12 September 2011
We are in Gold Jewellery retail business, and had stock of 1000kg of gold on March 31, the average value of one gram is Rs. 1850/-. We conduct a Gold Savings Scheme, where the customers can deposit cash, on which they will get credit of gold weight upon the then prevailing market rate and customers can redeem this gold weight as and when they wish. (eg: a customer deposit Rs. 2000 on Jan 1, 2011 and his account is credited one gram gold, the then market rate of one gram gold was Rs. 2000). On March 31, outstanding gold weight in this particular scheme is 50kg gold, of which the average booked rate is 1950. These 50kg gold is not earmarked (specifically identified) in the 1000kg closing stock as the customers are yet to come. Market rate of gold as on March 31st is 2050. The auditors has made a provision of Rs. 50lakhs ((2050-1950)*50kg) for this gold savings scheme considering the market price as these gold are not earmarked in the closing stock. whether the auditors are right ? Establish your answer. You can also depend on AS, AAS or any guidance note.
26 September 2011
I also recommend the action of auditor as provision is required to be made for this contingent liability. Even I believe the difference amount should be charged as expense as Gold deposit scheme is an derivative instrument and must be marked to market price at closing date by profit and loss account
CAclubindia
