Textile mill


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Textile mill

  1. 1. Submitted To: Miss Sundas Shah NawazSubmitted By: Humayun Khalid Qurashi Roll # 04/Regular B.com(Hons) 4th Semester Department Of Commerce University of Sargodha
  2. 2. Textile MillTextile Industry comprises of several distinct industrial unitsthat perform distinct processes, e.g. ginning, spinning, weaving,dyeing & printing etc. to convert raw cotton into fabrics. For thesake of discussion I am assuming a composite textile mill(Gul Ahmad) that purchases raw cotton from farmers &performs all processes till the production of finished fabrics. Inthe Audit of such a Textile mill the special points that areacquire attention of the Auditor are as follows.
  3. 3. How to Audit a Textile Mill?1. Purchase of Cotton Purchase of raw cotton is a technical and specialized job and absence of an effective system it is easy for purchasing staff to fraud. In order to ensure that purchase bills are paid for the same quantity and quality as are supplied by the farmers. So the Auditor should ensure an effective internal control over purchase of raw cotton. During the season of purchase the Audit staff should be present at the place of buying to ensure the compliance of internal control procedures.
  4. 4. Production RecordsThe Auditor must be aware of all process of production, currently productionlevel, and units produced.The Auditor should ensure proper documentation of flow of material from onedepartment to another department, incurrence of production costs and the output level.Usually the production reports areprepared on daily basis; the reports alsocontain cumulative totals up to the dateof the report. Flow of raw cottonDeptt Deptt .1 .2
  5. 5. By-Products & WastesVarious products are produced in making processes byTextile Mills in the form of by-products and wastes with asignificant total sales. Textile Mills sold that by-productsand waste to different sub-industries and markets and earnsrevenue.So and auditor should ensure effective internal control overcollection and sales of by-products and wastes, and vouchthe related accounting records.By-Products of Textile Mills Cut-pieces; Low level cloths; Different types of dyes; Scrap of cotton etc.
  6. 6. Work in ProcessWork-in-Process inventory represents an item ofsignificant value in textile mill. On the last day ofaccounting year, the audit staff must be physicallypresent in production department.By physical presence of audit staff the auditorshould ensure proper stock taking. For valuationof work-in-process inventory the auditor may relyon certificates obtained from responsible officers.
  7. 7. Cotton Cess Act 1923The Cotton Cess Act (1923) requires textile mills to pay acertain amount of cess (tax) according to numbers of bales ofcotton used in production. The auditor should ensure thatthe mill has paid proper amount as cotton cess intogovernment treasury.
  8. 8. Supplier’s Credit.Textile Mills imports machinery on the basis ofdeferred payments or installments payables toforeign currency. These loans are termed as“Supplier’s Credit”. The auditor should study thecontracts for acquisition of machinery underSupplier’s Credit. He should vouch for accuracy ofdivision of each installment into principal andinterest.
  9. 9. Exchange Risk FeeForeign currency loans involves exchange raterisk. Any depreciation in the value of Rupeeincreases debt burden of imports of machineryunder the contract of supplier’s credit. The StateBank of Pakistan in exchange of a fee termed asExchange Risk Fee provides coverage against theexchange risk. On payment of Exchange Risk Feethe importer of machinery is required to pay theinstallments at a stated exchange rate irrespectiveof market value of rupee.The exchange Risk fee should not be capitalizedin value of imported machinery, but the feeshould be recorded as revenueexpense, chargeable to Profit and Loss Account.The Auditor should qualify his opinion for anynoncompliance thereof.
  10. 10. Sales TaxSales of Textile mills are subject to sales Tax. Soevery Textile Mill should be registered under Salestax Act. The Auditor should ensure that properrecords of sales tax as required by the Sales Tax Actare maintained by the company and sales taxreturns are submitted in time.
  11. 11. Workers’ Profit Participation FundThe Companies Profit (Worker’s Participation) Act 1968requires that a company engaged in an Industrialundertaking shall contribute a portion of its profittowards a fund called Worker’s Profit Participation Fund.This Fund is used to pay bonus to the workers. Theauditor should ensure compliance thereof.
  12. 12. Financial StatementsUnder the provisions of the Income Tax Ordinance 2001, tax year ofCotton Textile Mills is a period from 1st October to 30th September.Therefore, the auditor should see that financial statement of the Mill areprepared for the same period. The auditor should also ensure thatfinancial statement of the textile mill are drawn up in conformity with theprovision of the companies Ordinance 1984, International AccountingStandards and other relevant Laws.