Must admit I'm confused. In simplistic terms I thought if you...

Must admit I'm confused. In simplistic terms I thought if you purchase Inventory (electronic components) the accounting entry would be Debit - Inventory and Credit - Accounts Payable. As the electronic components are used to manufacture rectifiers the entry would be Debit - COGS and Credit - Inventory.

The change in end of year Inventory figures between 2022 and 2023 was an increase of 12.57m, whereas the adjustment shown in the 2023 P&L is around $8m.

I'm wondering if the adjustment represents the change in the value of the electronic components held in Inventory as at end of 2023. So for example if $1m of widgets were purchased in December 2022 and are still on hand as at 30 June 2023, if their replacement value has increased to $2m due to a surge in the cost of widgets, the $1m would be a gain as at the end of the year. You start the new financial year with all widgets valued at their replacement cost.

If that's true then it means that widgets or electronic components have increased a fair bit in cost during the year. Going forward RFT will need to increase its selling price as the cost of replacing widgets is likely to be higher than what it cost them in December 2022.

Alternatively the finished goods part of Inventory are revalued to market selling value and that is the gain shown? Inventory is a combination of raw components, products under construction and finished goods. Inventory could be valued at cost price, replacement cost or market selling value. If the revaluation is for replacement cost or market selling value then I assume that auditors would check that there are reasonable grounds for such a revaluation. It might also mean that RFT has a high level of finished goods ready for delivery and that its cash levels will rise significantly, or debt levels fall, as those finished goods leave the factory. Sales wouldn't be recognised until product at least leaves the factory or alternatively is delivered to the client, but the gain on the finished good has effectively been already recognised in the 2023 figures.

I'm not sure but that's my thinking? Unfortunately RFT is not the sort of company you can contact to get clarification. Is one of the reasons it is ignored by the market.