Discussion:Obsolete Inventory
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Discussion Forum Index --> Accounting Questions --> Obsolete Inventory
Wjalverson (talk|edits) said: | 15 July 2008 |
| Company A is a wholesaler and sells 40 items to Retailer B for sale to the public. Retailer B tells Company A that one item will no longer be purchased for resale. Company A is left with 150,000 pieces of the item. Company A decides to dump the remaining inventory of the obsolete item through a close-out company for 10 cents on the dollar. It will take 1-2 years to liquidate the obsolete items.
Questions: 1) Should the inventory valuation of the obsolete item be adjusted (written down) at the time the obsolesence is known?, or 2) continue with no change in the inventory valuation and simply record the sales to the close-out company and charge Cost of Goods Sold for the original cost? | |
RoyDaleOne (talk|edits) said: | 15 July 2008 |
| Accounting wise the write-down is now. | |
Wjalverson (talk|edits) said: | 15 July 2008 |
| Would it be the same for tax driven financials? | |
RoyDaleOne (talk|edits) said: | 15 July 2008 |
| If you using lower of cost or market for tax purposes the answer is yes, otherwise, the answer is no. <----- this answer is for the tax return.
I don't know what tax driven financial are. However, OCBOA, or if the accounting method used to produced the financials are supposed to tax basis, then follow the tax rules. I would disclose, at a minimum, in a footnote the realizability value. If you misleading anyone as to the value of the inventory .... Enron? | |
Wjalverson (talk|edits) said: | 12 August 2008 |
| I've been away.
What I mean by tax driven financials, is that the Financial Statements are kept Tax basis and not GAAP. There is no misleading of inventory valuation. I'm trying to cut the fat out of the company. | |
Me and the Boss (talk|edits) said: | 12 August 2008 |
| For some reason an old case known as Thor Power Tool sticks in my mind. Anybody else remember that one? Sorry, but no time to follow through on this right now, so I just wanted to toss it out for comment. | |
