Near-Expiry Inventory Write-Down to Net Realizable Value
Writing down finished goods inventory to net realizable value when product shelf-life proximity means the goods can only be sold at a discount — the most frequent inventory impairment event in FMCG.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cost of Sales — Inventory Write-Down to NRV (Near-Expiry) | Expense (+) | 1,200,000.00 | - |
| Allowance for Inventory Obsolescence — Near-Expiry | Asset (-) | - | 1,200,000.00 |
💡 Accountant's Note
Under IAS 2 / ASC 330, inventory is measured at the LOWER OF COST AND NRV. For perishable FMCG products (food, beverages, personal care with use-by dates), products approaching their shelf-life minimum lead to NRV below cost. NRV = estimated selling price in the ordinary course of business MINUS estimated costs to complete and sell. For products within 90 days of expiry: retailers typically require at least 2/3 of the product's shelf life remaining when delivered — anything with less than that cannot be sold through normal channels and must be: (1) sold to discount/clearance channels at a significant markdown, (2) donated to food banks (recorded at cost as a charitable donation), or (3) destroyed. The NRV write-down is the difference between carrying cost and the recoverable amount through the secondary channel (net of any destruction costs).
Practitioner & Systems Framework
💻 ERP Architecture
ERP shelf-life management modules (SAP Batch Management, Oracle Lot Management) track the manufacture date and use-by date of each batch. Automated reports flag batches within threshold periods. The write-down is calculated by aging bracket: 90–120 days to expiry (potentially clearance-channel disposal), 0–90 days (destruction or donation). The allowance method (contra-asset) is preferred over direct write-down to allow tracking of actual disposal outcomes vs. estimated NRV.
⚠️ Audit Flags
Auditors request the shelf-life aging report and test a sample of near-expiry batches: Is the NRV estimate based on realistic clearance channel pricing? Are batches beyond minimum retailer requirements properly identified? Subsequent disposal (what the company actually received for near-expiry goods after period-end) provides strong evidence of the NRV estimate's accuracy. Any inventory that expires unsold requires full write-off.
📄 Required Documentation
Shelf-life aging report by batch and SKU, NRV calculation (estimated clearance price vs. cost), disposal channel analysis (clearance, donation, destruction), physical write-off records for expired goods, allowance for obsolescence rollforward, and subsequent-event disposal price confirmations.
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