Sometimes, goods might be unsaleable for one of the following reasons:
- the goods might be lost or stolen
- the goods might be damaged, and therefore worthless
- the goods might become obsolete
When goods are lost, stolen or disposed of, the business will make a loss on them, because they will have zero sales value.
Similarly, if goods become obsolete and have to be sold at a reduced price, the business might make a loss, if the clearance sale value was less than the original purchase price.
As I mentioned, when I blogged about the prudence concept goods which have bcome worthless or worth less than their original cost, whould be written down to:
- nothing if they are worthless/disposed of
- their “net realisable value”, eg, their clearance sale price, if they are to be sold off at less than their original cost.