Markdown of goods is made upon detection of deterioration of its original qualities. In this case, the firm accepts to lower its initial cost. The procedure for the devaluation of commodity stocks is set out in the Regulations approved by the order of the Ministry of Economy and the Ministry of Finance dated December 15, 1999 No. 149/300.
What is markdown
Markdown of the entire product and its individual groups is one of the ways to solve problems associated with the sale. Such problems can appear if there are too large leftovers of seasonal demand products in the warehouse, if the product goes out of fashion, its shelf life expires, if the product is not in demand among buyers. The scale of the markdown should be set as a percentage of the original price, it will depend on the type of product. For example, significant reductions in prices for durable goods, a prestigious assortment may mean a loss of prestige for buyers or be a sign of poor quality. When determining the scale of markdowns, they are guided by the following rule: it must correspond to the minimum amount of decrease in value that can attract the attention of buyers and induce them to buy a discounted product.
A markdown from an economic point of view is a discount to a consumer from a previously valid price. A markdown from an accounting point of view is a decrease in price as a result of a revaluation of the value of an item.
Markdown schemes for goods
Markdown can be carried out according to the following schemes. In accordance with the first scheme, a one-time large-scale price reduction is carried out. Its advantage is to attract a lot of customer attention. According to the second scheme, multiple, rolling markdowns are carried out, which will avoid too much reduction in the value of goods. There are two approaches to the timing of markdowns. In the first case, it is necessary to delay it as much as possible so that you can sell the maximum possible number of units of the product at the original price. In the second case, to increase the turnover of capital, the markdown is carried out immediately after the peak in sales of the product passes. Markdown will be effective if the scale and timing is right.
Pledged goods, goods in reserve or in custody are not subject to markdown.
How to register a markdown of goods
The decision on the discount of goods must be made by the manager. For its implementation, a commission is created, which includes a deputy head, chief accountant, price economist, commodity expert, and other specialists. The markdown of goods is carried out on the basis of the inventory data. All information is reflected in the inventory act. This document is created in two copies, it must be signed by all members of the commission, financially responsible persons and approved by the head. In accounting, the markdown of goods is reflected in subaccount 6 "Losses from depreciation of inventories", account 94 "Other operating expenses". In accordance with paragraph 7 of clause 5.9 of Article 5 of the Taxation Law, the payer of income tax does not change the book value of inventories, income or costs as a result of depreciation of inventories.
