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Star Management reported a loss on inventory of $50,000 in inventory in the first quarter and...

Star Management reported a loss on inventory of $50,000 in inventory in the first quarter and was not expected to recover the loss. However, in the third quarter, $60,000 was recovered. Because Star Management did not expect to recover the loss, how much of the loss of inventory should be reported?

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Answer #1

As per IFRS or US GAAP, if any recovery of loss is to be adjusted to the respective account through which it is written off at the time of loss.

Since in the given case Inventory loss of $ 50,000 /- is recorded as Loss on Inventory is debited by reducing the value of Inventory $ 50,000 /-.

So on Recovery of the same, we need to Reinstate the Inventory balance to the earlier value.

At any time recovery should not be recorded as more than the original cost of inventory, that is $ 50,000 /-.

So Recovery will be recorded by reversing the journal entry earlier posted as

Debiting the Inventory $ 50,000

To Loss on Inventory $ 50,000

Balance $ 10,000 is recorded as other Income.

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