Hi Greenrookie,
This will be my first posting here.
Basically, write down of asset is due to inventory obsolescence. The market selling price of the inventory does not match the purchase price.
Two place it will be capture in the account. One to P&L account- as expenses and one to BS- as allowance for writedown. This allowance basically is reflected in the current asset in the BS but most accountant will just write down to inventory instead of providing allowance which is more straight forward. Once the inventory is sold, then the allowance will be remove.
Yes you can take the net amount.
These are not cash items until they(inventory) are sold. It is the same as reval for property where the price of warehouse has increase compare with the initial purchase price.
Hope I answer your query
(17-10-2013, 08:42 AM)Ken123456 Wrote: [ -> ]Hi Greenrookie,
This will be my first posting here.
Basically, write down of asset is due to inventory obsolescence. The market selling price of the inventory does not match the purchase price.
Two place it will be capture in the account. One to P&L account- as expenses and one to BS- as allowance for writedown. This allowance basically is reflected in the current asset in the BS but most accountant will just write down to inventory instead of providing allowance which is more straight forward. Once the inventory is sold, then the allowance will be remove.
Yes you can take the net amount.
These are not cash items until they(inventory) are sold. It is the same as reval for property where the price of warehouse has increase compare with the initial purchase price.
Hope I answer your query
Hi ken,
Thanks!! How would reversal come about? Since they are already sold below purchase price?
(17-10-2013, 10:34 AM)Greenrookie Wrote: [ -> ] (17-10-2013, 08:42 AM)Ken123456 Wrote: [ -> ]Hi Greenrookie,
This will be my first posting here.
Basically, write down of asset is due to inventory obsolescence. The market selling price of the inventory does not match the purchase price.
Two place it will be capture in the account. One to P&L account- as expenses and one to BS- as allowance for writedown. This allowance basically is reflected in the current asset in the BS but most accountant will just write down to inventory instead of providing allowance which is more straight forward. Once the inventory is sold, then the allowance will be remove.
Yes you can take the net amount.
These are not cash items until they(inventory) are sold. It is the same as reval for property where the price of warehouse has increase compare with the initial purchase price.
Hope I answer your query
Hi ken,
Thanks!! How would reversal come about? Since they are already sold below purchase price?
Hi, marked down inventory is not yet sold. It is like a paper loss on equities holdings, the write down is reversed when the value of the items recover.
(17-10-2013, 10:34 AM)Greenrookie Wrote: [ -> ] (17-10-2013, 08:42 AM)Ken123456 Wrote: [ -> ]Hi Greenrookie,
This will be my first posting here.
Basically, write down of asset is due to inventory obsolescence. The market selling price of the inventory does not match the purchase price.
Two place it will be capture in the account. One to P&L account- as expenses and one to BS- as allowance for writedown. This allowance basically is reflected in the current asset in the BS but most accountant will just write down to inventory instead of providing allowance which is more straight forward. Once the inventory is sold, then the allowance will be remove.
Yes you can take the net amount.
These are not cash items until they(inventory) are sold. It is the same as reval for property where the price of warehouse has increase compare with the initial purchase price.
Hope I answer your query
Hi ken,
Thanks!! How would reversal come about? Since they are already sold below purchase price?
Hi Greenrookie,
If they have already sold below the purchase price, there will not be any reversal of writedown.
Reversal only came in when there are any unsold inventory that are revalue again.
Inventory are value at lower of Net Realisable Value or Cost.
NRV is basically Selling Price less selling cost.
If you want to know more about the valuation of Inventory, you can look at FRS 2 link here
http://www.asc.gov.sg/frs/Frs_2.htm#cost_inv
(17-10-2013, 11:10 AM)Ken123456 Wrote: [ -> ] (17-10-2013, 10:34 AM)Greenrookie Wrote: [ -> ] (17-10-2013, 08:42 AM)Ken123456 Wrote: [ -> ]Hi Greenrookie,
This will be my first posting here.
Basically, write down of asset is due to inventory obsolescence. The market selling price of the inventory does not match the purchase price.
