If this stock is sold for some amount, say 100,000, then we will pass the following journal entries:
1. Cash A/c Dr. 100,000
Prov. for slow moving items Dr. 600,000
To Stock A/c 700,000
2. Prov. for Slow Moving Items A/c Dr. 100,000
To Proft & Loss A/c 100,000
The first journal entry signifies stock worth 700,00 being sold for 100,000 and the resulting loss of 600,000 being debited to Provision for Slow Moving Items.
The second journal entry signifies that actual loss on account of Slow Moving Items is 100,000 less as compared to earlier estimate of 700,000. Hence this is a kind of profit of 100,000 which is credited to Profit & Loss A/c.