inventory measurement initial
historical cost = purchase price + cost needed to bring inventory to location / condition
inventory measurement ending
historical cost or NRV
NRV equation
expected selling price - selling costs
if NRV < cost
record impairment (loss)
if NRV > or equal to cost
keep historical cost
determining ending inventory includes
- physical stocktaking
- goods in transit from supplier
- goods in transit to customer
- DEDUCT what may be in warehouse but doesnt belong to us (eg. deposited goods)
impairment definition
loss of value of an asset compared with its book value
permanent (irreversible) impariment
Inventory: not counted
Recievables: bad debt expense (customer will 100% never pay)
recoverable (reversible) impairment
BOTH
- expense
- counter asset (removing value from asset)
recoverable inventory impairment entries
D: (693) impairment losses on inventories
C: (390) impairment on inventories
recoverable inventory impairment entries if reverses
D: (390) impairment on inventories
C: (793) reversal of impairment on inventories
recoverable inventory impairment entries if permanent
- dont count in inventory count
D: (390) impairment on inventories
C: (793) reversal of impairment on inventories
recievables initial measurement
nominal / invoice amount
recievables final measurement
nominal amount unless evidence of risk of non collection
example when we need to do impairment on recievable
Recievable = 200
Expected to collect = 150
Impariment = 50
irl examples impariments on recievables
- bankrupcy
- late payments
- financial trouble
irreversible recievables impairment entries
D: (650) bad debt expense (customer will defo never pay)
C: (436) Doubtful trade recievables
reversible recievables impairment entries
D: (694) impariment losses on recievable
C: (490) impairment of recievable
-> Reclassifying asset (dealing with people that can seperated between good or bad customers, here have to identify as sussy customers)
D: (436) doubtful TR
C: (430) TR
reversible recievables impairment entries if reverses
D: Impairment on recievable (490)
C: reversal of impairment of recievables (794)
D: Cash or TR
C: Doubtful TR (436)
reversible recievables impairment entries if permanent
D: (490) impairment of recievables
C: (794) reversal of impairment of recievables
D: Bad debt expense (650)
C: Doubtful TR (436)
Initially: Merchandise 2,700
Date Dec 31st
. The inventory details are as follows:
❖ Ending stock in warehouse today: € 5,500 at cost price. When we check our ending inventory we realize that there
is merchandise worth € 800 that may be unsellable (reversible loss)
D: Changes in Inv. 2700
Merchandise 5500
Impairment losses on inv. 800
C: Merchandise 2700
Changes in inv. 5500
Impairment of merch. 800
Our final inventory includes €1,500 of unsellable stock. At the beginning of the year, we recognized impairment of €1,000. What must we do at the year-end?
Cancel the impairment recognized at the beginning of the year and subtract the unsellable stock from the value of the final inventory.
