Accounting entry of gold wastage

This query is : Resolved

prashant M. Kanabar (Querist)
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28 May 2018 During the year 2017, Company has given the job work for Manufacturing of Jewellery to China Factory. Factory charge to the Company is 15 CNY Currency per gram for Casting+Filling+polishing (Process under Jewellery Manufacturing) and once Goods are ready from this Process then Diamonds will be set in the Jewellery for which Factory will charge 3 CNY Currency to Company per Pcs of Diamonds..

Now Once the Finished Goods are ready they will ship from China to Hong Kong and According to above rate they will issue Labour Invoice which is straight forward Exercise and According to Labour invoice we book under Labour charges in Company.

But to Start Production of Jewellery Company Need to Give the Gold In Advance to Factory and this account will be like Running Account of Gold Balance. For Example Company has given 100 KG Gold to Factory in 2017 and out of that Factory has given back the Finished Goods of 92 KG to the Company.

Now in Above Para issue is balance of 8 KG (100 KG-92 KG) which Factory charge to Company under Normal Gold Loss/Wastage which is fixed as 8% with the Company which company has to pay to them.

Now Two Issue from the above Story- One is where we should account gold Loss ? Currently we are booking as purchases of 100 KG under Purchase Gold only As Factory has given 92 KG Gold Finished Goods to the Company and Company has delivered the goods to Customers so We should account Purchase Gold to the extent of 92 KG only or

We should account 100 KG as purchases of Gold as well as 8 KG Gold Loss under Labour expenses?

Please help to clarify the above issue

CA Suresh Jain

CA Suresh Jain (Expert)
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28 May 2018 No entry required in financial accounting for the loss in process of manufacturing. The inventory accounting has to take care of the loss of8 kgs. to show the consumption of Gold.

prashant M. Kanabar

prashant M. Kanabar (Querist)
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28 May 2018 Thank you sir for your reply.. Just want to know in this case, We are giving him physical Gold for Normal Gold Loss of 8% what he charged so Basically this is kind of Labour charges for the company Even though not required for accounting..

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CA Suresh Jain

CA Suresh Jain (Expert)
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28 May 2018 Are making payment in FX for gold waste?

prashant M. Kanabar

prashant M. Kanabar (Querist)
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28 May 2018 No Sir.. Basically I am Working in One of Hong Kong Company. We have factory in China with Sub Contractor. Now Rate Fixed with Contractor which is i mentioned in First query 18 CNY and 2 CNY for CFP and Setting of Stones and 8% Gold Loss on the Goods Delivered to Company in Hong Kong..

Now In 2017 We have bought 100 KG Gold So we have accounted this 100 KG gold as Purchase Fine Gold.. And the same gold issued issued to Sub Contractor for Manufacture of Jewellery and in the same year he delivered to us 92 KG Finished Goods.. which we have delivered to Our Customer.

Sub Contractor charged us for this Labor charges as i mentioned earlier as well as Gold Loss of 8%.. So Basically 8KG Gold which is gold Loss which is agreed between Company and Contractor we need to pay him so we paid in the form of Gold Only. and there will be running account for Gold Balance for Example I have given him 100 KG Gold he gave me 92 KG gold so Actullly there is a still balance of 8KG Gold Which we can think its Company Gold Lying with Contractor so we can take it under the closing stock as gold with third party. However in this Case 8KG Gold Is not related to Company its Sub Contractor income in the form of Gold Loss

prashant M. Kanabar

prashant M. Kanabar (Querist)
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28 May 2018 So Every Month Sub Contractor give us the Invoices in the CNY Currency and we send him CNY currency from HK to CHina