SELF-SCRAP OBSOLESENCE?

[Brasco]

It's been a long time since I self scrapped obsolete inventory, I would always just put any discount to 687, I am just wanting to make sure if I remember the gist of it. Say I buy a transmission and GM true cost is $2,500.00....I buy it from the giant dealer down the road for $2,200.00, I would code it to 242 on the invoice at $2,200.00 and then both receipt and post it on the RO at GM true cost $2,500.00....and basically that leaves $300.00 for me to self scrap obsolesence correct? I already know I could put the $300 to 687 instead, that's not what I'm getting at, just wanting to make sure if what I said is correct accounting wise if I want to actually scrap instead? Thank you.

[PartsPlant81]

It's been a long time since I self scrapped obsolete inventory, I would always just put any discount to 687, I am just wanting to make sure if I remember the gist of it. Say I buy a transmission and GM true cost is $2,500.00....I buy it from the giant dealer down the road for $2,200.00, I would code it to 242 on the invoice at $2,200.00 and then both receipt and post it on the RO at GM true cost $2,500.00....and basically that leaves $300.00 for me to self scrap obsolesence correct? I already know I could put the $300 to 687 instead, that's not what I'm getting at, just wanting to make sure if what I said is correct accounting wise if I want to actually scrap instead? Thank you.

Correct. You can use the $300 you saved from 24200 as a scrap fund and throw out $300 worth of inventory without throwing anything off in the 24200 account in accounting.

[Brasco]

Thanks, I thought that was correct, just for some reason my mind was a little foggy on the coding to 242 and receipting amounts, been one of those days.

[Ichabod Farquar]

I would caution you in doing self scrap this way as may open you up to some scrutiny. You need to make sure the powers that be are aware of what you are doing.

Why?

1 - That $300 purchase discount will be difficult to find later, unless you keep copies of the RO and the purchase invoice with a listing of the self scrap part numbers and value totals.

2 - How are you going to relieve inventory? Minus adjustments or a self created return?

3 - If you minus adjust the parts there will be a report - depending on DMS - that may show inventory adjustments. Be certain you can justify the adjustments.

4 - This could easily be interpreted a theft by an outside inventory company, if those previously mentioned powers that be are not informed.

5 - Depending on your office / accountant, you may want to take the 687 discount and make a 688 inventory adjustment in the amount of the self scrap. This way the amounts don't have to match to exact penny.

6 - There may be tax benefits by donating the parts or writing them off in a specific way - not certain about this.

Just food for thought....

[Brasco]

All valid points Ichabod, thanks for the input.

[understatedone]

This is how I do it when I do this or anything under cost


242 gets the full true GM cost, same for when billing out on RO or INV
687 gets difference from GM cost to what you paid and posted via the PO you used for cost minus deal

That will grow your 687/688 accounts and then if you want to scrap some things bill them out on an invoice straight to account 688 to relieve inventory and eat up the extra you made from buying cost minus. As said above if you only scrap $250 in your example that extra $50 will go towards profit at the end of the month as well so you don't need to use exact amount. Hopefully that makes some sense