Why before disposing any items need to write off from system?

The lost / Thieft / Damage material to Write-off: We need to take action and prepare a  documents to return back form our Inventory list and cost control.So accounting action in which a capital asset is removed from the department’s accounting records. A write-off is normally undertaken when a capital asset is lost or stolen, when there is a long-term expectation that the asset will no longer contribute to the department’s ability to provide goods and services,

Write offs will occur due to the following:

Assets/Products being obsolete or non-functional

Assets/Product damaged unintentionally or intentionally.

Assets/Product which are stolen or lost.

The main reason for the write-off is to tally the System stock with the Physical stock.  This write off has to be approved from the Top Management.

For  example a credit to a customer, two weeks later the client's went into bankrupt and became unable to pay off the credit account. This uncollectible debt would be written-off and recorded as an expense in accounting.

Write-off any item from system = taking away expenses from the accounting registers. The necessity to write off inventory happens when it becomes obsolete or its market value has loose to a level less than the cost at which it is presently documented in the accounting records.

The sum to be written off should be the difference between the value recorded in accounting records of the inventory and the sum of cash that the business can acquire by removing of the inventory in the most optimal way.

Another method when some of item from inventory was still not recognized is to create a reserve for depreciationof inventory. This is a contra account that is paired with the inventory account. When items from inventory are discarded, the dissipation is accounted against the reserve account. The result of this approach is a more rapid recognition of inventory write offs, which is a more conservative method of accounting. The amount stated in the contra account is an estimate of probable write offs, usually based on whatever historical write off percentage the company has experienced.

The accounting for the write off of inventory is usually a reduction in the inventory account, which is offset by a charge to the cost of goods sold account. If management wants to separately track the amount of inventory write offs over time, it is also acceptable to charge the amount to a separate inventory write offs account, rather than the cost of goods sold. In the latter case, the account is still rolled up into the cost of goods sold section of the income statement, so there is no difference in either approach at an aggregate level.

It is not acceptable to write off inventory at a future date, once you become aware of such an item, nor can you spread the expense over several periods. Doing so would imply that there is some future benefit associated with the inventory item, which is presumably not the case. Instead, the entire amount of the write off should be recognized at once.

A key point is that writing off inventory does not mean that you necessarily have to throw out the inventory at the same time. Instead, it may make sense to hold onto the inventory, in hopes that its value will increase over time. It may also be necessary to hold inventory for a short time, while the purchasing staff is finding the highest price at which it can be disposed of. However, inventory that has been written off should not be retained too long, if the result is an extra investment in inventory storage, or an overly cluttered warehouse area that interferes with normal warehousing activities.

These will typically occur under the following scenarios:

(i)           Disposal by Sale :

External sale to a 3rd party at fair market value. This may have an impact on gain/loss on sale in the books of the selling party.  However the gain or loss will not have any budget implications though a valid COA will be required to process the transaction in Atlas AM.  The difference between the cash received and remaining NBV will be a loss or gain to the COA against which the asset is registered (at the GL level).

(ii)           Transfers/Donations within COMPANY and to Implementing partners/Other entities.

Donations relate to assets transferred with no expectation of funds being received. These could be assets transferred between two projects within COMPANY or transferred to an implementing partner or other entity.  Should the donated asset  have a NBV then the remaining NBV will be absorbed by the transferring out project as a transfer expense on disposal by donation.

(iii)             Write Off:     Write offs will occur due to the following:

·           Assets being obsolete or non-functional ;

·         Assets damaged unintentionally ;

·         or  Assets damaged intentionally (negligence)

·           Assets which are lost or stolen

For disposal by negligence, loss or theft, the amount authorized for waiver of investigation, reporting and write-off is NBV of $1,000; otherwise all write-offs require investigation by security and the documented statement from security attached to the RAD form before submitting to GSSC.

(iv)           Trade In:

Assets can be traded in for another asset of equivalent or different value.

Write-off: an accounting action in which a capital asset is removed from the department’s accounting records and is not sold for proceeds or traded in (unlike a write-down). A write-off is normally undertaken when a capital asset is lost or stolen, when there is a long-term expectation that the asset will no longer contribute to the department’s ability to provide goods and services, or when there is a permanent impairment due to theft, fire, destruction or obsolescence that renders the capital asset out of service