This is the second in a series of advice from U-LEAD experts Iryna Drozd and Tetiana Larikova.
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The experts of the U-LEAD with Europe Programme, Iryna Drozd and Tetiana Larikova, answered a number of questions on inventory accounting and valuation in budgetary institutions during the information session on “Accounting and valuation of inventories” held on 24 April for the accounting officers of local self-government bodies and lower-level spending units.
The most common questions raised by the participants of the event concerned the accounting and writing off of batteries, car tyres, the write off standards to be applied to fuel and lubricants, accounting for food products to be transferred to IDPs, and the appointment of a financially responsible person.
1. What is the proper way of accounting for and writing off car batteries and tyres when replaced?
The battery/tyres within a car are not accounted for as a separate item; they are included in the original cost of the respective car.
Once the battery/tyres reach their technical limit, new ones are purchased to replace them, and accounted for as spare parts within inventories in the 1515 “Spare parts” subaccount.
One of two options is available for accounting for batteries/tyres after installation on a company car:
- Write off the cost to the expenses of the reporting period as soon as they are installed.
- Keep the battery/tyres within inventories until they are written off (fail).
The accounting for batteries/tires is distinguished by the requirements specified for the service life of these spare parts (Order of the Ministry of Transport and Communications “On Approval of the Operational Standards for the Average Service Life of Storage Lead Starter Batteries of Motor Vehicles and Special Vehicles on Wheeled Chassis” of 20.05.2006, № 489.)
A head of the institution should appoint a person responsible for accounting and control of the turnover of batteries/tyres in the institution (clause 8.4 of the Operating Rules for Storage Lead Starter Batteries of Motor Vehicles and Special Vehicles on Wheeled Chassis, approved by the Order of the Ministry of Transport and Communications of 02.07.2008 No. 795), and their disposal (clause 9.2 of the Rules No. 795).
In order to account for the movement of batteries/tyres, it is recommended to reflect them in analytical accounts, considering such conditions: warehouse storage, in use, repair or maintenance, write-off, disposal.
Keeping a Battery Service Life and Turnover Record Card (Appendix 12 to the Rules No. 795) and a Maintenance and Repair Operations Log (Appendix 10 to the Rules No. 795) for batteries.
The battery’s suitability or unsuitability is determined by a commission authorised to determine the technical condition of batteries (clause 8.4 of the Rules No. 795). It is appointed by the head of the institution.
The grounds for write-off are reflected in the Record Card along with the conclusions of the commission. The Card serves as its Write-off Act (clause 8.4 of the Rules No. 795).
Therefore, batteries/tyres can be written off by a commission decision upon reaching the ultimate state and/or expiration of their service life.
Used batteries are classified as hazardous waste and are subject to mandatory disposal by specialised companies or sale as lead scrap.
2. What are the standards for writing off fuels and lubricants?
The Order of the Ministry of Transport of Ukraine dated 10.02.98 No. 43 “On Approval of Fuel and Lubricant Consumption Standards for Road Transport”, which approved the standards for fuel and lubricant consumption in road transport, expired on 2 November 2023 (Order of the Ministry of Communities, Territories and Infrastructure Development of Ukraine No. 1011 dated 02.11.2023 “On Invalidation of the Order of the Ministry of Transport of Ukraine No. 43 dated 10 February 1998”).
This is because the norms of Regulation No. 43 do not include indicators for a significant number of new models of motor vehicles.
Since there are no nationwide consumption standards, institutions have a choice of what to consider as a standard. Therefore, business entities should record their decision in their own order.
Those developed by the State Motor Transport Research and Design Institute may serve as a benchmark:
- Methodological Recommendations on Standardisation of Fuel, Electricity, Lubricants and Other Operating Materials Consumption by Vehicles and Equipment;
- Basic consumption standards (supplement to the Methodological Recommendations).
The Methodological Recommendations and the Basic Standards are not mandatory for use by enterprises, since they are not a regulatory act issued by an authorised government body. These are only guidelines and each legal entity is free to take them into account.
