Inventory Valuation Report
Inventory Valuation Report - User Guide
1. Introduction 💰
The Inventory Valuation Report is a critical financial module that translates physical stock quantities into monetary value. This report provides the “End-of-Period” inventory value required for Balance Sheets, Profit and Loss statements, and internal financial audits.
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Purpose of this Report:
- Financial Reporting: Determine the total value of assets held in Raw Materials, WIP, and Finished Goods.
- Cost Auditing: Understand the “true cost” of products using Weighted Average calculations.
- BOM Accuracy: Verify if the Bill of Materials (BOM) reflects current material prices.
- Tax & Audit Compliance: Provide a standardized audit trail for inventory valuation methods (WAR).
This report is primarily used by CFOs, Accountants, and Cost Engineers.
2. Valuation Methodology (WAR) 🧪
The system primarily utilizes the Weighted Average Rate (WAR) method, which levels out price fluctuations over time:
A. Raw Materials (RM) Valuation
The rate is calculated by aggregating all procurement costs:
- Formula:
(Opening Stock Value + Total Purchase Value) / (Opening Qty + Purchase Qty) - Audit Trail: The system includes a “WAR Working” sheet that shows every GRN and opening entry used to arrive at the rate.
B. Finished Goods (FG) & WIP Valuation
Since FG items are manufactured, their value is derived via a BOM Explosion:
- The system identifies all RM components required for an FG item.
- It applies the calculated RM WAR to each component.
- It aggregates these costs throughout all sub-assembly levels to determine the total manufacturing cost.
- WIP Calculation: For items in production, the system applies a “Stage Completion Percentage” to the FG cost based on how far the item has progressed in the production workflow.
3. Report Components & Sheet Logic 🚀
| Sheet Name | Description |
|---|---|
| RM Valuation | Detailed list of Raw Materials with their calculated WAR and total value. |
| FG Valuation | Valuation of finished products based on current component costs. |
| WIP Valuation | Valuation of semi-finished goods, adjusted by their stage of completion. |
| WAR Working | The Auditor’s Proof. A transaction-by-transaction log of how each RM rate was calculated. |
4. Key Filters & Options 🛠️
- Item State:
- Good: Standard valuation for usable inventory.
- Rejected: Valuates “Rejection Store” items. You can apply a Rejected Percentage (e.g., 20%) to indicate that rejected stock is only worth a fraction of its original cost.
- Inventory Type:
- Store: Book value derived from historical transaction logs as of the “To Date.”
- Physical: Valuation of the “Real-Time” calculated stock currently in the bins.
- Print WAR Working: Enables/Disables the detailed audit trail sheet in the Excel export.
5. Source Transactions 🔄
The valuation engine integrates data from:
- Purchase Bills: Source for actual material costs and taxes.
- GRN (Goods Receipt): Source for receipt quantities and batches.
- BOM (Bill of Materials): The engineering blueprint used to cost manufactured items.
- Production Logs: Used to determine the “Stage” and completion status for WIP.
6. Best Practices / Tips 💡
- Year-End Audits: Always download the WAR Working sheet during year-end audits. It provides the necessary proof to external auditors regarding how the average rates were calculated.
- WIP Percentages: Ensure that your Stages Master has accurate completion percentages (e.g., Machining = 50%, Finishing = 90%). If these are wrong, your WIP valuation will be significantly skewed.
- Rejected Stock Strategy: Use a low Rejected Percent (e.g., 5-10%) for valuation if the components are not recoverable, or 100% if the vendor is expected to provide a full credit note.
- NMI Alerts: Look for NMI (Non-Moving Inventory) flags in the FG sheet. These indicate items where the cost hasn’t been updated recently due to a lack of production activity.