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[BizTalk] You can't depreciate inventory

I’m helping a friend with this subject, thought I’d share it while
it’s on my mind, whets left of it.

Some store owners and their accountants will depreciate inventory on
the books when it gets old.

If inventory is 1 million and you tell the accountant to make it
$800,000, then the difference of $200,000 will lower inventory

$200,000 goes to cost of goods sold.

This lowers your profit for the year and lowers your income tax.
What a neat idea!

But #1

Many folks don’t then go into the POS program and find enough
inventory to lower the cost there. You’d have to go item by item and
adjust your cost DOWN (and hopefully the selling price so it would
move) on old inventory so the POS program’s total inventory matches
the accounting program.

You want the POS program to now be equal to $800,000 because both
QuickBooks and POS should have matching inventory levels.

If both the accounting program and POS program have now the same
levels of inventory, you’ve done it correctly.

But #2

The IRS says it’s against the law to depreciate (lower value) of
inventory. You can depreciate stuff that sits in the store
(showcases, safes, tools) but not inventory that was bought for

Most folks get away with it but if audited you probably won’t.

I just wanted to let you know.

Below is the IRS document that states it simply, go to page 5, half
way down.

David Geller

Continue from:

more reason why you can’t depreciate or write off old jewelry and
keep it

A few days ago I sent out an email about “You can’t depreciate
Inventory”. Almost immediately I had a few people email me back
telling me I was mistaken. Two people told me to consult a CPA that I
was wrong. Specifically saying “You may not be able to depreciate it
but you just write it off.”

Every time I send out an email blast that seems controversial, 2-3
people unsubscribe themselves from my blog. One did almost

True to my word I contacted a few CPA’s. Also a friend of mine, Lynn
Baldwin, who works with The Edge Retail Academy sent me two
documents, one conflicted with the other. But one article was from a
very distinguished newsletter “Business Advisor Report” from the law
firm: Reish, Luftman, Reicher & Cohen. The specific newsletter if
you’re interested is at, page 3 and is
written by Robin Gilden. I don’t think she is employed there, just
wrote the article.

The first two paragraphs tells the whole store of the article and
it’s titled: Problems and the second paragraph is titled Solution.
She sites a Supreme Court statement/decision:

Under her “Problem” paragraph she says:

"However, according to the Supreme Court, a taxpayer is not
entitled to a deduction until the taxpayer has sold or otherwise
disposed of the inventory. How should a business take a deduction
for excess or obsolete inventory?" 

Then her "Solution’ paragraph she says: "Solution: There are three
possible ways that a business can claim a tax deduction on excess or
obsolete inventory:

  1. a bona fide sale,
  2. destruction of the inventory, or
  3. donation to an appropriate charity."

So I spoke to my personal CPA and some friends who are CPA’s and an

Here’s the long & short of it:

  1. Many jewelers reduce the cost of inventory because it either:
    a. Won’t sell and so it’s worth less in their mind.
    b. They need/want the tax break it would give.

  2. What tax break? Simple, when you sell something, it removes the

from inventory (on the balance sheet) and sends that amount to the
Profit & Loss statement right to Cost of Goods Sold. If lower
inventory value it also sends that “lowered amount” to cost of goods.
If you increase your cost of goods you lower your profit. Lower
profitless taxes.

  1. But jewelers who “artificially” lower their cost of an item keep
    it in stock. If you read Robin Gildens’ report or read the "Solution"
    paragraph above you’ll see that you can’t keep it in the store! You
    must get rid of it by:

    a. Selling it (the price sold doesn’t matter)
    b. Destroying it so it’s un-usable or un-saleable.
    c. Giving it away to a charity.

  2. No where it says you can take a deduction and keep it.

So let me tell you how people do get to take the reduction and get
to keep it (because I just knew you wanted to write me :slight_smile: ) and how
many accountants think it might work.

It doesn’t work for jewelers especially in this period of time of
increasing metal prices. If you had to buy another piece just like
the one you just scrapped or reduced in cost it would cost you MORE
than the one you bought a few years ago and just scrapped or lowered
in price.

This write off ability that is allowed is more geared towards the
electronics industry.