A contract specifies the scope of control: fuel costs, repairs, maintenance, etc. The decision should be documented in the Accounting Policy Statement. The landlord is responsible for controlling the standards and for the use of fuel.
3. What is the procedure of accounting for humanitarian aid (food products) to be transferred to IDPs?
A written offer from a donor to provide aid serves as the basis for initiating the procedure to recognise such aid as humanitarian. The basis for humanitarian aid provision in Ukraine is the written consent of the humanitarian aid recipient to obtain it. The humanitarian aid recipient has the same rights to use it as the humanitarian aid provider” (Art. 3 of the Law of Ukraine On Humanitarian Aid No. 1192-XIV of 22.10.199).
One of the donor’s rights, according to Art. 725 of the Civil Code of Ukraine No. 435-IV of 16.01.2003 is the right to act in favour of a third party (to transfer a monetary amount or other property into ownership). Therefore, a donation agreement must specify that the aid recipients are specific institutions or establishments or those who need it most, etc.
The transfer under the in-kind humanitarian aid acceptance certificate is inherently a gratuitous transfer of assets from individuals or legal entities. Assets acquired (produced, received) and retained for the further distribution, transfer or sale are accounted for in the 1815 subaccount “Assets for distribution, transfer, sale”.
Therefore, it is necessary to initially record tangible assets in the recipient’s accounting in the 1815 subaccount “Assets for distribution, transfer, sale” and subsequently recognise income in the 7511 subaccount “Income from non-exchange transactions”.
In accordance with the Procedure for Treasury Services for Local Budgets No. 938 of 23.08.2012, approved by the Ministry of Finance of Ukraine, the recipient (administrator of budget funds) must submit a certificate of in-kind receipts to the Treasury.
The Regulation on Accounting Policy in terms of inventory accounting requires that material assets (food products) obtained through humanitarian aid for the purpose of their further transfer, distribution or sale are recorded on the 1815 subaccount “Assets for distribution, transfer, sale”
The Regulation on Accounting Policy also requires to define the unit of in-kind measurement of inventory for each accounting unit, for example
- unit of measurement for receipt - pallet or batch;
- unit of measurement - weight, volume, quantity.
The transfer of humanitarian aid to other recipients/acquirers meets the definition of a business transaction. Therefore, the business transaction must be certified by a primary document with mandatory details in accordance with the requirements of part 2 of Art. 9 of the Law on Accounting and Financial Reporting in Ukraine Law of Ukraine No. 996-XIV dated 16.07.1999
It is necessary to issue relevant expenditure documents, such as orders, invoices, and letters of authorisation, for the transfer of humanitarian aid to individual recipients. The above regulations must contain instructions on the transfer of humanitarian aid items to individual recipients only.
Upon the order of the head, it is proposed to establish a commission in charge of receiving and documenting the transfer (delivery) of humanitarian aid.
Due to the absence of the standard accounting forms for the humanitarian aid disposal, it is necessary for the recipient to develop such forms and content and attach them as an annexe to the administrative document on the accounting organisation.
Another advisable step is to develop a document flow chart (schedule), also to be attached to the administrative document on the accounting organisation.
The relevant documents should be executed depending on whether the recipient is a legal entity or an individual. The humanitarian aid transferred directly to a legal entity should be documented by an acceptance certificate with a standard form approved by the order of the Ministry of Finance No. 818 dated 13.09.2016. An individual recipient should issue a statement of humanitarian aid distribution.
The transfer of humanitarian aid to individual recipients through their representatives, for example, in case of on-site distribution of humanitarian aid to the recipients’ place of residence (temporary accommodation), should be documented by
- an order of the head of the institution on the humanitarian aid distribution indicating the responsible persons (commission);
- a report on the humanitarian aid distribution;
- a statement of the humanitarian aid distribution between individual recipients;
- an act of writing off humanitarian aid, confirming the write-off from the balance sheet of the recipient.
