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Hi
need to ask that if the inventory is damaged and cannot be sold and required to be written off,
then where in the SOPL this will be shown and what will be the journal entry for the write off?Thanks
If inventory is written off, then if we show just the value of the inventory remaining in the trading account (where we calculate the gross profit) then it makes it look as though the gross profit % on the goods actually sold is lower than it really is.
To avoid this, we should credit the inventory in the trading account with the cost of the inventory written off, and then debit the expense of the inventory written off along with other expenses below the gross profit figure.
The final net profit is not affected, but it is better presentation for the reason I explained in my first paragraph.
(I do actually explain this in my free lectures)
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