Inventory and stock
Stock write-off: meaning, GST credit and examples
Definition
Stock write-off: A stock write-off removes goods that can no longer be sold or used, such as expired, damaged, lost or stolen stock, from your records at what they cost.
Also called: inventory write-off, write off stock, expired stock write-off, damaged stock, stock loss
When stock is written off
Stock is written off when it will never be sold or used: it has expired, been damaged beyond sale, been lost or stolen, or been used inside the business, for example as samples. A write-off takes the quantity out of stock and records its value at cost as a loss.
A write-off is different from a write-down. A write-down lowers the value of goods you still expect to sell, such as last season's stock now worth less than it cost. A write-off removes the goods completely. If the supplier will take the goods back, a return for a credit note is usually better than a write-off.
Write-offs and GST input tax credit
Section 17(5)(h) of the CGST Act says input tax credit is not available on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. So if you claimed GST credit when you bought goods that are later written off, that credit generally has to be reversed. Rule 56 of the CGST Rules also expects most registered businesses to keep stock accounts that show goods lost, stolen, destroyed or written off. Your accountant will handle the reversal, so give them a clear record of each write-off.
How to record a write-off
A write-off note should answer what, how much, why and who approved it.
- Move the goods away from saleable stock at once.
- Record the product, batch, location, quantity and reason.
- Value it at what the goods cost, not at their selling price.
- Give each write-off a number and keep a signed note.
- Note the GST rate, so the credit to reverse can be worked out.
- Review the reasons each month: repeated damage or expiry points to something to fix.
Worked example
Writing off expired chilli powder
A spice distributor finds three lots of chilli powder past expiry: 40 kg in all, bought at ₹220 a kg. The write-off is 40 × ₹220 = ₹8,800 at cost. If 5% GST was charged on the purchase and claimed as input credit, the credit to reverse is ₹8,800 × 5% = ₹440. The note lists the lots, the quantity, the value and the reason, and a copy goes to the accountant.
In managemate
In managemate, write off one lot, the rows you select, or every expired lot at once, with a reason: Expired, Damaged, Lost or stolen, Used internally or Other. The stock leaves straight away, valued at the cost of the lots it left, and the write-off gets a WO- number and a printable note showing each line's value at cost and an estimate of the GST input credit to reverse, worked out from that cost and the product's GST rate, for your accountant to confirm. Inventory's Write-offs tab lists every note, and Reports show stock written off for any period. If the supplier will take the goods back, return the lot to them for a credit note instead.
Where this shows up in managemate
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