There are many subtleties in accounting that do not arise very often in practice, but it is the knowledge of the order of actions in such "narrow" moments that forms the expert's expertise. These issues include the reflection of the write-off of illiquid assets.
First, let's figure out what it is. Illiquid assets are property, inventory items that cannot be used in the activities of an enterprise and are subject to liquidation, and, accordingly, to write-off. It also includes finished products that could not be sold.
Why are illiquid assets formed?
There can be many reasons for the formation of illiquid assets: re-profiling of an enterprise, as a result of which existing stocks remain unclaimed, decreased demand for products, loss of customers, increased competition, change in trends, errors in production planning, loss of quality goods during long-term storage, etc.
What to do with illiquid assets?
The options can be very different and depend on the product category. For example, you can:
- announce a discount on such products;
- hold a sale;
- make illiquid a related product, which will help increase sales of another product;
- to sell food products in bulk for farms, for livestock feed;
- sell a product on the market at a discounted price;
- sell the product after revision with a decrease in value.
How to write off illiquid assets in accounting and tax accounting?
Unrealized product balances in accounting can be written off to other expenses as obsolete property. In tax accounting, the cost of written-off inventories can be attributed to the cost of production that did not produce products.
The decision to write off goods due to obsolescence is made by the manager, but to substantiate this decision, a commission is created from materially responsible persons who must:
inspect materials,
fix in the documentation the reasons for their unsuitability for further use for their intended purpose, evaluate the possibility of using for others needed or for implementation on the side, assess their market value (this is done together with specialists from economic services).
If, at the conclusion of the commission, it is established that it is impossible to further use the refinery, then they are subject to disposal. In accounting, their cost is included in other expenses:
Dt 91 - Kt 10 - morally obsolete materials written off
They are reflected in the balance sheet at the end of the reporting year minus the provision for the decline in the cost of tangible assets. This reserve is formed at the expense of the financial results of the organization for the amount of the difference between the current market value of inventories and their actual cost, if the value of the latter is higher. That is, if during the year the illiquid products were not written off and remained in the warehouse at the end of the year, it is necessary to create a reserve (see clause 20 of the Methodological Guidelines):
Dt 91-2 - Kt 14 - a reserve was created for the reduction in the cost of inventories
In subsequent reporting periods, as the products for which the reserve has been created are written off, the reserved amount will be restored by reverse posting:
Dt 14 - Kt 91-1 - the reserved amount has been restored
But it should be remembered that tax accounting does not provide for the possibility of creating such a reserve, and therefore the amount of reserve deductions is not considered an expense from the point of view of taxation. Therefore, a permanent difference arises, requiring the recognition of a permanent tax liability in accounting (in accordance with clause 7 of PBU 18/02).
Similarly, in tax accounting, income and the amount of the restored reserve are not recognized, so as products are written off and the reserve is restored, a permanent tax asset must be reflected in the accounting:
Dt 99 - Cr 68 - a permanent tax liability has been accrued for the amount of the reserve
Dt 68 - Kt 99 - reflected a permanent tax asset in the part of the restored provision
Behind any reason for the formation of illiquid assets, even if at first glance it seems purely external, independent of the company, in fact, there are imperfections in the processes of business organization. To identify them, you can use the simple but effective Five Whys methodology. She tells us that if you formulate a problem and ask the question “Why?” 5 times, you will find its root. This method is best used in brainstorming discussions.
