Question

Do you include Increase to slow moving inventory provision in the income statement (single step or multiple steps)? Why

Answer 1

Provision for slow moving inventories is made to indicate the effect of such inventories on the expenses incurred to indicate the sale of those when compared to other fast moving inventories.

Any increase in such provision made means there are more inventories identified which are considered to be slow moving when compared to last year. Thus increase should be added to the provision and shown under the income statment. SHowing the increase becomes important to indicate

- whether the inventories considered slow moving in the last income statment still continue to be in that category.

-whether there are more inventories being added to the list, which will increase the holding cost of such as well as the opportunity cost forgone beacause of the money invested in buying them.

Thus at every balance sheet date the provision should be reviewd and any increase/decrease should be accounted for. This will help the users understand whether company has taken suffienct steps to sell such inventory and the expenses company has to bare beacuase of holding them.

Hope this helps you understand . Thank you