Anyone can share how to come out a policy for provision for slow moving inventory and provision for doubtful debts?? Thank you!!
Answers
Impairment of inventory is a
Look at your inventory and take a credit to Allowance for Inventory Reserve and a debit for Reserve Inventory Expense for the amount appropriate to each inventory item at the date (month-end, quarter-end). Make sure the calculation is (units on hand * current cost) - (units on hand * reduction in current cost).
Ex. You sell widgets that aren't moving. You bought them at $5 and normally sold them for $10. Now you'll be luck to sell them at $4. In stock, you have 100 units. You're going to write down the inventory to $4.
(100 * $5) - (100 * $1) = $500 - $100 = $400. You'll have an allowance/expense of $100 and a Net inventory of $400.
If you sell above $4, you'll show a "profit" (or a reduced loss, depending on whether it happens the same fiscal year). If you sell for $3.75, you'll show an additional loss of 25 cents per unit.