On 1 December, Muskoka Timber’s lumber inventory has a cost of 41,000 and a net realisable value of 38,700. The company’s policy is to charge inventory write-downs within cost of goods sold and to credit Inventory directly. Record the write-down.
On 1 December, Muskoka Timber’s lumber inventory has a cost of 41,000 and a net realisable value of 38,700. The company’s policy is to charge inventory write-downs within cost of goods sold and to credit Inventory directly. Record the write-down.
Answer
Dr Cost of Goods Sold 2300; Cr Inventory 2300
Accounts - Cost of Goods Sold - Inventory - Loss on Inventory Write-down - Allowance for Inventory Decline - Retained Earnings - Accounts Payable Write-down = 41,000 − 38,700 = 2,300. The policy puts it in Cost of Goods Sold, not a separate loss account, and credits Inventory directly rather than an allowance. Retained Earnings is only touched by a prior-period error, and Accounts Payable has nothing to do with a valuation change.
Lyryx IFA Vol 1 §7.3, §10.3–10.4; Lyryx IFA Vol 2 §12.5, §18.2, §18.4; Lyryx Intro FA §8.6