In this guide
Germination Loss, Damage and Valuation
Seed is the one inventory where the physical quantity can be entirely intact and the value can be nil. What is being sold is viability, and viability declines with storage time, temperature and moisture regardless of how the bags look. A lot whose germination has fallen below the standard permitted for sale cannot lawfully be sold as seed, and its value drops to whatever the grain fetches. The evidence supporting a write-off is therefore a germination test result from a recognised laboratory, dated, tied to a specific lot number, and read against the standard applicable to that crop. Supporting that sit the storage records, the age of the lot and any physical damage evidenced at the count. The auditor pushes back where a write-off rests on an internal assessment with no test behind it, where the tested lot cannot be matched to the lot written off, where the test predates the season by too long, and where written-off seed is later found to have been sold.
Germination as the Value Test
Seed is unusual among inventories in that its physical quantity tells you almost nothing about its value. What is being sold is the capacity to grow, and that capacity declines with time and storage conditions while the bags look exactly the same. Germination percentage is the measure, and minimum standards are prescribed for each crop under the seed legislation, below which a lot cannot lawfully be sold as seed at all. The standard is crop-specific, so a percentage acceptable for one species fails for another and the applicable figure has to be established rather than assumed. Testing frequency and who performs it determine whether the position is knowable. Lots are tested on receipt, periodically through storage, and again before sale, and testing by a recognised laboratory carries considerably more weight than an internal germination tray when the result supports a write-off. Stock that fails and cannot be sold as seed does not become worthless in the ordinary sense. It generally retains value as grain or as feed, so the write-down is to that realisable value rather than to nil, and the difference between seed price and grain price is the loss.
Storage Damage and Its Causes
Most germination loss is caused rather than inevitable, and the causes are physical conditions that leave evidence. Moisture is the principal enemy. Seed stored above its safe moisture content respires, generates heat, and loses viability quickly, and the damage accelerates as temperature rises, so a godown without ventilation in a hot season can finish a lot in weeks. Pest damage runs alongside it, since insects both consume the seed and raise the moisture and temperature of the stack. Temperature damage is the third and it compounds both of the others. Storage condition records are the evidence that distinguishes an unavoidable loss from a controllable one. Moisture readings at intake and through storage, fumigation records, stack temperature logs and the condition of the structure itself all establish whether the conditions the seed was held in were capable of preserving it. Their absence is itself a finding. Damage discovered at count is common because the deterioration is not visible from outside a stack. Bags at the base of a stack, against a wall, or below a leak are where it concentrates, and a count that samples from accessible positions only will miss precisely the population that has failed.
Carryover Stock Between Seasons
Seed unsold at the end of a season becomes carryover, and it is the population where the largest valuation questions sit. Viability decline over time is the governing fact. A lot that met the standard comfortably at the start of a season may sit through a hot summer and fall below it before the next sowing window, so carryover cannot be carried at seed value on the strength of a test performed a year earlier. A current test, dated close to the valuation, is what supports the figure. Reprocessing against write-off is the decision that follows a test. Some lots can be cleaned, graded and re-treated to bring them back above the standard, and where the cost of doing so is less than the difference between seed value and grain value the reprocessing is worth performing. Where it is not, the write-down is taken. Value of carryover at season start is what the whole analysis is directed at, because that is when the stock either sells or does not. A lot tested and treated before the window opens can be sold; the same lot tested after it has closed is carried for another year with a further season of decline ahead of it.
Evidence a Write-Off Requires
Three documents support a seed write-off, and the first of them is the one that carries the weight. Germination test reports must be dated, must identify the specific lot number being written off, and must be read against the minimum standard applicable to that crop. A report on a different lot, or one predating the storage period during which the loss occurred, does not support the write-off however unfavourable its result. Testing performed by a recognised laboratory carries more weight than an internal assessment, and where the amount is material an internal result alone is routinely challenged. Approval and disposal records are the second element: who authorised the write-off, on what basis, and what physically happened to the seed afterwards. Third is the reconciliation of quantity written off to quantity physically disposed of, which is the check that most often exposes a problem. Where the quantity written off exceeds what the disposal records account for, the difference is seed that was removed from the books and remains capable of being sold, and that is a finding of a different order.
Handling a Seed Write-Off Properly
Test before the count, not after. Germination results take time to come back, and a write-off decided at the count and tested afterwards has the sequence backwards: the decision precedes the evidence and the evidence then either supports it or embarrasses it. Draw samples from the lots you expect to be affected well before the count date, so the results are available when the physical position is established and the two can be reconciled in one exercise. Segregate failed lots physically as the results arrive. A lot that cannot lawfully be sold as seed sitting among saleable lots will be counted as saleable, and it also creates the risk that it is sold, which is a considerably larger problem than a valuation error. A marked, separate location resolves both. Independent verification protects the number where the write-off is material, where a lender has charge over the stock, or where written-off seed has to be shown to have actually been disposed of rather than merely removed from the books. Seeds, Fertiliser & Agro-Inputs work covers lot testing alongside the count.
