Serbia: Measurement of inventory, write-downs for impairment of assets
Guidance provides that write-down of inventory to its net realizable value in class 9 represents impairment of assets
Measurement of inventory, write-downs for impairment of assets
Guidance issued by the Ministry of Finance provides that the write-down of inventory to its net realizable value in class 9 (of the chart of accounts) represents an impairment of assets in terms of the corporate income tax law.
The guidance—Opinion no. 011-00-489/2021-04(2) (29 November 2021)—concerns an interpretation of the requirement under IAS 2 – Inventories, to measure inventories at the lower of cost or net realizable value and that the impairment of inventory of work-in-progress and finished products is accounted for in class 9.
Regarding the interpretation for financial system purposes, the opinion concludes that a decrease of the value of inventory of work-in-progress and finished goods with a write-down to net realizable value in class 9 represents an impairment of such assets and is covered by provisions of Article 22v of the corporate income tax law.
KPMG observation
In the opinion, the Ministry of Finance did not consider the provisions of Article 26 of the corporate income tax law—the measures that regulate the deductibility of costs of inventory. In addition, it is not clear how the Ministry of Finance linked the write-down of inventory to the impairment of assets as defined by Article 22.
As a reminder, Article 22v defines the impairment of assets as the difference between the carrying value of an asset and its estimated recoverable amount. Impairment expenses are deductible in the tax period in which such assets are disposed of, used or damaged due to force majeure.
Opinions issued by the Ministry of Finance are binding for actions by the tax authorities. Accordingly, tax professionals expect that the tax authorities will treat the write-down of inventories in class 9 as an impairment expense that is deductible, in accordance with provisions of the Article 22v.
Read a March 2022 report prepared by the KPMG member firm in Serbia
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