Let’s look at “Best Buys”, an electronics retailer. Their margins
are typically 35.7% and have a turn of an amazing 6.5 times a year!
To see the stats of their industry, go heRe:

So lets say a few years ago they buy a 780 dpi television (now this
is “old” in the TV field) for $650 and it sells for $999 (35%

They have a bunch in stock and Boom! The new 1080 dpi’s come in and
these now sell for $799 and cost them $520.00. Better product at a
lower retail price.

Going to be a hard time to sell these older suckers. So to make them
enticing to consumers and benefit themselves this is what they’ll

  1. Reduce the selling price of the older TV’s below the selling price
    of the new 1080 dpi’s and sell them for $749.00, fifty bucks less (my
    example). They will reduce their cost on the books from the original
    cost of $650 down to the $520, the cost of the newer TV’s.

  2. That’ll send immediately $130 (difference in cost of old and new

to cost of goods sold and reduce gross profits and thus net profit.
They get an immediate tax advantage.

  1. Although they’ll make less money when they sell the 780 dpi TV’s
    they will be able to sell and unload merchandise that won’t sell next
    year and save some tax money.

  2. They still have the TV in stock and its replacement TV costs them
    less than the original when they bought new ones. Jewelers hardly
    ever have this situation today.

That’s how it’s done in retail. For jewelers to take a “write off” it
must leave the store.

My CPA explained this to me in detail as well did the article I
quoted above. He also told me if you ever get a deep audit this could
cause great problems. I happen to know this personally. I have many
relatives in my family who have been in the jewelry industry.
Supposedly I’m a 14th generation jeweler. Almost 40 years ago this
relative’s father passed away and left the jewelry company to the
son. The dad had been depreciating inventory every year to reduce his
income taxes. He did over do it a bit and if he had lived a few more
years he would have had a negative inventory level. That’s

After taking over the son hired a tax attorney and tax accountant to
look at the books and then went to the IRS and said “I inherited a
problem and want to get this cleaned up with any taxes we owe you.”

A few years later told me he had a repayment agreement then with the
IRS that took 10 years to pay off. He’s now a very successful multi
store jewelry retailer and I gotta tell you, he lives now by the “get
rid of it once it hits a year old” method and he’s stronger for it.

100% of the few folks who wrote me told me they do this all the time
and many said their accountant does their taxes so it must be OK.

Most accountants don’t understand the jewelry industry and look at a
"typical" retail store. We are not an electronics retailer where the
next great thing that comes in is:

  1. Better
  2. Less expensive.

I understand about doing something now and getting forgiveness later
as they say.

Last paragraph, honest. If something cost $100 and sells for $200
and is old and you lower the cost to $50 to take the “write off” this
is what you get:

  1. A cost of goods increase of $50, which lowers your net profit by

  2. At a 35% tax rate, that $50 COG saves you $17.50 in cold hard
    cash when you pay your taxes.

  3. It’s still in stock and may not sell for another year (or more).

  4. I just showed you it’s really not “kosher”.

But if you discount it heavily, even down to your cost of $100 and
sell it, this is what you get:

  1. Instead of $17.50 (the tax savings) you actually get to deposit
    in the bank $100! That’s almost 6 times more actual money.

  2. Your showcase is now leaner, no old, stale, cluttered inventory
    to show your customers AGAIN!

  3. You now have $100 TODAY (not April 15th when you pay your taxes)
    to pay bills and buy newer more exciting inventory that would sell
    better this year than that old crap you still have in stock.

