Obsolete inventory

[Devrient]

Hi everybody,

I have some difficulty to resolve this problem:

In 2007 the company bought more than 300 mobile phones for 50 000 euros.
The company wanted to incorporate a program to the phone and sell it . It didnt succeed and the manager give away a lot of these phones. The problem is that the inventory was never impaired so the value of 2007 is the same as 2012 and there is like 200 phones missing. They still have 60 phones in stock.
I would like to know how is it possible to write off the inventory.

I hope that you can help me

 

[kirby]

You have two events to record: missing investory and obsolete inventory

Missing: There are 300 less 60 phones missing = 240 missing. Cost was 166.67 euro each so record:
DR Shrinkage Loss Euro 40,000.08
CR Phone Inventory Euro 40,000.08

Obsolete - as you know a 5 year old phone today is near worthless - so estimate that the remaining 60 phones (total 10,000 euros) are worth say 20% of cost:

DR Obsolescense writedown Euro 8,000
CR Phone Inventory Euro 8,000

 

[Qbookslave]

Inventory must be carried at the lower of cost or market. The old phones may be worth something (if only scrap value) or nothing at all. Write off the loss of value (whatever that amounts to) to Cost of Sales/Inventory obsolescence.

 

[Devrient]

Hi,

Thank you both for your responses.
Yeah i wanted to do an inventory shrinkage then write off the inventory to 0 ( it is impossible to sell).

I don t know what is the procedure to inventory shrinkage ( do i need some proofs?)
I know that to write off, we can destroy or donate the 60 phones.

 

[kirby]

Write a memo in which you lay out the facts: 1) current inventory value based on 300 phones, 2) only 60 present now based on a physical inventory 3) remaining phones old and est value of zero. Then have your boss approve your proposed entries and then make entries.

 

[Devrient]

Thank you ill try to it that way