. For each material and item master is defined.
 In 3F material module is linked with finance module through online. When
material is issued, not only ledger control but cost control is also there it
possible cost centres.
 Document number identifies material document and material document
year and accounting document is identified by the company code to stop
the document number and the fiscal year
 In the accounting file, the valuation classification is those which tells
whether the material has to go to stores credit customer debit. This
solution is divided into indigenous stores/spares, imported stores /spares
 consumables welfare items, so in the stores ledger, the item code 51-69
deals constable and 98-99 they are imported items.
 In online transaction details reports in transaction file for material code,
description, movement type, documents, posting date, cost Centre, order,
valuation class, credit and debit account.
 Here, the causes inter module is the one, which tell about the transaction of
materials i.e., coming from stores, from issues, from purchase, i.e., financial
transactions.
 Whatever transaction occurs in stores listed order store ledger.
 Whatever transaction occurs are financial aspects related with material
listed in finance ledger.
 The general ledger is the one which is the integrated from financial ledger
and stores ledger. The general ledger is generally updated, through
movement type of materials, valuation class.
Inventory Control:
The 3F Industries Limited, material model is linked with financial accounting
model.
 General ledger
 Goods receipt cum Inspection Note (GRIN)
 Goods issue note
General ledger:
Goods Receipt Note:

Goods Issue Note:

Inventory Accounting:
 Check whether purchase indent have been raised on the basis of authorized
requests and norms of inventory control
 Verify whether purchase orders have been placed on approval suppliers
after properly processing quotations, tenders etc.
 Check whether description, specification, sanction reference, material
classification codes are properly mentioned in purchase order.
  Ensure that all purchase orders are serially numbered and copies are field in
accounts department.
 Ensure that there is a record for purchase order
 Check instructors certificate, store keeper acknowledgement for proper
inventory transaction
 Check the accounting disposal to ensure proper accounting as to
classification and differentiation between revenue and capital checking the
issue documents, cost documents, sales documents, and delivery notes has
to be done.

Computerization of inventory accounting:

Manufacturing concern all materials purchased are meant for consumption.
So proper material accounting must be done to stop the computers in material
accounting has following application.
o Tabulating the value of purchase accounting to each product classification,
manufactured, storage location
o Computing the value of materials consumed for each product classification,
manufactured, storage location.
o Computing the value of materials consumed for each product
o Preparing ABC analysis of stock of material at the close of financial year arts
at more frequent intervals.
o Material planning and procurement of high value items
o Vendor performance and vendor analysis
o index of suppliers of high value items.
A-B-C Analysis:
The A-B-C analysis is a technique of exercising selective control over
inventory items police stops the technique is based on this assumption that a
company should not exercise the degree of control on items, which are laws
costly.
 The smallest number of high consumption value items is called A items.
 The medium consumption value items are B items.
 The largest number of least consumption items are C items.
 The about table describes the classification of 16 material groups again is
the actual 20 groups, since for groups are the materials which requires huge
amount of fresh investment like buildings and building materials furniture and
office equipment, iron and steel (supplied by Steel plants) and various electrical
and mechanical machinery.

Out of 15 material code numbers, category is assigned to numerical two material

codes with the weight age of 70.65% annual usage, category B is given to 4
material course by considering the weight age of 21.56 % annual usage and the
rest of material course are given as category C with 7.79 % annual usage. It reveals
the maximum annual usage (17.65%) is the contribution from only two groups of
materials, Kama whereas the minimum (7.79%) is the contribution from nine
groups of materials and the ABC analysis is also depicted in the following graph
No. V. 3(A) .

Re- order Level:

 Reorder level is significant variant from ABC analysis. Because, ABC
highlights classification of materials into various categories with the help of its
annual usage value proposition and weight of material against the total weight.
Whereas, re-order level favours the quantity of materials reaches at a certain
figure then pressure order is sent to get materials again. It means the re-order
level estimates the right time for putting an order before the supplier by
calculating maximum level, minimum level, re-order period. The reorder level can
be calculated with the help of
re-order level = Maximum consumption X maximum re-order period.
Maximum stock level = recording level + record quantity –( minimum
consumption X minimum re-ordering period)
The 3F Industries Limited is estimating its reorder level by taking group
wise maximum consumption, maximum reorder period, minimum consumption
and minimum reorder period . It is the practice of 3F Industries Limited to follow
maximum consumption in between 75 minutes to 125 units, minimum
consumption as 25 minutes to 45 units, maximum reorder period is in the
interval of 72 hour and minimum reordering period is by 24 hours to 48 hours.
X-Y-Z Analysis:
X-Y-Z analysis is a nominal vibrant from F-S-N analysis. F-S-N analysis highlights the
classification of material based on consumption quantity but XYZ analysis is a
classification based on the consumption period. The XYZ analysis presents The
meaningful description about the materials are components and their
consumption periods.

Out of 19 and material groups of 3F Industries Limited, 24 item groups are

considered for the classification as per XYZ analysis and rest of the components
are always excluded from the classification of ABC , EOQ, FSN and XYZ because,
these materials are supplied by various Steel plants and demands use fresh
investments. So, it is very difficult to justify those materials in any one of the
classification and about that the management keeps those materials at an unique
Grounds.