  4. Paying your bills now gives you more credit with vendors to buy
    good stuff.

  5. Do this over and over and I’m sad to say, all you’ll be left with
    is more cash and less debt. Oh well.

Yep, now awaiting a few more drop outs of my email Blog and some
more letters. Some of you asked me to check it out and check it out I
did. Feel free to forward this to jeweler friends and your

David Geller
Director of Profit

hi david,

i am not sure why you believe that lower of cost or market is not a
valid method for valuing inventory. i prepared thousands of tax
returns in my day and i applied lower of cost or market to all of
them that carried inventories. i worked for a major accounting firm
in new york city for many years. just go to the irs’s web site, look
up pub 538 and you will see the answer right there under inventory.
it even gives examples of how to apply the law, just as i have

you also continue to use that word depreciation. the example of the
family inheriting the business and using the word depreciation. it
is called the lower of cost or market. the method tells you the
law–the LOWER of COST or MARKET. but, you had best document how
market was determined. again, as i said the other day, on your
schedule C, please choose the lower of cost or market as your
inventory valuation method.

here’s a quick example:

October 28, 2008

Some taxpayers who value inventories on the first-in, first-out,
lower-of-cost-or-market (FIFO-LCM) method think that it gives them
unfettered ability to write down inventory as needed to control
taxable income. That’s not necessarily so, as the Tax Court
demonstrated yesterday.

A California Dodge dealer took over $300,000 in LCM markdown
deductions on used cars in 1999 and 2000. The tax law specifically
allows this method, but not only with restrictions. The Tax Court
summarized the rules this way (citations omitted; my emphasis):

"A taxpayer using the lower of cost or market method of valuing
inventory may write-down a decline in the value of merchandise from
its cost to a lower market value in the year in which the decline
occurs, even though the goods have not been sold. (i put this in
quotes so you can see the law as i state it). This is referred to as
an inventory write-down. If the market value of the inventory at the
end of the year is lower than its cost, the taxpayer writes down the
basis of the inventory to the lower market value, thereby reducing
gross income. Deducting a reserve for price changes from the
inventory or writing down inventory based on mere estimates,
however, is not allowable. Further, we will not disturb the
Commissioner’s determination disallowing a taxpayers’s write-downs
without objective evidence substantiating an item-by-item comparison
of cost-to-market value. In short - you have to be able to
demonstrate that each item has declined in value, and you can’t just
deduct a general valuation or obsolescence reserve.

as for your citation stating “a very distinguished newsletter
"Business Advisor Report” from the law firm: Reish, Luftman, Reicher
& Cohen", a newsletter for closely-held businesses, their owners and
advisors, it is merely a newsletter for their clients. it does not
mean it is widely distributed. the woman writing the article is not a
CPA and she is not correct. she just states according to a supreme
court ruling. which one? i would check that supreme court
reference–get the case and i will gladly look at it. the law is very
clear. i sincerely doubt that the supreme court would be involved
here because the treasury dept has already said the lower of cost or
market is the law so they would not be arguing for the taxpayer to
have sold or otherwise disposed of the item before being allowed the
tax deduction for the loss in value. it only took me 2 minutes to get
you a case argued before the tax court. i might also add that it is
VERY RARE for the supreme court to ever hear a tax case.

i’m not part of your blog, but you are also not a cpa. i’m not
saying i cannot learn something new, because i can. but, even if i’m
wrong here, which i sincerely doubt, i think you should have a little
more formal training in accounting before you start dispensing
that can give people the wrong understanding of the law.
go to go to pub 538. go to inventory valuation and you will



Thanks for taking time to explain your side. When I have people whom
I believe have more experience than I do, I check things out. I had
3-5 people disagree with me, you being the highest level of education
and credentials in the accounting field that disagreed.

So I went further. I know with I’m guess 30 years of experience
you’ll have a hard time saying “Now I get it, jewelry is different.”

The lady I quoted from the article is in fact an attorney in
California. Here is a small blurb on her on her website:

"Robin Gilden focuses her practice in corporate, partnership and
individual taxation, transactional business matters and international
taxation. She also has experience in mergers and acquisitions,
executive compensation and the application of the deferred
compensation rules of section 409A.

Prior to entering private practice, Ms. Gilden worked in the tax
departments of two Fortune 100 companies. Ms. Gilden has lectured on
partnership tax matters before the USC Tax Institute and the
California Society of CPAs. She also teaches a partnership tax class
at Loyola Law School."

This is info about her at the company website:

And the page describing her, it’s a large law firm in LA

Posted on the main page:

“With nearly 600 attorneys in offices across the country practicing
in all areas of corporate and business law, complex litigation,
intellectual property and regulatory and government affairs, Venable
is one of America’s top 100 law firms.”

