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

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.