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Provision for obsolete stock

AS 2368 views 2 replies

Learner

Student

409 Points Joined September 2007

Why do we need to create provision for obsolete stock? is it mandatory or management discretion? Many products are lying in stock for morethan 3 years but still it can be saleable and usable condition... If we make a provision for obsolete stock, what would be the actual effect on business?

Replies (2)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

Obsolete or slow moving stock does not generate revenue to the business and also the funds of the co gets piled up in tghe working capital. So in order to protect the interests of the co, an provision of obsolete or slow moving stock is requried to be ade in the books of the co. this is upto the discretion of the management & as advised by the auditors of the co.

However in the future if the such obsolete & slow moving stock is being realised, then the provision made earlier can be reversed.