Looks like this stuff is in fact her/their specialty.

I wrote her and asked her (based upon your email) “Where can I see
the Supreme court ruling that you quoted?” She emailed me the link
and here it is:

Here’s the title:

U.S. Supreme Court
Thor Power Tool v. Commissioner, 439 U.S. 522 (1979)
Thor Power Tool v. Commissioner of Internal Revenue

No. 77-920

Argued November 1, 1978

Decided January 16, 1979

439 U.S. 522

The Supreme court indeed does hear tax cases after all. It’s a long
read but I did read it. To bring it down to size this company makes
power tools, had a lot of excess inventory that wasn’t moving. Just
like jewelry, they had too much for too long. The company president
did what jewelers do “Its not being sold, I’m going to reduce the
cost to a lower number. In 'general accepted accounting principals’
I’m going to say, from my experience, it’s worth X.”

The accountant agreed with the boss. They took some write offs
immediately and later when it didn’t sell again, did some more.

The nuts and bolts of the Supreme court decision is the idea was
fine overall (as you mentioned) but they didn’t have any proof how
much the items would sell for in scrap nor sell for later to their
customers and what the lower price/cost would be. They didn’t prove
that if they REPLACED their inventory that NEW inventory being bought
that would cost them a lower number. It was a guess and the court
said you had to have provable numbers. This is where the court said
you can’t KEEP IT in stock is you have no proof. They disallowed the

A little below is two short paragraphs I copied from the Supreme
Courts decision for you.

But Anne, more importantly I was contacted by a jeweler who’s
accountant told him to do exactly what I wrote about, lowering cost
of items because its old and not selling and to send the difference
to an expense or cog’s account. His email is the 3rd paragraph down.
This applies to you.


From this language, the regulatory scheme is clear. The taxpayer
must value inventory for tax purposes at cost unless the “market” is
lower. “Market” is defined as “replacement cost,” and the taxpayer is
permitted to depart from replacement cost only in specified

The Tax Court found, however, that Thor made no sales and kept no
records. 64 T.C. at 171. Thor’s management simply wrote down its
closing inventory on the basis of a well educated guess that some of
it would never be sold. (David Geller note heRe: this IS WHAT
JEWELERS DO) The formulae governing this write down were derived from
management’s collective “business experience”; the percentages
contained in those formulae seemingly were chosen for no reason other
than that they were multiples of five and embodied some kind of
anagogical symmetry. The Regulations do not permit this kind of
evidence. If a taxpayer could write down its inventories on the basis
of management’s subjective estimates of the goods’ ultimate
salability, the taxpayer would be able, as the Tax Court observed,
id. at 170, “to determine how much tax it wanted to pay for a given
year.” [Footnote 13]

Anne I then got this email from a respected jeweler I’ve known from
1989 and he’s still in business:

“I had an accountant that did that “favor” for me years ago. Of
course, I got audited. When the IRS guy came he looked over the books
and asked to use the phone. He called his boss and said in essence
"They have it on their books just like we have it on ours. What
should I do?” The agent then asked me how my taxes were prepared. I
told him I took the years ledger sheets down to the copymat, made
Xerox copies of them, and gave The accountant those.

He asked for a letter that said that. I cut him the letter. He said
that I was going to get a bill for the taxes due, but no penalties
or interest. That was exactly what I got.

However, the accountant got a “Client List Audit”. It darn near put
him out of business because he lost something like 80% of his
clients, including me.

The accountant lowered the inventory number to show how smart he was
and make me (supposedly) happy.

I told him it was wrong, he said that it was right.

I said OK, you’re the pro, and signed the return.

When the IRS came they agreed with me. That is why I didn’t get
dinged for interest and penalties.

Because they disagreed with him, they did a “client list audit”.
That darn near killed him.

Mark Twain said that when the legend becomes bigger than the fact,
print the

legend. OK for the idiots that believe the media. But like you keep
pointing out, what they hear and “have been told” is in conflict
with the law. And the IRS is going to gaff you on the law and what
you have heard doesn’t count."

