Question:Success Rainbow Pvt Limited (SRL) is engaged in the manufacturing and selling of roofing
sheets to both local and export markets. SRL produces three main categories of roofing sheets, namely,
- Color up sheet
- Supreme sheet
- Normal sheet
- Out of the three categories of roofing sheets, Supreme has the highest demand due to its durability. The government has announced that from 2020 it is going to ban all manufacturing companies which use "sabbic" as a raw material, since processing of sabbic pollutes the environment. SRL uses sabbic to make Supreme, a durable sheet. Currently the company's research & development (R&D) department is researching on other raw materials that can give Supreme the same durability. During the year they have incurred significant costs in this regard. The R&D is funded by a related party loan.
- Steel sheets are the main raw material used in the manufacturing process. It is imported from China and one shipment takes 20 days to arrive in Malaysia. However when the goods are manufactured as per the production budget, the existing stocks may not be sufficient at times. In such instances, the purchasing clerk has to place orders from India at a higher price than from China. The orders placed from India are received within a week.
- The purchasing and inventory process of steel sheets is as follows:
- The marketing team prepares a monthly production budget and sends it to the production
- When stock level falls below a certain level, the stores clerk prepares and sends purchase
- orders to the purchasing department.
- The purchasing clerk places orders with suppliers by faxing the purchase order.
- When goods are received by the stores, the stores clerk updates bin card and raises the
- goods received note (GRN) for the quantity of stocks received as per the supplier's delivery
- The stores clerk updates the stock module based on the supplier's delivery note.
- A copy of the GRN is sent to the accounts department.
- The accounts department staff updates the general ledger for stocks and payables based on
- the supplier invoices.
- In addition to the general ledger, the accounts department maintains a separate stock ledger,
- since the stock module maintained by the stores is not linked to the general ledger.
At the month end, the invoices are settled by bank draft.
The statutory audit of SRL is currently done by Billa & Co. Chartered Accountants, who have been reappointed for the year ended 31 March 2016. In addition, the board of directors has requested Billa & Co. to perform a detailed system study of sales, purchases and collection, and recommend improvements to the system of internal controls.
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