DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Demo Stock inventory write-off


#1

I have bought demo radio and had to install them as demo in to cars. I can not sell these unit again and want to write them off. Is this the correct way or should I keep them as assets and depreciate them rather?
If I write them off to what account to I do the write-off to “expense of liability”?


#2

Your question is a good one, @durkpotgieter. To some extent, the answer depends on tax regulations in your jurisdiction concerning allowed depreciation.

Generally, of course, a fixed asset is property with an extended useful life, frequently considered to be something over one year. If your demo radios will be used for a long period, it could be appropriate to classify them as fixed assets and depreciate over the expected (or statutory) life. If you get rid of them prior to the end of their depreciable life, you may have to recapture depreciation. There might also be a loss on disposal if you expected them to have a salvage value but cannot sell them for that amount. You could also make a profit if you sell them for more than book value. The point is that you would treat them no differently than store fixtures, vehicles, machinery, etc. Any profit or loss from the disposal must be reported somehow in a current account. Whether you create a special account for that purpose or lump the transaction into miscellaneous income or expenses probably depends on how frequently you do this and the size of the transactions compared to other categories in your chart of accounts.

You might also treat them as an ordinary expense, if that is legal where you are. Under your use case, they are a form of advertising and a necessary cost of doing business.

I’d consult my accountant on the regulatory aspects, but either approach could be financially correct.


#3

Thanx @Tut. So I started a new company and purchased 5 Demo stock to market a show… I did cash purchase of the inventory into stock. This is why I asked the question. The unit will not be removed from the cars and will probably never be sold.
I will ask my accountant as well to make sure.


#4

I think that, of all the options available, putting the demo units into inventory stock is the one that will cause the most problems. You will always think you have 5 to sell. They will never move. Inventory is goods held for sale, and that is not why you have these radios. Sounds like trade show expense to me.