The ONLY way you could lower value on jewelry inventory and send it
to cogs or expense and actually win with the IRS is like what
happened in the very late 1980’s. If you were in jewelry back then
you’ll know gold went up to $850 an ounce and predictions were $2000.

It hit about $859 and then dropped like a rock, settling around $350
for many years.

My brothers, a jeweler also, told me in that year he bought $10,000
of assorted chain, he thus paid the highest price for chain. So when
he still had this over priced chain and he could order MORE chain,
now at $500 an ounce, he could with an order and a paid invoice from
1992 show that the chain can be replaced for half of its original
cost. Then he could do, legally, what you mentioned.

But for the past many years gold, platinum and diamonds have done
nothing but GO up. It would be hard pressed to prove our inventory is
now worth less.

Anne, if you indeed do this in your practice for any JEWELERS (only
area I consider myself to have expertise) all I can say is

“you were damn lucky.”

David Geller


i am not sure if you understand how complex the tax code is and that
there are many attorneys that specialize in areas because of the
breadth and depth of the tax code. i am assuming that is the case
with ms gilden, as she is incorrect with regard to valuing inventory
and it does NOT look like it’s her specialty. you want a proper tax
code answer, ask an accountant, not a lawyer. we all know that.

i never said the supreme court does not hear tax cases. i said it is
very rare, and indeed it is. if you don’t trust that, then go to the
listing of supreme court cases and you will see yourself. the tax
court resolves virtually all problems. i am extremely familiar with
the thor power tool case. that is why i know how to value inventory
using the law–the lower of cost or market, and its proper
implementation. had i known that was the one, i could have dealt with
this immediately. perhaps you do not understand that the case is
saying EXACTLY what i have been saying all along. here is what the
case says:

“Although conceding that “an active market prevailed” on the
inventory date, petitioner made no effort to determine the
replacement cost of its “excess” inventory, and thus failed to
ascertain “market” in accord with the general rule of the
Regulations.” it also says: “The implementing Regulations require a
taxpayer to value inventory for tax purposes at cost unless “market”
(defined as replacement cost) (added by me–the lower of cost or
market) is lower. In 1964, petitioner, a tool manufacturer, wrote
down in accord with “generally accepted accounting principles” what
it regarded as “excess” inventory to its own estimate of the “net
realizable value” (generally scrap value) of the “excess” goods
(mostly spare parts), but continued to hold the goods for sale at
their original prices. It offset the write-down against 1964 sales,
and thereby produced a net operating loss for that year.”

david, what this is saying is that they merely took a reserve and
did not systematically calculate the value of each piece and write it
down PERMANENTLY in their inventory. this is fine for generally
accepted accounting principles but not taxes. that is why in ALL my
previous posts i stated that you had to document how you wrote each
item down–that means document the proof that it is worth less than
you paid. if you can’t then you can’t write it down. perhaps you are
saying what i have been saying and did not realize it? your brother
is exactly what i have been trying to convey all along. he was
allowed to write his gold down because the market was lower than
cost. this is not to be brushed aside–it is the crux of the matter.
you say what i “mentioned.” i’m not mentioning it–i’m saying it’s
the law. did you not realize that? i’m not saying people–go ahead
and write down your inventory because you feel like it.

the court affirmed the tax law and that is that each piece of
inventory must be written down to its lower of cost or market and not
just take a blanket amount off for taxes. this is in pub 538 on the
irs’s web site. the accountant who prepared your 1989 friends’ tax
return was wrong. if you look at my prior posts they said you better
have proof and document it. not what this accountant did.

i am extremely curious why you will not go to the irs website and
look this up instead of calling upon people to try to back-up your
position. you can go on and on with what you are saying in your posst
david, but i pray that anyone reading your blog or this orchid blog
will trust that the statements i made previously, as a cpa who
prepared and reviewed thousands of returns, are correct and will go
to, pub 538 and read the very simple language that explains
exactly how inventory is to be valued.

