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Plz reply - Inventory value

CA Aditya Modi (Associate Manager) (159 Points)

17 June 2011

Inventory Dr

To Provisions

This entry was passed by the company at the time of making the provision for incentive that may be payable to the party for meeting certain standards

But the standards were not meet and the company wants to reverse the provisions. But the inventory will go negative if the provisions are reversed.

What should the company do??????????????????

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15 Replies

DINESH VASHISHT (Manager) (72 Points)
Replied 17 June 2011

can u tell me, what kind of standards company wants to meet ?

Shruthi (PCC Student) (111 Points)
Replied 17 June 2011

Can you explain the scenario in detail. Cc you said the standards are not met, it means whether you may 've to return the Inventory back?

If the provision amount is only with respect to the contingent payment then it can ve.well e reversed.

Kindly explain the case in full??

Desi Mojito (Chartered Accountant) (142 Points)
Replied 17 June 2011

i dont think that the inventory value can be increased by creating a provision against it. It appears to be a contingent liabilty n creationof provision does not appear to be suitable enough.

Shruthi (PCC Student) (111 Points)
Replied 17 June 2011

Instead of having created a provision entry as

Inventory A/c Dr

To Provision A/c

you could 've created a provision entry like this

Party A/c Dr

To Provision A/c.

So that Subsequent Provision reversal when standards are not met will not affect the inventory value.

If you agree with this you will have to pass three entries subjecting to the amount of contingent payment.

1st: Provision A/c Dr

To Inventory A/c

(to the extent of such amount)

2nd: Party A/c Dr

To Provision A/c

(Rectification of wrong entry previously passed)

3rd: Provision A/c Dr

To Party A/c

(Now reversal of 2nd entry since standards are not met)

Aparna Raja K.C (Student) (520 Points)
Replied 17 June 2011

Provide a transfer entry...

Provsion (old) Dr.

to Incentives ( new a/c opened )

this will keep the velue of inventory intact :)

Rajnikant Vadigoppula (CA, CS And CMA Final) (919 Points)
Replied 17 June 2011

i think provision is an error

if it is error then it is a PRIOR PERIOD ITEM.

Provisions a/c

To Inventory ( upto the value of inventory

To Gain on Provisions ( transfered to P & l a/c)

Rajnikant Vadigoppula (CA, CS And CMA Final) (919 Points)
Replied 17 June 2011

yes i agree with aparna

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 17 June 2011

AGREE WITH APARNA

Prateek (B.Com(H) PGDBA CA Final) (436 Points)
Replied 18 June 2011

Can anyone tell me is PF Act applicable to wholesale traders dealing in Stationery Products,Computer dealers(like in nehru place),...can any one explain this to me

1 Like

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 18 June 2011

Originally posted by : Prateek
	Can anyone tell me is PF Act applicable to wholesale traders dealing in Stationery Products,Computer dealers(like in nehru place),...can any one explain this to me

twenty or more persons employed on any previous day will make the establishment liable to cover and pay under Provident fund.

arabinda (n.a.) (52 Points)
Replied 18 June 2011

Originally posted by : Prateek
	Can anyone tell me is PF Act applicable to wholesale traders dealing in Stationery Products,Computer dealers(like in nehru place),...can any one explain this to me

if such dealers are depositing the pf dues for their employees the such act also applies otherwise not

mudassar (Chartered Accountant) (25 Points)
Replied 19 June 2011

inventory dr

to provision a/c

is insane, how can u increase ur inventory value for a contingency, if it was a clause provided in the invoice/sale document, and its occurence was more likely than not, they should have raised a provision debiting the p&l a/c or the related exp as an o/s exp, if they start raising inventory values for contingencies, profits may be inflated/ deflated and it ll be hard to find a loss making unit .