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Determine the most likely disposition price of the obsolete items, subtract this projected amount from the book value of the obsolete items, and set aside the difference as a reserve. As the company later disposes of the items, or the estimated amounts to be received from disposition change, adjust the reserve account to reflect these events.
The level of disclosure of an inventory write down depends upon the size of the write down. In most cases, this is quite a small amount (since the bulk of write down events involve inventory being declared obsolete, usually in small increments), so you can charge the expense to the cost of goods sold account, and no further disclosure is required.
However, if the amount of the write down is quite large, then you should charge the expense to a separate account that is also separately itemized on the income statement, so that readers can clearly see it. If you were to bury a large write down within the cost of goods sold expense, it would cause a large decline in the gross profit ratio that would have to be explained anyways.
Under International Financial Reporting Standards, you should disclose the amount of any write down of inventory recognized as an expense during the period.
There is no specific requirement under Generally Accepted Accounting Principles to disclose the amount of a write down, but it does state that, when there is a substantial and unusual loss resulting from use of the lower of cost or market rule, it is desirable to disclose the amount of the loss in the income statement as a charge separately identified from the normal cost of goods sold.
explained in detail by Mr. Venkitaraman Krishna Moorthy
Mr. VENKITARAMAN KRISHNA MOORTHY VRINDAVAN has given a well explained answer. I agree with him.
I AGREE WITH MR VINKITART\\AMAN ANSWER
Well explained by Mr. Venkitaraman Krishna Moorthy. I am agree with him
Fully agreed with detail explanation by Venkitaraman Sir.
First you have to create provision in financial statement and then try to recover the amount.