i have never said that jewelers have much that they can write-down.
that was never the discussion nor my premise. this was a theoretical
discussion and i stated the law. and, with metals pricing only going
up, there is little ability for a write-down, no matter what the law.
what i did in practice, david, was write things down based on
verifiable proof that they were no longer worth what was paid for
them, just like your brother. it is what i have stated all along and
you seem to have tried very hard to prove incorrect. the lower of
cost or market. just like i stated, just like your brother.


i have decided to make an example with variations i consider
possible to illustrate the law. and by the way, NO, jewelry is not
different. anyone who carries an inventory can choose to use the
lower of cost or market, except those using last in first out
(LIFO), but that is way more advanced than this discussion is
intended to be.

example: harry decides feather jewelry will be the next big rage, at
least that’s what the mags are saying. so he designs a pair of
feather earrings in brass and sends them to the caster and makes
2000 pair in sterling. he pays $8 per pair. he figures they’ll
retail for $35 and wholesale for 17.50. things are going great and
he unloads 1500 pair and then, whoops, he can barely GIVE the stuff
away. so now he’s stuck with 500 pair sterling earrings. he makes
every attempt possible, but all he can get is $5 per pair from
anyone willing to buy them. he’s been selling a few here and there
for $5 a pair. now he has to decide whether to scrap them or sell
them for $5 or hold onto them, hoping things will get better. if he
scraps them, he knows they are worth $4 based on the weight. no
matter which he chooses, he has a loss. he doesn’t want to hold onto
them, because he knows about fads.

if harry had made no attempt to ascertain what he could sell them
for but just made an arbitrary decision to write them down to $5 (as
in the california dodge dealer i included in one of my posts and
david’s 1989 friends’ accountant example), no tax write-down would
be permissible. however, the fact that he can document that he can
get $5 a pair when he tries to sell them, he can write-down
PERMANENTLY all the pair remaining in the inventory at the end of
the year to $5. if, at the end of the next year, he still has, say
300 pair around that have been written down to $5 and he has tried
his best to unload as many as possible, he now decides that some
time after the new year he will scrap them (and we’ll assume he can
still get $4 to make the example easy), he can further write down
the inventory by another $1 because it can be proven that this is
all they are worth. replacement cost is not valid when there is no
market for something. if it costs $8 to replace them, it is not used
in the calculation when no one wants the item and it can be shown
that it only has a value of $4 even if you pay $8. but, let’s say
during the year the value of scrapping has gone up to $6 because of
metal price increases, when you scrap it you will actually have a
profit, because you wrote them down to $5 the previous year. you
will pay tax in the year you scrap them, on the profit above $5 a
pair. if i have omitted a scenario to which you would like an
answer, please feel free to ask.

in all of david’s examples, none of the companies did a proper
systematic application of lower of cost or market to each inventory
item. if you do, as in david’s brother’s example, where the gold had
gone down in value and he could now replace it for less, he can
prove it and he can write it down. it’s the proof that is needed.
that’s why the law is called the LOWER of COST or MARKET (LCM). not
the lower of cost and some haphazard write-down or “depreciation”,
as in one of david’s other posts. market is a verifiable number, not
a made-up number. perhaps you did not realize that market meant
doing work to prove what market value is and then applying it to
each specific item of inventory. a lower of cost or market
calcuation requires a lot of work. btw, if anyone wants to know,
depreciation’s rough definition is the SYSTEMATIC write-down of an
asset used in a trade or business based on expected life or decline
in usage or value. note that it is systematic and it is expected to
decline in value, generally due to aging, and it is used in running
the trade or business. inventory does not fit in that category.
inventory is held for resale and one would expect it to be sold,
unlike assets that are used in the running of a business.

all LCM calculations, for tax purposes, must pass the thor power
tool rule. it’s the first thing we are taught, or at least i was. i
can still hear the question echoing in my head (does this
calculation pass the thor power tool rule) from the senior partner
at the accounting firm which employed me at the time.

so, based on your previous post of feb 7 david, you state my premise
all along, about how you are to write down inventory. i am assuming
you just didn’t understand what i meant when i said it had better be
documented. for some reason you think that i was saying to just
write it down, when all along i said it needed to be documented.
jewelers can write things down, as i and your brother have shown
you. what bothers me most, is that your examples and statements all
proved what i was saying and you then added a jab at the end saying
"i was damn lucky." i wouldn’t presume to tell you how to do an
intricate setting when you have countless years of experience and i
have very little, yet you were willing to tell me i basically did
not know what i was talking about when i have 25 years of accounting
experience and thousands of tax returns for major corporations to
back my statements up. i just wish you had asked more questions
instead of trying to prove me wrong.

as an aside, ms gilden appears to specialize in partnership
accounting, and partnerships with inventory are unusual.


