fertilizer

1. I studied the annual reports of three fertilizers companies - National Fertilizers Limited, Chambal
Fertilizers and Chemicals Limited and Fertilizer Corporation of India Limited- with regard to valuation of
inventories. My findings are as follows:
NFL
The company values its raw materials, packing materials and stores & spares at lower of weighted
average cost and net realizable value. In case of stores and spares not moved for more than two years
and upto five years, five percent of their value (on the basis of straight line method) is charged to
revenue. In case of stores and spares not moved for more than five years, and so identified as surplus or
obsolete, value is taken as certified by Valuers and diminution, if any, is charged to revenue. Finished
and semi-finished goods are valued at lower of cost and net realizable value. Plant-wise finished stocks
lying at warehouses are determined on FIFO basis.
CFCL
Naphtha, raw materials, packing materials and stores & spares are valued at lower of weighted
average cost and net realizable value. However, materials and other items held for use in the production
of finished goods are not written down if the finished product in which they will be used are expected to
be sold at or above cost. Catalyst in use are valued at depreciated cost on the basis of amortization over
their estimated useful lives. Loose tools are valued at depreciated cost on the basis of amortization over
a period of three years. WIP and finished goods are valued at lower of weighted average cost and net
realizable value. Their cost includes direct materials, labour, exise duty and a proportion of
manufacturing overheads based on normal operating capacity. Traded products are valued at lower of
weighted average cost and net realizable value. Bunkers remaining on board are valued similarly. Deck,
engine stores & spare and victualling are valued at lower of FIFO cost and net realizable value. Waste is
valued at net realizable value.
FCIL
Raw materials and packing materials are valued at lower of weighted average cost and net realizable
value. Stores and spare parts are valued at weighted average cost. Finished and semi-finished goods are
valued at lower of cost and net realizable value. By-products are valued at net realizable value. Material
in process, stocks of coal ash, carbon slurry and carbon di-oxide are valued at nil. Scraps, to the extent
received in the stockyard, are valued at net realizable value. Loose tools are written off over a period of
three years.
It is obvious from the data given above that although these three companies use more than one
way to value their inventories, the main method employed is the weighted average cost method.