Two place it will be capture in the account. One to P&L account- as expenses and one to BS- as allowance for writedown. This allowance basically is reflected in the current asset in the BS but most accountant will just write down to inventory instead of providing allowance which is more straight forward. Once the inventory is sold, then the allowance will be remove.
Yes you can take the net amount.
These are not cash items until they(inventory) are sold. It is the same as reval for property where the price of warehouse has increase compare with the initial purchase price.
Hope I answer your query
Hi ken,
Thanks!! How would reversal come about? Since they are already sold below purchase price?
Hi Greenrookie,
If they have already sold below the purchase price, there will not be any reversal of writedown.
Reversal only came in when there are any unsold inventory that are revalue again.
Inventory are value at lower of Net Realisable Value or Cost.
NRV is basically Selling Price less selling cost.
If you want to know more about the valuation of Inventory, you can look at FRS 2 link here
http://www.asc.gov.sg/frs/Frs_2.htm#cost_inv
Hi ken, just a question. Can a company that had previously taken a write down on inventory refuse to reverse it even in a recovery to save on taxes? It also improves activity ratios not to reverse if allowed.
Hi Clement,
I am not provision in tax for this matter. However I did a quick search at IRAS website and saw that tax is deductible for Provision for obsolete stocks (specific) and not deductible for Provision for obsolete stocks (general).
Hence if company write down certain specific stock and not intend to reverse for tax benefit, auditor may question them. Even if there are no query from auditor for the reason not reversing, when they sold the stock, they sold generate more profit and it will be tax inevitably.
Therefore , just a matter of time unless the stock cannot be sold.
(17-10-2013, 11:57 AM)Ken123456 Wrote: [ -> ]Hi Clement,
I am not provision in tax for this matter. However I did a quick search at IRAS website and saw that tax is deductible for Provision for obsolete stocks (specific) and not deductible for Provision for obsolete stocks (general).
Hence if company write down certain specific stock and not intend to reverse for tax benefit, auditor may question them. Even if there are no query from auditor for the reason not reversing, when they sold the stock, they sold generate more profit and it will be tax inevitably.
Therefore , just a matter of time unless the stock cannot be sold.
Hi ken, I think the write down in this case is for specific stocks. As to the actual tax benefit, it is still better to be assessed for taxes after profits are realized, even if for no other reason than better cash flow matching and liquidity management. I have seen companies that report Gst payable only on a cash receipts basis for the same reason.
(17-10-2013, 11:17 AM)Clement Wrote: [ -> ]Hi ken, just a question. Can a company that had previously taken a write down on inventory refuse to reverse it even in a recovery to save on taxes? It also improves activity ratios not to reverse if allowed.
If at financial year end, the circumstances are such that the lower of cost and net realisable value assessment indicates a reversal from previous year's writedown, the Company has to recognise the reversal in order to comply with financial reporting standards. There is no choice involved. Ken is right to say the omission / non-recognition is likely to be picked up by a rigorous audit (and provided the amounts are material).
(17-10-2013, 09:43 PM)FatBoi Wrote: [ -> ] (17-10-2013, 11:17 AM)Clement Wrote: [ -> ]
Hi ken, just a question. Can a company that had previously taken a write down on inventory refuse to reverse it even in a recovery to save on taxes? It also improves activity ratios not to reverse if allowed.
If at financial year end, the circumstances are such that the lower of cost and net realisable value assessment indicates a reversal from previous year's writedown, the Company has to recognise the reversal in order to comply with financial reporting standards. There is no choice involved. Ken is right to say the omission / non-recognition is likely to be picked up by a rigorous audit (and provided the amounts are material).
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Ah I see, the company had no choice. I was wondering why would anyone want to report taxable paper gains. Thanks for clearing that up.
I think hupsteel steel biz is not doing well locally.
I see that the management is planning to market its kim chuan ppty for rental soon, as well as refurnish its other properties in near-mid term.
With large cash horde, it shd be able to tide over this difficulty.