Treatment of gypsum

This query is : Resolved

Shriram Tripathy (Querist)
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04 April 2012 The Company is into manufacturing and Trading of Fertilizers. The company manufactures Phosphoric Acid which is a raw material for the fertilizer production. During the manufacture of phosphoric Acid Gypsum is produced which is a waste for the company and has a low sales value in comparison to the realisation from sale of Fertilizers. Prior to the introduction of Revised Schedule VI the company used to treat the sales value of Gypsum as part of the turnover. But after the introduction of Revised Schedule VI the company is being advised to show the sales value of Gypsum under 'Other Operating Revenue' rather than showing it under 'Sale of Products'. By this Gypsum sales is now not forming part of the Turnover. Company's contention is that Gypsum sales should be shown under 'Sale of Products' and not under 'Other Operating revenue' as advised.
Please comment.

Mihir Doshi

Mihir Doshi (Expert)
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04 April 2012 Dear Shriram,

In my opinion also, By products and scrap should form part of "Sale of Products". Could you ask your advisor for such a different bifurcation. I would like to simplify my opinion by below mentioned example:
The term "Other operating revenue" includes
Revenue arising from a company’s operating activities, i.e., either its
principal or ancillary revenue-generating activities, but which is not revenue
arising from the sale of products or rendering of services. Whether a
particular income constitutes “other operating revenue” or “other income” is
to be decided based on the facts of each case and detailed understanding of
the company’s activities. The classification of income would also depend on
the purpose for which the particular asset is acquired or held. For instance, a
group engaged in manufacture and sale of industrial and consumer products
also has one real estate arm. If the real estate arm is continuously engaged
in leasing of real estate properties, the rent arising from leasing of real estate
is likely to be “other operating revenue”. On the other hand, consider a
consumer products company which owns a 10 storied building. The company currently does not need one floor for its own use and has given the same
temporarily on rent. In that case, lease rent is not an “other operating
revenue”; rather, it should be treated as “other income”.

From above example, we can refer that by products and scrap sale is ancilliary and generated with main product. It should form part of "Sale of products"

Others opinion is solicited.

Thanks
Mihir Doshi