Certain features of CO Module: 1.

(a) (b) (c) (d) (e) Three Types of Sale order Manufacturing Fifth Digit 1 (Sale order type ZSOR) Bought out resale-Fifth Digit 3 (Sale order type ZBOR) Services-Fifth Digit 4 (Sale order type ZSER) High Sea Sale Fifth Digit 7 (Sale Order type ZHSS) Inter Unit Sale - Fifth Digit 2 (Sale Order type ZSTT)

WIP & FG is accruing from ZSOR type of Sale order Production order is generated for each Part Number of ZSOR type sale order. One FG part Number may have number of production orders as per BOM &. Each production order is having a P/N (Item to be produced), launching quantity & Actual quantity. (Can be viewed in CO03) Planned cost : Each production order is having a planned cost as follows: Material- As per BOM Labour-As per Routing MOH-At present pre-determined rate (4.5%). Material = Prevailing moving avg. rate (at the time of creation of production order) * BOM Quantity Labour = Labour hours as per routing card * activity rate for the concerned cost center Actual as per Actual cost booking of Material, Labour & Overhead. Store credit (GR): Partial / Full store credit is possible. Store credit rate: If the item is First time Store credited- Planned Rate (BOM Rate) and subsequent Store credit-At Moving Average rate. Settlement: Store credit (FG/ SFG) is happening at Planned / Moving average rate , which is different from the Actual consumption rate. Settlement converts the Planned/ Moving Average rate to Actual rate provided: (a) Production order launching quantity is fully Store credited (e.g. 10 Nos launched, 10 Nos GR Made) (b) At the time of settlement Run ( CO43, KKAO & CO88) store credited quantity is in Stock i.e. not moved to the next level production order / sold. At the time of settlement Run if the quantity is in Stock then the Difference of Planned Rate and Actual consumption rate will be adjusted in Stock value. If there is no stock/ partial stock the Differences will be adjusted in Price Differences Settlement A/c Fully (For Stock cases) or partially (For partial Stocks). WIP-Calculation: Step-1 Materials drawal on Production order RM Inventory CR- Rs 100 Consumption-DR-Rs 100 WIP RUN (CO43, KKAO & CO88) WIP Prodn-Dr (B/S Item)-Rs 110 ( including labour & MOH Rs 10/-) WIP Output CR (P&L Item)-Rs 110 (Grouped under Accretion / Decretion in P&L) On Store credit / GR (At planned / moving average rate)

(1) SFG Production DR (Generation of SFG Inventory) Rs 120/SFG Output CR Rs 120/(2) WIP Production-CR (Liquidation of WIP Inventory)-Rs 110/WIP Output-DR Rs 110/- **** (See Note) Note:**** Regarding reversal of WIP Production/Output on GR, it may please be noted that In case of partial Store Credit (GR) WIP Production & Output reversal figure is equivalent to SFG Production/output figure. As per above example: (2) WIP Production Cr. Rs 120/WIP Output -Dr. - Rs 120/This results in negative WIP of Rs.10 For Full quantity of Store credit in Production order Balance in WIP Production & Output will be reversed at the time of creation of GR in Production order. As per above example: (2) WIP Production DR Rs 120/WIP Output -CR - Rs 120/On settlement: SFG Production CR Rs 10/- (Rs 120-110) SFG Output DR Rs 10/Step-2 Movement of SFG Production (Semi finished inventory to the Next level) XFG-Consumption(P&LA/c) DR 110/SFG Production (B/S) CR 110/Warning: XFG Consumption is an intermediary consumption (Production order to production order) and should not be considered for giving the consumption figure for Advance Tax / Qtly flash / Yearly Flash. In P&L XFG Consumption is grouped under Accretion / Decretion to WIP &FG. Further drawal of materials in next level production order RM Inventory CR- Rs 100 Consumption-DR-Rs 100 WIP RUN (CO43, KKAO & CO88) WIP Prodn-Dr (B/S Item)-Rs 230 ( including labour & MOH Rs 20/-) WIP Output CR (P&L Item)-Rs 230 (Grouped under Accretion / Decretion in P&L) On Store credit / GR (At planned / moving average rate)

1. SFG Production DR (Generation of SFG Inventory) Rs 270/Output CR Rs 270/2. WIP Production-CR (Liquidation of WIP Inventory)-Rs 230/WIP Output-DR Rs 230/On settlement: (Assumed 50% Stock moved in next level production order) SFG Production SFG Output Price Diff Settlement CR Rs 20/- (Rs 120-110) DR Rs 40/CR Rs 20/-

