Stock Adjustments
Guideline: Own policy
Description:If there is ne thing in the Motor Industry that is an absolute certainty, it is that your stock suffers the effects of depreciation on a continuous basis. When you buy parts and sell them within a short period of time, this is when your business makes the most profit. Obviously, the longer the parts sit in the shelf, the more depreciation, they attract and the chances of selling them become fewer. If they sit there for too long, they fall into the category called Obsolete Stock. Generally speaking, the Parts Stock holding is reviewed on an annual basis and the parts that have been in stock for some time will have a portion of their cost written off to reduce their price. This financial write off is deducted from the profits of the Parts department and is shown within the management accounts as an expense called Stock Adjustments.
Example: Discussion: aaaSome businesses choose to conduct Stock Adjustments on a monthly basis, some quarterly and some annually. There are no strict guidelines for this practise, but the more frequently you conduct the exercise, the more your attention will be focussed upon the disposal of slow moving items and of course the trend of True Parts Stock Turn.
Related Terminology:
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