Inventory impairment allowance: how to account for its reversal

A common error in audit practice: an organisation recognises an inventory impairment allowance within expenses from ordinary activities but records its reversal within other income.

The question

The answer

Under Federal Accounting Standard FSBU 5/2019 "Inventories", an impairment of inventories is recognised as an expense of the period in which the impairment allowance is created (increased). A reversal of the allowance reduces the expenses recognised in the same period.

The reversal of the allowance should therefore be recorded in the same accounts as its creation, using reversing entries.

If the inventories are used in ordinary activities, both the creation and the reversal of the allowance are recognised within expenses from ordinary activities using account 90 "Sales".