Here you can find some tips on bad and doubtful debts provision calculation:

• Provisions for inventories should be made as a result of impairment or as a result of valuation to net realisable prices in place of purchase prices or manufacturing costs.

• The principle of prudent valuation requires updates of asset valuation => update of asset value (IAS 2 par 28,33)

• Recorded prices of inventories - purchase or manufacturing costs - may not be higher than the net realizable prices (NRV) (IAS 2 par. 9)

Practice - examples of errors:

• Most often inventories are overvalued

• No provision is calculated in respect of slow-moving or obsolete inventories

• Reference of evidence prices is not made to net realisable prices

• Provision estimates are unrealistic, not related to the actual values of the written down inventories and the their useful life.

Errors can arise when:

• You have no precise idea how to calculate provisions for inventories (e.g. provision for merchandises)

• You do not refer your calculation of the provision to what happened to the inventories in the past (aging analysis, written-off inventories, etc.)

• You have scarce information and this is the only thing you can rely on in calculating the provisions on inventories

• You have no opportunity for an independent verification of your calculations

S.Ekman ? General Manager
FY AUDIT/24iValue

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