Question

A $27,000 mutilated coin (tokens used for gaming) inventory was deemed to be worthless in the month. They wrote off the inventory and shipped them to a vendor for destruction. The vendor paid $600 for these coins (scrap value) and charged the company $1,000 for the destruction service. Our net payment was $400 ($1000-$600). The Director asked me if he should offset the $600 against the destruction expense and record the destruction expense at $400.

What would you do?

Answer 1

No, the destruction expense of $1000 cannot be offset with the sale value of inventory. Sale value of inventory of $400 should be recorded separately and destruction expense of $1000 should be charged to profit and loss account

Journal entry for sale of inventory to vendor:

Cash Dr 600

Sales Cr 600

(Loss on sale will come automatically in trading account nof $27000-$600 = $26400)

Journal entry for destruction expense:

Destruction expense Dr 1000

Cash Cr 1000