SFG

WIP =WIP Production + SFG Production Sale order wise WIP Production-ZKCO4 (Enter plant & period, see summary) Sale order wise SFG Production-MBBS (Enter plant & valuation type as XFG, see Summary.) Warning: SFG Production is a dynamic situation. Hence, as on 31.03.2007 a snap shot should be saved in XL format for Audit purpose. Note: WIP production & SFG Production is considered against a Sale order. Negative WIP: When the planned / moving average Store credit (GR) rate is more than the actual consumption figure then only negative WIP is possible. Utmost efforts should be made to avoid the negative WIP. Steps to remove negative WIP: (1) Cancell (If CO period is opened) the Production order GR from which negative WIP is coming. [PP Module] (2) Go to MR21, Change the Moving average rate for the part number for which negative WIP is coming (Based on Actual consumption rate). [FI Module] (3) Do the GR once again. [PP module] If the above steps are not possible then on closure of respective production order, Negative WIP figure will be adjusted with Price Diff Settlement A/C. FG Creation : As per SAP configuration , only BEC & BEL source code is treated as FG Stock. Like SFG production , at the end of production cycle instead of SFG Inventory , FG inventory will be created. ( Based on the Settlement rule of Production order) FG Details part number wise is available from Tx code FBL3N/FAGLL03 through dynamic selection part number wise. Value reduction in FG Steps to be followed for value reduction of FG stocks 1 Find out the total FG (BEL & BEC for GL code 208110) part number wise as on 31 st March. 2.Compare the list with Last years figure 3. Find out the incremental FG i.e. FG Accretion during the year. 4. Sort the incremental list value wise. 5.Compare the major value of FG with the selling price (Where customer Sale order exist) or expected selling price for Advance ESO cases like STB, FM Tx etc.

6.If the FG in stock value is more than the Selling/expected selling price, then the differential value has to treated as FG value reduction. FG Value reduction entry Value reduction FG (413530) DR (Charge to P/L) (Reduction of Inventory)

Value reduction inventory-FG (209530) CR

Note: For value reduction original inventory code of FG/WIP/SFG (208110,208050 & 208010) should not be touched. It should be done through a separate GL code like 209510/20/30 . Excise duty provision on FG (BEC Type only): As on 31.03.2007 take the details of BEC-FG from Transaction code MB5L. Steps: Valuation Area- 1140 (BTV) / 1141 (DCS-T) Valuation Type- BEC G/L Account FG GL Code (208110) Apply the ED rate on BEC FG Pass JE : ED on Closing FG DR/CR (208190) ED Provision DR/CR (128010) Note: Based on Accretion / Decretion of ED compared to Last years Figure. Depot FG Stocks Depot FG stock on Books of Account has to be provided manually, till the implementation of SAP in all the Depot/ ROs. Year End Depot FG stocks as confirmed by Depot and verified by Internal Audit has to be compiled. Pass JE: Depot Inventory (208150) DR/CR Accretion / Decretion to Depot Stock ( 800055) DR/CR Note: Based on Last years figure Accretion / Decretion to Depot stock has to be derived and accordingly JE to be passed. On sale of FG inventory : FG Production-CR (208110) COGS Mfg FG DR.(407620) Bought out Resale ( Sale order 5th digit 3 ) In MM Module through a transfer posting (MB1B) Storage location of bought-out items is changed from RMSL (RM Storage Location) to FGSL (FG Storage Location) At this point of time no FI entry is passed i.e this entry does not change GL code or classification of part number. FI entry is passed on preparation of OBD (SD Module) for bought-out items. COGS-Trading (DOM / IMP)-DR (407510/407520) RM /SFG Inventory -CR. (206010/20, 209010/20) Consumption for a Manufacturing Sale order (5th digit 1)

Step-1 (Consumption for all production orders against a Sale order) Go to COOIS Give Sale order No and execute . Copy the all the Production order (Block the column & press Cntl+C) Open one more session Enter Transaction code KOB1 Paste all the copied production orders. Check the period for which consumption is required. Execute. Sort the data cost element (GL Code ) wise Go to Summary Take the consumption codes . Note: except Consumption code for BEL made-401030, since this is an intermediary (XFG) consumption
Step-2 ( Consumption without production order i.e. Direct consumption against a sale order)

