Inventory Write-Off: Evidence, Approval and Stock Records

An inventory write-off removes the carrying value of stock judged to have no recoverable value under the applicable accounting policy. Record the physical quantity, condition, recovery options and approval before finance determines the treatment.

In a factory, the starting event may be damage, expiry, an obsolete drawing, a cancelled customer order or a count shortage. These events need different investigations. A missing receipt can explain a stock variance; a damaged part may still be repairable. Neither should be treated as a completed write-off without that review.

Separate a write-off, a write-down and a stock movement

A write-down reduces recorded value when some value remains. A write-off commonly takes the relevant carrying value to zero. Physical disposition is a separate action: material may be returned, reworked, sold for recovery or disposed of through an approved process. Reducing its value does not make the pieces disappear from the store.

Within IFRS accounting, IAS 2 uses the lower of cost and net realisable value, with net realisable value based on estimated selling proceeds after relevant completion and selling costs. Finance should determine the framework, entries and tax treatment applicable to your business.

Check a partial-value example

Illustrative review: ten damaged components have a carrying amount of ₹100 each. Assume the supported net realisable value is ₹30 each after relevant costs. The original value is ₹1,000; the remaining value is ₹300; the reduction is ₹700. This is a partial reduction, not evidence that all ten units have been physically scrapped.

If repair is proposed, keep the repair estimate, likely usable output and authorised technical assessment. An unsupported resale price is not a reliable recovery estimate. Do not add expected recovery twice by using both a resale amount and the same material's scrap proceeds.

Build the disposition review record

For missing stock, check units, cut-off documents, material issues and transfers before treating the difference as a loss. For an obsolete component, check open orders and approved product revisions. For a rejected receipt, check whether the supplier will accept a return. “No movement for 90 days” can trigger a review; it does not prove zero value.

Keep the operating evidence in Optiwise

Use Optiwise inventory to follow item and store records, movement history and ageing. Link the affected quantity to its inspection or production context. Our configurable quality forms and role-based workflow let the team capture the result and supporting evidence before deciding its next use.

Follow the quality issue workflow for inspection and disposition, and reconcile closing stock when the concern starts with a physical-count difference. Keep finance's valuation decision attached to the review as a separate record.

Questions from manufacturing teams

Does slow-moving inventory always need a write-off?

No. Slow movement identifies an item to review. Check usable demand, condition, return options and supportable recovery before deciding its value.

Can a value reduction leave the physical quantity unchanged?

Yes. The example retains ten components while their recorded value is reduced. A later return, sale or disposal needs its own quantity record.

Who should approve inventory disposition?

Use the authorities defined in your business: the relevant technical or quality owner assesses condition, an authorised manager approves disposition, and finance determines accounting treatment.

Walk through an Optiwise stock review using the item, inspection record and disposition decision your team needs to retain.