Procedures

Inventories - Procedures

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Body

1. Purpose and Objectives

These procedures provide an overview of processes in relation to the recognition and management of inventories.

2. Definitions, Terms, Acronyms

First In First Out (FIFO) - A method of valuing the cost of goods sold that uses the cost of the oldest items in inventory first.

Net realisable value - the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make a sale.

3. Procedures Scope/Coverage

These procedures apply to all organisational units which hold inventories for re-sale.

4. Procedures Statement

Inventories are defined as items such as stationery, spare parts, consumables and components, laboratory materials, chemicals, loose tools, consignment stock and minor equipment held for sale to students or the public or for internal transfer to other parts of the University.

The accounting treatment and management controls in relation to inventories largely depends on the intended use of the inventory item, in particular was the item purchased for consumption within an organisational unit. In the case of inventory items purchased for use within an organisational unit, these items are to be expensed and no formal inventory records need to be maintained.

An example of the distinction between an inventory item and a consumable item that needs to be expensed is as follows:

Item

Intended Use

Accounting Treatment

Stationery

Consumption within the organisational unit

Expense the items

Stationery

Re-sell to students

Allocate to an inventory account and maintain formal inventory records

5. Managing Inventory

Each area that holds inventory is required to maintain a record keeping system to record:

  • Additions
  • Issues, sales or transfers
  • Returns

Inventory records should be maintained by persons not responsible for the physical handling of stock in the store.

A physical inspection and counting of inventory must be undertaken annually to verify and check the inventory records. Shortages, surpluses, obsolete and damaged stock should be identified.

Obsolete stock items should be disposed of by obtaining approval from the officer formally authorised under PPL 1.10.02 Financial Delegations.

Where a stock count discloses a discrepancy between the physical and theoretical stock levels, the inventory records are to be altered as soon as the physical count is verified. Discrepancies are to be investigated and all adjusting entries are to be approved by the officer formally authorised under PPL 1.10.02 Financial Delegations.

Organisational units are to ensure the safe storage of stock, including security against theft, fire and other damage.

Access to the storage areas is to be restricted. Particular attention is to be paid to readily disposable stocks and stores of high value in relation to their size.

All inventories which are valued for the purpose of inclusion in the University’s annual financial statements are to be valued at the lower of cost and net realisable value. Where practical, the cost of inventories is to be assigned to particular stock items on a FIFO basis.

When net realisable value of inventory is lower than the original acquisition cost, the amount of the inventory that has been written down to net realisable value is recognized as an expense in the period in which the write-down occurs.

Custodians
Chief Financial Officer
Mr Andrew Betts
Custodians
Chief Financial Officer
Mr Andrew Betts