How should spoiled or expired material be written off, and what happens if someone is found at fault?

At the warehouse of the "Asal Tong" confectionery workshop, three problems appeared at once at the beginning of November: the roof leaked and sacks of sugar got damp; one box of chocolate glaze passed its storage date; and newly arrived vanillin turned out to be defective when opened. All three are "unusable material", but each is written off by a different route. The difference is determined by the cause and the responsible party.

How does spoiled material differ from ordinary consumption?

In ordinary consumption, material works for the product or for household needs. Spoiled material works for nothing; it is a loss. That is why: - NAS No. 4 lists liquidation due to unfitness after the end of the storage period or physical and technological obsolescence, as well as damage, as separate disposal routes (paragraph 58) - NAS No. 21 accumulates losses from damage discovered during storage and other processes in 5910 "Shortages and losses from damage to valuables" (paragraph 245) - When a fact of damage to valuables is discovered, an inventory count is mandatory (NAS No. 19, paragraph 5)

What documents are needed?

• Certificate. For unusable equipment and household items, the working commission draws up a certificate stating the period of use, the reasons for unfitness and whether the item can be used in the business (NAS No. 19, paragraph 47). A certificate stating the cause and the responsible person is also drawn up for unusable containers (paragraph 48; NAS No. 4, paragraph 86)
• Technical opinion. An opinion that a valuable has been damaged may be obtained from the technical control department or the relevant quality inspections (NAS No. 19, paragraph 69)
• Measures. The documents submitted for writing off shortages above the norm and losses from damage must state the measures taken to prevent such cases (paragraph 69)

Depending on the cause, what journal entry is made?

NAS No. 4 gives the same procedure: a shortage is written off at carrying amount and stays in the losses account until the person at fault is identified; if no one at fault is found or recovery is impossible, it is charged to the financial result (paragraphs 91, 92).

How much is recovered from the person at fault: carrying amount or market value?

This is where many people go wrong. The write-off is at carrying amount, but the amount of damage is calculated at the market value in effect in that region on the day the damage was discovered (NAS No. 21, paragraph 246). To determine market value, the standard lists the following sources: a price obtained in writing from the manufacturer, an authorised dealer or a commodity exchange; the foreign-currency value on the date of purchase, recalculated using the ratio of Central Bank exchange rates (if documented); prices published by authorised state bodies or in the mass media; the price of an identical or similar asset sold widely; a report of a valuation organization.

If the two values differ (paragraph 203): - Market value higher than carrying amount: Dt 4730 (market value), Ct 5910 (carrying amount), Ct 9320 (difference) - Market value lower than carrying amount: Dt 4730 (market value), Dt 9430 (difference), Ct 5910 (carrying amount)

How much can be recovered from an employee and in what order is determined by labour law. This article is only about the accounting entry.

Example: three cases at the "Asal Tong" warehouse

Amounts are hypothetical.

1. Expired glaze, no one at fault. 40 kg, carrying amount 85 000 soum/kg: 40 × 85 000 = 3 400 000 soum. The commission recorded the expiry in a certificate; no one at fault was found.

2. Damp sugar, the storekeeper at fault. The storekeeper knew the roof was leaking but did not move the sacks. 10 sacks at a carrying amount of 420 000 soum each: 4 200 000 soum. The market value, based on a price obtained in writing from the sugar manufacturer, is 450 000 soum each: 10 × 450 000 = 4 500 000 soum. Difference 4 500 000 − 4 200 000 = 300 000 soum.

After November, the storekeeper's debt in 4730 is 4 500 000 − 1 500 000 = 3 000 000 soum.

3. Defective vanillin. 2 boxes at 300 000 soum each: 600 000 soum. The defect was discovered after receipt and a claim was sent to the supplier.

Across the three cases, raw materials worth a total of 3 400 000 + 4 200 000 + 600 000 = 8 200 000 soum left the warehouse, but only 3 400 000 soum became the workshop's expense: the storekeeper covers the sugar loss and the supplier covers the vanillin loss.

Checklist for writing off

• Was an inventory count held after the damage was discovered?
• Does the certificate state the cause, the possibility of use and the responsible person?
• If needed, was a technical control or quality opinion obtained?
• Do the documents state the measures to prevent such a case?
• Was the material first transferred to 5910 at carrying amount?
• Was the amount to be recovered from the person at fault calculated at market value, and is its source (written price, exchange, valuer) in the documents?
• If the defect is the supplier's fault, was a claim (4860) executed instead of an expense?