Stock that has been on the shelf for a year deserves a closer look. The question is what the business can still sell it for, how much is likely to sell and what it will cost to complete the sale.
For a company reporting under FRS 102, that evidence supports the year-end valuation. Age helps identify where to look: an older spare part may still have a market, while a recent purchase made for a cancelled order may already need a write-down.
Separate quantity from value
A stock count helps establish what is held and its condition. Valuation needs additional evidence about demand, achievable prices and the costs still required to make a sale.
Reconcile the stock listing to the ledger and investigate unusual quantities or costs before applying an impairment calculation. Otherwise, a valuation adjustment can conceal a quantity or costing error.
Ask sales and operations about discontinued lines, customer-specific items, damaged goods, superseded specifications and stock returned after unsuccessful sales. These explanations are often more useful than an age band alone.
Apply the inventory measurement requirement
FRS 102 measures inventories at the lower of cost and estimated selling price less costs to complete and sell. Its inventory impairment requirements are in paragraphs 27.2 to 27.4.
The valuation needs to reflect what the stock can realistically sell for, after the costs still needed to complete and sell it. The separate “recoverable amount” model for other assets is not the inventory test.
The estimate depends on the quantity likely to sell, the achievable price and relevant completion, repackaging, delivery or other selling costs. Where individual assessment is impracticable, grouping must meet the standard’s conditions for similar inventory; a broad percentage across unrelated stock is not a substitute for analysis.
Check both the price and the likely quantity sold
Suppose 300 units cost £50 each, giving a carrying amount of £15,000. Evidence supports a selling price of £38 per unit, with £5 per unit of costs to complete and sell.
If all 300 units can be sold on that basis, the supported value is £9,900: 300 × £33. The write-down is £5,100.
Now suppose the evidence supports sales of only 200 units at that net amount. If the remaining 100 units have a supported net scrap value of £3 each, the total is £6,900: £6,600 plus £300. The write-down becomes £8,100.
Both calculations are illustrative and assume the stated quantities and net proceeds are supportable. A recent sale of a few units does not establish that the entire holding can be cleared at the same price.
How much confidence can you place in the ageing matrix?
A consistent matrix can help identify risk across a large inventory population. Its percentages should reflect actual experience and current conditions, with specific adjustments where necessary.
HMRC’s guidance recognises that realistic formulae can be appropriate, but slow movement alone does not prove that value is below cost. Review whether the model remains a reasonable approximation for each relevant stock category.
Before carrying forward last year’s percentages, compare them with what actually happened to the stock. Were the expected quantities sold? Were additional discounts needed? Those results provide a useful challenge to this year’s assumptions.
Interpret sales after year end carefully
A sale after the reporting date may provide evidence about conditions that already existed at year end. Equally, a later price collapse caused by a new event may require different treatment.
Record the date, quantity, terms and circumstances of subsequent sales. Consider discounts, returns and selling costs rather than relying on the invoice headline. Explain why the evidence is relevant to the reporting-date estimate.
Could someone else follow the valuation?
A reviewer should be able to trace the proposed adjustment to the stock listing, the evidence on demand and price, and the calculation. Where judgement has been needed, explain the assumption and why it is reasonable. A percentage with no explanation leaves the next reviewer to repeat the work.
Reassess previous impairments at subsequent reporting dates. Where reversal is justified, the revised carrying amount remains limited to the lower of original cost and the revised selling price less costs to complete and sell.
The write-down itself does not release cash or remove the goods. Once the valuation is settled, management still needs to decide whether to sell, rework, return or dispose of the stock. Put a date and a responsible person against that decision, or the same goods may be on next year’s ageing report.
Reviewed 21 October 2026. This guide concerns ordinary inventories held for sale under FRS 102. Other inventory types and reporting frameworks may require different treatment.
Sources and further guidance
FRS 102: Sections 13, 27 and 32
HMRC BIM33145: slow-moving stock and valuation formulae