Inventory totals can hide items with no movement for months and value that may not be recovered at normal price. Aging is useful, but it starts investigation into cause, expected demand, item condition and disposal options.
Options before a blanket markdown
A spare part may remain unused for nine months because it protects an important machine against a rare failure. A seasonal product left three months after its season may be a stronger warning. Do not assign the same verdict to everything above an age threshold. Consider purpose, seasonality, expiry, substitutes and expected demand.
Suppose there are 200 units, selling at ten per month, with only four months before they become unsaleable. The current rate suggests forty units will sell in time, leaving 160 needing a different plan. This simplified operating estimate is more useful than labelling the entire item “slow” without quantifying exposure.
Possible actions include transferring stock to a higher-demand branch, creating a useful bundle or arranging a contractual supplier return. Calculate transport, discounts and commissions before choosing. A smaller early markdown may be better than waiting until no economic option remains, but compare expected net proceeds rather than assuming that is always true.
Accounting should separately assess recoverability under the relevant framework; a promotion does not replace a required write-down assessment. Purchasing also needs to fix the source of accumulation, whether excessive minimum quantities, stale forecasts or automatic replenishment continuing after sales stopped. Clearing stock without changing replenishment recreates the problem next season.
Age alone is not a verdict
IAS 2 measures inventory at the lower of cost and net realisable value. Not every slow item is impaired, and recent movement does not prove recoverability; expected selling price and completion and selling costs need evidence.
Slow stock versus unsaleable stock
- Segment items by last movement and category velocity.
- Review quantity, value, condition and open demand.
- Choose sell-through, transfer, return or purchasing-stop action.
- Assess write-down, approve decisions and monitor execution.
From movement history to an item decision
An item costing SAR 50,000 has not moved for 180 days. The team expects to sell half for net SAR 18,000 and return part to the supplier. The plan is documented and the accountant assesses the remaining net realisable value instead of assuming full cost recovery.
A transfer should not reset an item's age
Moving goods between warehouses is an operating movement, not a new purchase or an extension of shelf life. An ageing report based on the latest movement without distinguishing its type can make old stock look new after an internal transfer. Examine original receipt, batch and expiry alongside the last sale date.
The same applies to recoding or repacking. Preserve quantity traceability so a long holding period does not disappear. When deciding on clearance, separate sound, damaged, reserved and supplier-returnable units. One blanket clearance price may hide better options for some goods and greater risk for others.
Sources & further reading
Visit the original source to explore the concept and its wider context.
General educational content. Appropriate treatment depends on your business and accounting policies; consult your accounting professional when applying it to business records.