Enter transaction code KVBI Enter the Sales Document No Check the period Execute Sort the data cost element (GL Code ) wise Go to Summary Take the consumption codes ( except Consumption code for BEL made-401030, since this is an intermediary (XFG) consumption.) Adding step 1 & 2 is the total consumption for a Manufacturing Sale order. WIP Value Reduction: WIP is always calculated for a Sale order. Steps to be followed for WIP value reduction. 1. Calculate the total consumption for the Sale order (for which WIP has to be calculated) by following the steps as mentioned above 2. IED will furnish the Material & Labour progress percentage for the sale order. 3. By applying the progress percentage on consumption, exterpolate the consumption figure to 100% level. 4. Find out the incremental cost to be incurred to complete the sale order i.e. 100% cost present cost incurred. 5. Compare the incremental cost to be incurred with the Revenue to be generated from the sale order. Revenue to be generated for a sale order can be obtained from Transaction code ZSD023 for Manufacturing Sale order only. 6. If, incremental cost to be incurred is more than the revenue to be generated for manufacturing sale order then the Difference to be treated as value reduction subject to WIP figure as derived from the system. Value Reduction Entry: Value Reduction inventory-WIP (209520) CR Value Reduction WIP (413520) DR High Sea Sales Accounting: High Sea Sales (HSS) order is created in SD Module Sale order Type-ZHSS 5th Digit of Sale order No: 7

Purchase Requisition (PR) is automatically generated from the Line items of Sale order. PR is converted to PO in MM Module (PO Category Z, instead of Normal category E) Z indicates GR Generation as follows: COGS HSS DR ( Consumption for HSS) GR / IR CR (Not Routed through Stock, since this is a High Sea Sales.) In normal cases the PO category is E, the GR Generation will be as follows: RM / SFG Inventory DR GR / IR CR
Note: Care to be taken while releasing the HSS PO that the PO category should be Z only.

GR for HSS Observed that in many cases GR for HSS wrongly generated / Not generated. SAP is having a system validation that without GR, Billing in HSS is not possible. To find out the correctness of GR for a HSS P/N Use ME2M and compare the PO quantity with the column To be delivered . GR generated for HSS for which corresponding HSS invoice quantity is not available to be verified immediately for corrective action. Materials issued to Sub-contractor. As per SAP configuration material issued to Sub-contractor is only a change in Storage location. This does not generate any FI entry. Materials to be issued to Sub-contractor is drawn by the Sub-contract department through a pull list ( Not any SR). After drawing the required materials, through Non-returnable MGP the same has vbeen handed over to the Subcontractor. After receiving the processed material from the Sub-contractor, GR has to be prepared by linking the pull list (Which indicates the child part number for a parent FG part number). Entry Generated on Sub-contract GR SFG Inventory DR ( Value of RM issued to Subcontractor + Labour )

SUB-CONTRACT OUPUT CR ( P/L ) S/C SERVICE CHARGES-DR (Labour / Service charges to be paid to S/C) GR/IR CR (Clearing A/C)

GR Generation for Sub-contract order without linking the pull list means Inventory is valued only by labour cost. This situation indicates overstatement of Inventory ( Lying with the S/C) and under Statement of Consumption, resulting incorrect WIP & FG valuation.

Purchase Finance: Transaction code MMBE Check the Stock status. Verify the Free Stock quantity. Reserved quantity and un-restricted stock assigned to any Sale order should not be considered as free stock. Any free stock quantity should justified with reference to the proposed quantity of PO. Transaction code ME23N Check the Assignment of Sale order . Without any assignment the item is being procured as Free Stock. Check the PO condition & Invoice condition for correctness of Tax codes. Since the GR valuation is based on PO condition, it should be checked very care fully . Omission/ errors in PO condition will affect the GR valuation. Purchase order category for normal cases E Purchase order category for HSS cases Z For capital PO , apart from P/N check the GL code assigned in purchase order. In many cases it is observed that for capital Pos GR have been made in RMC stock. GL code errors will create the problem of capitalization and Depreciation. Hence for capital Pos GL code should be ( 205010-For imported, 205020-For Domestic). Process of capitalization: Capital stores should be consumed against the WBS element and Capitalization of assets will be done by Central Fin. Capitalization of Asset is not possible without consumption of capital stores against the WBS element.