2209 Accounting for Inventories - Deletion or Write-off
About This FAM
|Responsible Agency:||Office of the Comptroller General|
|Last Updated:||Aug 2009|
Inventories can be divided into two categories: inventories for consumption or use and inventories for resale.
- Inventories for Consumption and Use
Inventories for consumption and use are assets that will be used or consumed by the government in the course of its operation. (PS 1200.064)These inventories are tangible assets and thus considered personal property. (FAA 1(1)) As defined in the Financial Administration Act (FAA), personal property is also considered public property. (FAA 1(1)) Public property may be subject to write-off or deletion.
In matters of disposal of inventories for consumption and use, section 24 of the FAA, which relates to writing-off an asset, is then required.
- Inventories for Resale
Inventories for resale are items that are held for sale in the ordinary course of operations and, therefore, are expected to provide resources to discharge existing liabilities or finance future operations. (PS 1200.048) Although a tangible asset, inventories for resale are considered public monies as their liquidity qualifies them as a financial asset.
Deletion of public property may occur from a revolving fund in accordance with section 64 of the Financial Administration Act. A deletion may occur when the physical assets are accounted for, but the assets are obsolete, surplus, damaged, or for some reason are not usable by the Government.
|4.1||Inventories for Consumption and Use
The Deputy Heads of departments shall be responsible to ensure that action is taken to report and account for inventory eligible for deletion or write-off as soon as such events are discovered.
|4.2||Losses due to theft or negligence (either suspected or proven) shall be investigated (see FAM 4101 and 4102).|
|4.3||If any inventory deleted exceeds $2500, then a statement, approved by the Comptroller General (FAA Part VIII), must be included in the Public Accounts.|
|4.4||Items which have become temporarily unserviceable through normal use are not considered eligible for deletion or write-off; however, items which are uneconomical to repair, shall be disposed of according to approved disposal methods (see FAM 2305).|
|4.5||Inventories for Resale: Accounting for a Deletion|
|4.5.1||After approval of a deletion of inventory from a revolving fund in accordance with section 64 of the FAA, the resulting charge must be to an appropriation of the Department responsible for administering the revolving fund.|
When the inventory is disposed of through the tender process, public auction or other method, the recoveries shall be credited back to the appropriation originally charged in accordance with section 56 of the Financial Administration Act.
For accounting purposes the recoveries from the disposal must be treated as the repayment of the expenditure, which had been incurred when the deletion was originally recorded.
|4.5.3||If the recovery through disposal in directive 4.5.2 is in a fiscal year subsequent to the recording of the deletion, then that credit cannot increase the current year's appropriation. To ensure this requirement is met, recoveries in subsequent fiscal years must be credited to recovery of prior years expenditure (RPYE).|
|4.6||Where the loss or damage was due to negligence, the Minister of Finance, or his delegate, may assess the cost of deletion or write-off to the individual concerned.|
|4.7||Board of Survey|
|4.7.1||In accordance with sections 62 and 63 of the FAA, a Board of Survey shall convene at least once every four years (subsequent to the annual stocktaking) to review inventories and identify the surplus and/or obsolete inventory in stock. (This board shall be comprised of an appointee of the Comptroller General and the headquarters Warehousing Manager.)|
|4.7.2||In accordance with section 64 of the FAA, a Board of Survey shall recommend the deletion of obsolete, surplus, lost, or destroyed inventory from a revolving fund inventory control system.|
Failure to comply with policies and directives of the Financial Administration Manual may result in actions under Part X of the Financial Administration Act. The Government of the Northwest Territories may seek legal remedy in the Territorial Courts.