IAS 2 Accounting for the Write Down and Loss of Inventories

Hi there, I hope you’re well.

I was looking at a prior thread which asked a similar question regarding how exactly we treat the writing down in value of inventory to NRV, and what to do if inventory is lost/stolen.

The thread mentions that there are no specific journal entries, and that this is reflected as a reduction in the closing balance of the SOPL, which has the effect of increasing COGS.

I just had a couple of questions about this, if thats okay? I hope its appropriate for me to also provide my answers and if you could tell me if I’m on the right tracks I’d appreciate that very much.

1) Depending on whether the business uses the periodic or perpetual inventory system, can the accounting for damages and/or loss through theft, etc be different?

My answer:

I assumed that this would be the case as for the periodic system, we would simply alter the closing balance, but for the perpetual system as updates are made instantly, would there not be a journal entry of:

Credit Inventory / Allowance for Obsolete Inventory
Debit COGS?

2) In IAS 2 it mentions that losses and write downs should be “recognised as expense in the period in which the loss or write-down occurs.” Is increasing COGS an appropriate way to conform to this requirement, or is it more appropriate to produce a wholly separate expense in P/L for losses and write downs of inventory?

My answer:

The increase in COGS is an appropriate way to conform to the above statement.

3) If the loss of inventories is material, and beyond that of which the business normally encounters, would it be more useful to users to depict the loss as a separate expense, and not part of COGS?

My answer:

This would be appropriate, and can easily be employed when using a perpetual inventory system:

Credit Inventory
Debit Loss on Inventory Write-off Operating Expense

However, for a periodic inventory system it is impossible to employ, as the inventory in the SOFP is based off of the closing balance used in the COGS formula, and we cannot produce an expense outside of COGS to represent lost inventory as it would mean the COGS formula would not allow the closing balance to equal the inventory in the SOFP.

I apologise if this post is too long, and thank you in advance for any help.