Obsolete inventory
Obsolete inventory is stock that can no longer be sold at normal prices, such as outdated models or expired goods. It must be written down to net realisable value, or written off entirely if unsellable.
FrameworkIAS 2
What it is
See it move
A retailer holds obsolete winter coats that originally cost €24,000. It expects to sell them at clearance for €14,000, spending €1,000 on shipping and promotion, giving a net realisable value of €13,000. Since €13,000 is below the €24,000 cost, the inventory is written down by €11,000 to a new carrying amount of €13,000.
The formula
Variables
- Write-down (€)
- Original cost of the inventory (€)
- Net realisable value (€)
Obsolete inventory is written down by the amount its cost exceeds its net realisable value; the new carrying amount is the lower of the two figures.
Check yourself
A retailer holds obsolete smartphone cases that cost €9,000 to purchase. It expects to sell them through an online clearance sale for €6,000 in total, and will incur €500 of listing and shipping costs to do so. What write-down should be recognised, and what is the new carrying amount?