Damage Inventory – Is it direct cost or administrative cost?

If the inventory is damaged durng production the cost shall be dibited to production cost otherwise in case of obsolete inventory the cost can be calssified as Administrative cost.

But there is no hardline, the company policy and local accounting standards may affect such decisions.

When damage inventory is occurred by normal business procedure then it will be treated as Direct Cost and this damage value has a limit as per business policy and income tax ordinance.

When damage inventory is occurred for lack of employee’s sincerity and others specific reason which are not considerable as business policy then it will be treated as Administrative Cost.