Why do we need to create provision for obsolete stock? is it mandatory or management discretion? Many products are lying in stock for morethan 3 years but still it can be saleable and usable condition... If we make a provision for obsolete stock, what would be the actual effect on business?
2 Replies
Giridhar S Karandikar
(Team Lead)
(7548 Points)
Replied 26 March 2012
Obsolete or slow moving stock does not generate revenue to the business and also the funds of the co gets piled up in tghe working capital. So in order to protect the interests of the co, an provision of obsolete or slow moving stock is requried to be ade in the books of the co. this is upto the discretion of the management & as advised by the auditors of the co.
However in the future if the such obsolete & slow moving stock is being realised, then the provision made earlier can be reversed.
Harshal Fifadra
(Chartered Accountant)
(1489 Points)
Replied 26 March 2012
Agree with Mr. Giridhar ...
ok...
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