The XYZ analysis is a method of dividing the materials into category X,

category wise and category Jet by analysing is moment from stores department to
work centres plustop however, 24 groups will be used within 1 months in any e
circumstances, failing which leads to obsolescence of materials and these
materials required use investment. Next 32 groups shell consume within 6 months
period and 45 groups within one year.
Even though, the above techniques are adapted by a company for the
better control over inventory is and it is mandatory to relay upon some of the
activity rations (turnover), which shows the performance of an organisation in
keeping of inventories. In this connection, 3F Industries Limited is calculating the
following ratios as a part of its inventory control techniques for the efficient and
effective investment over its scares financial resources. Those ratios are
 Inventory turnover ratio
 Inventory e conversion period
 Raw materials as a percentage of total inventory
 Finished goods as a percentage of total inventory
Inventory turnover ratio
Every form has to maintain a certain level of Inventory of finished goods to
so as to be able to meet the requirement of the business. But the level of
inventory should never be too high or too low.
Inventory turnover ratio = net sales / average inventory
Average inventory = opening inventory + closing inventory / 2
 Inventory turnover ratio also known as stock velocity ratio. Inventory
turnover ratio indicates the number of times the stock has been turned over
during the period and evaluates the efficiency with your form is able to manage its
inventory. Normally, a high inventory turnover ratio is the indication to measure
the efficient handling of stock by the officials and vice – versa.

The inventory turnover ratio of 3F Industries Limited is comparatively

not up to the mark for all the financial year that is 2008-2009 to 2012-2013
because, the inventory turnover ratio is between 2.35 to 3.05 . However, the
inventory turnover ratio of the company is not satisfactory because, it is highly
fluctuating year after year to stop the same data is incorporated in the graph V.
5(A)

inventory conversion period:

Inventory conversion period States the relationship between the
number of days, which are required to convert the inventory into cash. If the
inventory conversion period is minimum then the performance of an organisation
is started as good.
Inventory conversion period = Day in a year / inventory turnover ratio
 Inventory conversation period states that the capacity of an
organisation in converting of its inventory into cash. Obviously, a minimum period
is the condition of the managerial efficiency in terms of converting the inventory
into cash.
Really, it is a dangerous sign to the organisation because the inventory
conversion period is above 100 days for all the financial years. Because, always a
minimum inventory conversation period is preferable. But, 3F Industries Limited
is maintaining the inventory conversation period for a minimum of 120 days to
153 days. It reflects, that the company has to wait 122 153 days for converting of
inventory into cash but, 3F Industries Limited is to who is not in a position to
convert the inventory into cash as early as possible.

Finished goods as percentage of total inventory:

 The ratio States the proportional relationship between the rate of
finished goods under the rate of total inventory. In general, it is expressed in
percentile. It reveals, that the total inventory is estimated to 100%, consistence of
raw materials, work in progress and patient quotes and calculate the percentage
of finished goods as a part of total inventory. However, lower the ratio indicates
the efficiency of an organisation in terms of converting the finished goods into
sales, so that the proportionate percentage of finished goods in the Godown shall
be minimum please stop if higher the ratio, includes the efficiency of an
organisation in terms of disclosing it’s finished goods in the market, so that the
Godown is filled by finished goods list of therefore, the percent ratio favours the
moment of finished goods from Godown to market and it calculates the pairs of
that moment. Every products are fast moving come then the organisation has to
increase its production capacity to meet the demand and vice versa. Hence, the
percent ratio calculates the efficiency of an organisation about the movement of
finished goods from source of manufacturing to source of consumption.
Finished goods as percentage of total inventory
= Finished Goods / Total Inventory X 100

Normally, yellow percentage of finished goods over total

inventory is a standard normal stop the above table depicts the percentage
of finished goods against total inventory from 2008-2009 to 2012-2013 of
3F Industries Limited. Its States, that the ratio for all the years is extremely
 not satisfied because it is about the 50%. However, the finished goods as a
percentage of total inventor for the year 2008-2009 is comparatively
minimum. There is a steady growth in the year 2009-2010 and 2010-2011
full stop for the year 2011-2012 and 2012-2013 it is suggested decreased
rate. However, the overall ratio is not up to the mark.

Raw materials as percentage of total inventory:

This ratio States the proportionate relationship between the rate of
raw materials and the rate of total inventory. In generally, it is expected in
percentile. Strip that the total inventory is estimated 200%, consists of raw
materials, work in progress and initial goods and calculate the percentage of raw
material as a part of total inventory. However, higher the ratio indicate the
efficiency of an organisation in terms of keeping the raw materials in garden by
estimating the moment of finished goods in the market. It presents, an
organisation seeks to keep huge quantity of raw materials in the godown when
the finished goods are moving at a great speed in the market and it wants to
maintain the same train without creating any manufacturing bottlenecks and it
fails to do so, the company has to sacrifice is expected sales volume and market
share. So that the proportionate percentage of raw materials in the Godown shall
be maximum. If lower the ratio includes the efficiency of an organisation in terms
of disclosing finished goods in the market, show that the Godown is filled by
finished goods rather than raw material.

Ra material as percentage of total inventory = Raw material / total inventory X

100