Write down of Inventories

Inventory is valued at the “lower of cost and net realisable value” If cost were 1,000 and nrv were 800, then 800 is the value to include within the cost of sales calculation “opening inventory + purchases – closing inventory”

By including 800 instead of 1,000 we have automatically increased cost of sales by 200 and therefore reduced profits.

So, no, we don’t show the 200 separately as an expense. By including 800 in the calculation we have effectively expensed the 200 write down

Ok?

Correct, I DO mean that there’s no double entry!

No, your attempted double entry is achieved by simply reducing the value of the closing inventory. That value is arrived at by the (relatively) simple process of counting and valuing the physical inventory.

We used to say many years ago that “inventory is its own double entry” so that when you increase inventory on the statement of financial position (the debit) you also increase the value of closing inventory in the cost of sales calculation (the credit)

So we never debit (nor credit) inventory and credit (nor debit) a different account

Your entry (if you really want a double entry) would be Dr inventory (as closing inventory in the cost of sales calculation) and Cr inventory (as closing inventory on the statement of financial position)

But better not to think about the debits and credits!

We only calculate cost of sales in the event of preparing financial statements.

EVERY event occurs in the period after the reporting period! (except an event that occurs during the first year following the company’s incorporation)

If it’s damaged goods, we simply sell for less than normal price. If those goods are in inventory as at the year end, we value them at the lower of cost and net realisable value and include that lower figure in the cost of sales calculation

Ok?

You’re welcome