Discussion:Manufacturing spoilage
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Discussion Forum Index --> Accounting Questions --> Manufacturing spoilage
| January 20, 2007 | |
| If you're referring to inventory, the spoilage will not be included in the ending inventory, so it will be deducted in purchases. | |
| 20 January 2007 | |
| Yes, I am referring to inventory. I have read long winded articles on how the spoilage should be valued. What is to be expensed (as a spoilage loss) and what should be recorded as a reduction against ending inventory. It's all a bunch of gobbly glup. | |
| January 20, 2007 | |
| It doesn't matter what the value is of the spoilage. As long as the spoilage is not included in ending inventory, the cost of the spoilage (before it became spoiled) will be in purchases, which will be recorded in cost of goods sold. | |
| 22 January 2007 | |
| Hi Deback...are we talking about treatment of spoilage on a GAAP basis or tax basis?
If tax...then I don't know. For GAAP..it depends. According to FASB Concepts Statements 6: "...account for the costs (less salvage value, if any) of units normally spoiled in producing a product as additional costs of the salable units produced." This means that "normal" spoilage is the normal part of the manufacturing inventory; therefore, it should be included as inventory cost. However, Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB No. 43, indicates that "abnormal" spoilage/waste require treatment as current period charges rather than as a portion of the inventory cost. Not too sure how the actual JE's will work or how it will be disclosed on financials. | |
| 22 January 2007 | |
| According to http://www.answers.com/topic/abnormal-spoilage
It is not a cost of good production, but rather it is a loss for the period. This makes sense. | |
| January 22, 2007 | |
| Well, I don't know if DML was asking about abnormal or normal spoilage, since his question didn't contain very many details. The question was: Manufacturing spoilage Best way to account for?
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| 22 January 2007 | |
| Put it as an expense in cogs. It will be deducted from the ending inventory. | |
