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19 July 2016 Is allowance for obsolete inventory a direct expense ?

19 July 2016 yes, any expenses may be in the form of allowance on TRADING ventory should be treated as direct expenses

19 July 2016 Sir,
I am asking whether it is treated as cost of revenue for the present year ?




19 July 2016 I think, you were saying some thing about "OBSOLETE INVENTORY"
As far as my understanding goes, obsolete refers to such inventory which is useless on account of change in technology or like reasons.....am i right?
Please let me know if you have some other conotation.....

19 July 2016 The same sir and I agree with your answer. But I shall know whether I can provide my client some referral evidence. AS 2 as well as IAS 2 is silent on classification of 'direct' or 'indirect' nature of expense.

19 July 2016 let me first clarify....inventory is a wide term...
in addition to stock, it has a host of items as spares, oil seals, gauges, o rings, wastage cloths, nut bolts, elecctric motors, fan belts.....
Now among all these, we can classify the same into stock...(Revenue item) and other i.e. repair and maintenance items.....
the obsolescence in stock will go to direct expenses, the same for repairs and maintenance items will go to indirect

19 July 2016 Sir,
Spares, oil seals, gauges, o rings etc. can be classified as inventory under the head 'machinery stores & spares' or 'consumables' and can be treated exactly the same as trade inventory. The question is, when I apply the format of Profit or loss account like this:

A. Revenue xxxx
B. Cost of Revenue (xxx)

whether I shall adjust the allowance for obsolescence under cost of revenue. I would answer 'yes'. What is your suggestion.

19 July 2016 The Cost of Revenue ; inter alia; comprises of Prime cost, Works on Cost, Administration on Cost, Selling & Distribution on Cost
Obsolete inventory cost will find its place under Works on cost and Administrative on Cost etc....depending upon the TYPE of item of inventory




19 July 2016 These are products used for works contract.

19 July 2016 yes, that is quite common in works contract

19 July 2016 Sir,
Is there any point or paragraph from IAS 2 or AS 2 that I can quote to substantiate the above view ?

20 July 2016 No any reference as such in IAS




20 July 2016 Thank you for spending your time on this.

21 July 2016 Yo are most welcome.



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