More Related Content Similar to 18.8 Recording stock write downs (20) More from VCE Accounting - Michael Allison (20) 18.8 Recording stock write downs2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Example: a business has stock costing $1,000 with a Net Realisable
Value (NRV) of $700. Recorded in the General Journal:
18.8 RECORDING STOCK WRITE DOWNS
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 140
Stock Control [A] 140
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
Stock Control [A]
31 Jan Balance 1000 31 Jan Stock loss 140
Stock Write Down [E]
31 Jan Stock control 140
Stock Write Down [E]
31 Jan Stock control 300
Stock Control [A]
31 Jan Balance 1000 31 Jan Stock write down 300
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 140
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 140
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 300
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 300
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 300
Stock write down of 10 bicycles to
lower of cost and Net Realisable
Value (Memo 1)
3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.8 RECORDING STOCK WRITE DOWNS
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
11 Jan Stock write down [E] 300
Stock Control [A] 300
Stock write down of 10 units of
Product X to lower of cost and Net
Realisable Value (Memo 1)
Narration:
• “Stock write down”… to “lower of cost
and NRV”…
• Type of stock (e.g. “bicycles”)
• No. units written down (e.g. 10)
• Memo #
4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.8 RECORDING STOCK WRITE DOWNS
Why is a Stock Write Down classified as an Expense?
Stock Write Down
Characteristic #1
• There is a reduction in
inflows of economic benefits
• The inventory will be sold for
less than its cost
Characteristic #2
Assets
(the Stock Control asset)
Characteristic #3 Owner’s Equity
Expenses
1. Outflows of economic benefits or reductions in inflows of economic
benefits
2. That will either:
• Assets
• Liabilities
3. With the ultimate effect of:
• Owner’s Equity
5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Example: on 31 December a business has 200 umbrellas in stock
with a cost of $10 each
Stock Control [A]
31/12 Balance 2000
Stock Control [A]
31/12 Balance 2000
Item Quantity Cost $ Value $
Umbrellas
Item Quantity Cost $ Value $
Umbrellas 200
Item Quantity Cost $ Value $
Umbrellas 200 10
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
18.8 RECORDING STOCK WRITE DOWNS
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Example: as it is summer, the firm has had trouble
selling the 200 umbrellas.
On 31 December the owner decides to reduce the
selling price of each umbrella to $8
An advertisement for $200 will also be taken out in
the local newspaper to advertise the new price
18.8 RECORDING STOCK WRITE DOWNS
Cost = $10
NRV = Estimated selling
price of stock
Selling, marketing
and distribution
costs$8 $1 $7=
7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.8 RECORDING STOCK WRITE DOWNS
or
In Accounting, the rule for inventory valuation is:
So the coats will be valued at…
Inventory should be valued at the lower of:
Cost
Net Realisable
Value (NRV)or
Cost = $10 NRV = $7
There is a
Stock Write Down of $3
8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
The amount of the stock write down will be $3 per unit
There are 200 units
Total = $3 x 200 = $600
Cost Net Realisable Value
18.8 RECORDING STOCK WRITE DOWNS
Cost = $10 NRV = $7
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.8 RECORDING STOCK WRITE DOWNS
Cost = $10 NRV = $7
Cost Net Realisable Value
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock write down of 200
umbrellas to lower of cost and
Net Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock write down of 200
umbrellas to lower of cost and
Net Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock write down of 200
umbrellas to lower of cost and
Net Realisable Value (Memo 1)
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock write down of 200
umbrellas to lower of cost and
Net Realisable Value (Memo 1)
10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
18.8 RECORDING STOCK WRITE DOWNS
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock Control [A]
31 Dec Balance 2000 31 Jan Stock loss 140
Stock Write Down [E]
31 Jan Stock control 140
Stock Write Down [E]
31 Dec Stock control 600
Stock Control [A]
31 Dec Balance 2000 31 Dec Stock write down 600
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
The Stock Card would be affected as follows:
18.8 RECORDING STOCK WRITE DOWNS
Cost Net Realisable Value
Item Quantity Cost $ Value $
Umbrellas 200 10 2000
Item Quantity Cost $ Value $
Umbrellas 200 7 1400
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3 600
General Journal
Date Particulars
General Ledger Subsidiary Ledger
Debit Credit Debit Credit
31 Dec Stock Write Down [E] 600
Stock Control [A] 600
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3 600
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3 600 200
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3 600 200 7
Stock item:
Umbrella
IN OUT BALANCE
Date Reference Qty Cost Value Qty Cost Value Qty Cost Value
31/12 Balance 200 10 2000
31/12 Memo 1 200 3 600 200 7 1400
12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex18.5 X
Ex18.6 X