Thanks Anne for confirming what my subject was, which is you can’t
write off jewelry inventory and I should have added

  1. Today
  2. And for the past 5 years
  3. As metals/diamonds have gone up.

My post was targeted to those who have THIS year and the past THREE
years lowered the cost of their inventory. Costs are not going down,
they are going UP. That’s what I was saying.

By the way, you’re not quite a mind reader yet. I indeed read the
538 pamphlet from IRS as well as they supreme court ruling. I read
all of that stuff.

Thanks for your paragraph, confirmsing what I said all along.

I have never said that jewelers have much that they can
write-down. that was never the discussion nor my premise. this was
a theoretical discussion and I stated the law. and, with metals
pricing only going up, there is little ability for a write-down, no
matter what the law. what I did in practice, David, was write
things down based on verifiable proof that they were no longer
worth what was paid for them, just like your brother. it is what I
have stated all along and you seem to have tried very hard to prove
incorrect. the lower of cost or market. just like I stated, just
like your brother." " 

David Geller


You have said “pretty much” what I said, you did a great job of
explaining it.

You had one mis-type and one “not the same”


You start of with make a gazillion brass earrings, then said you are
left with500 silver ones.

“Not the same”

Your example is fine except if you buy a ring in 2004 for $500 and
it won’t sell in 2011 AND if you buy a new one today it would COST
$850 and SCRAP value is $650 then it can’t be bought lower than your
original cost.

You ignored the fact I posted that a jeweler almost got into hot
water for doing what your brass earring examples suggested, which was
correct by the way.

My point is plain and simple. With materials going sky high, if you
can’t sell it and you write it off as you have explained, I’m here to
tell you it won’t fly. It costs more to buy it today.

So I’ll let you have the stage now and sign off with what 3 phrases
that has kept me having a happy marriage with my wife

“Yes dear, you’re right, I’m sorry”


Good Night

i think you misread what i wrote, david. i said he made A brass pair
which he sent to the caster and had the caster make 2000 pair of
sterling. many jewelers make a master in brass for a caster. i’ve
done it. read the post again. the jeweler had 2000 pair cast
sterling, not a gazillion. i did not have them cast brass and change
during the example.

this all started because you used the word depreciation related to
inventory and i stated the law about how inventory is valued.
honestly, i did not expect a debate about the law, as i have so many
years experience related to that particular provision in the law. if
you only knew how many hours i devoted to that very section of the
law over the years, it would make you cringe. not only did we have
to deal with the tax calculations and workpapers, but the GAAP ones
also, and the timing differences that would arise. i just wanted
people to NEVER use the word depreciation in connection with
inventory and to know the proper terminology and how to take full
advantage of the ability to “write-down” inventory to the Lower of
Cost or Market (LCM) WHEN IT IS NECESSARY or justifiably prudent
(meaning it can be documented), and not as a game or tactic to
deprive the government of their tax revenue. it appears you may have
been focused on the immediate–meaning current climate as it relates
to metals. mine was not. mine was an educational discussion to be
applied to ANY time in one’s business. i did not realize you had a
more immediate focus to your discussion.

somehow i think you took it as a personal attack on what you wrote.
my first post was merely l and it was truly just meant to
add to the discussion and people’s knowledge bank related to
inventory. i thought you would like that. that’s why i wrote “hope
this helps some” at the bottom.

in your example of the $500 ring, of course you cannot write it
lower than cost. there’s no where in that example that even indicates
the value was ever lower. in mine, there was. that’s the difference.
i do not know the jeweler example to which you are referring, but i
assure you i could give you the correct answer if i did.

so i guess i see why you’ve stayed married and it has been a good
tactic for you.