Hubbell Policies

CONSIGNED INVENTORY- CONSIGNOR POLICY

English

Owner : Vice President, Controller

Last Review: 2015.08.10

FIN - 10

Department: Finance

POLICY Each business unit holding consigned inventory is required to follow the procedures outlined below. SCOPE This policy applies to all Hubbell business units. PURPOSE The purpose of this policy is to ensure that all consigned inventory is appropriately recorded and valued in accordance with U.S. GAAP. PROCEDURE This procedure addresses how the business unit should record and report consigned inventory when Hubbell is the consignor. Consignment occurs when goods are sent by the business unit (the consignor) to a third party (the consignee). This procedure is applicable to raw materials used in production by the consignee or finished goods accepted for resale by the consignee. The third party takes possession of the goods, without passing title. The consignor (Hubbell business unit) continues to own the goods until they are sold, therefore the goods must appear as inventory on the balance sheet of the business unit. The value of the consigned inventory should be equivalent to the Company’s finished goods value for that particular product. All consigned inventory must be accompanied by an agreement approved by the respective group legal representative. Additionally, all consigned inventory arrangements require approval from the group controller for the business unit and also requires consultation with the Corporate tax group, prior to initiating the consignment arrangement. Consigned inventory must be recorded to SAP account 135500 and must be mapped to HFM account 1440 for non SAP companies. At the end of each month the business unit should obtain a detailed listing of on-hand inventory and shipments to/from the consignee and reconcile the balance to the company’s general ledger.

Below is an example entry for how sales from a consignee’s location should be recorded:

Dr: Cash/AR

Dr: COGS

Cr: Sales

Cr: Inventory - 135500

(to recognize revenue from consignment sales)

(to recognize costs and relieve inventory)

The business unit is responsible to ensure that title to the goods have passed to the end customer in advance of revenue recognition. The Physical Inventory Count Procedure (refer to the Related Documents section of this procedure) outlines the control requirements applicable to consigned inventory. Consigned inventory should be verified through the use of existing records that can be reviewed and used to authenticate its existence. This includes either a physical measurement at a later date or through some other independent source. An example of an alternative independent

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