In case of humanitarian aid received in mixed pallets, it is necessary to unpack, weigh and sort it out in order to transfer it to other recipients/acquirers in mixed or homogeneous pallets according to the applications. Such expenses are not associated with the receipt of assets, but rather with the preparation for their disposal or transfer. They are recognised as expenses of the reporting period and accounted for in the 8411 subaccount “Other expenses on exchange transactions”.
4. Who is allowed to be a materially responsible person in an institution if there are no positions/work performed specified in the List No. 447/24, but there are fixed assets, other non-current material assets of budgetary institutions, low-value wearing items?
The obligation of appointing a materially responsible person is determined by the requirement to record quantitative material assets and organise their responsible storage in the institution by materially responsible persons appointed by order of the head of the public sector entity (clause 2 of Sec. II of the Methodological Recommendations on Fixed Assets Accounting, clause 3 of Section III of the Methodological Recommendations on Inventory Accounting, approved by the Order of the Ministry of Finance dated 23.01.2015 No. 11).
When determining the employee eligible to enter into a full material liability agreement, there are two conditions to consider:
- the position held by the employee or the work they perform is included in the list of positions and work performed by employees who may be subject to written agreements on full material liability for failure to ensure the safety of valuables transferred to them for storage, processing, sale (release), transportation or use in the production process, approved by the Resolution of the USSR State Labour Committee and the Secretariat of the ACCTU of 28.12.77, No. 447/24 (The Resolution remains in force to this day in accordance with the Resolution of the Verkhovna Rada of Ukraine No.1545 of 12.09.91 “On the Procedure for the Temporary Effect of Certain Acts of the USSR Legislation in the Territory of Ukraine”;
- performing duties in accordance with the position, the professional work must be specifically related to the storage, processing, sale (release), transportation or use of valuables entrusted to employees in the production process (Article 135/1 of the Labour Code of Ukraine).
In other words, either the position on the List or the content of functional duties serves as the basis for appointing an employee to be a materially responsible person. In the event there are no employees with a job description providing for valuables safekeeping functions under Art. 135/1 of the Labour Code of Ukraine, they can be expanded, following the general provisions of the Qualification Characteristics of Employee Occupations Directory contained in Issue 1 “Employee Occupations Common to All Types of Economic Activity”, approved by Order of the Ministry of Labour No. 336 dated 29.12.2004. It provides a specific list of job (work) duties (work) instructions for all categories of employees, developed and approved by employers on the basis of a standard qualification profile, considering the specific tasks and duties, functions, rights, responsibilities of these groups of employees and the specifics of the staffing of the enterprise, institution or organisation.
Thus, the employee’s job function is defined in the “Tasks and Responsibilities” section of the job description.
However, if an employee is required to expand the service area or increase the scope of work in the established manner (in accordance with a job description, order, or instruction) by performing work related to the storage, processing, sale, transportation, or use of assets entrusted to employees in the production process, they may be subject to an agreement that makes them materially liable.
Under the Resolution of the Verkhovna Rada of Ukraine No. 1545 dated 12.09.91 “On the Procedure for the Temporary Effect of Certain Acts of the USSR Legislation on the Territory of Ukraine”, establishing that until the adoption of the relevant acts of Ukrainian legislation, acts of the USSR legislation on issues not regulated by Ukrainian legislation are effective within the republic, provided they are consistent with the Constitution and laws of Ukraine.
For this reason, the Resolution of the Verkhovna Rada of Ukraine No. 1545 of 12.09.91, the Resolution of the Council of Ministers of the USSR “On the Procedure and Conditions for Combining Occupations (Positions)” and the Instruction of the State Committee of Labour, the Ministry of Finance of the USSR and the ACCTU on implementation of the Resolution of the Council of Ministers of the USSR of 4 December 1981 No. 1145 “On the Procedure and Conditions for Combining Occupations (Positions)” remain in force in terms of those clauses providing general principles of this form of work: definition of the terms for combining occupations (positions), expansion of the service area, and performance of duties of a temporarily absent employee.