Inventory obsolescence: challenge the provision at SKU level

The professional obsolescence examination examines whether the carrying amount of merchandise inventories remains justified. I would start by understanding the products, their cycle and the valuation methods. An old stock of goods may remain salable; Recent stock of goods may already be unusable if a product has changed. Seniority thresholds are selection tools, not a universal conclusion on loss of value.

Due diligence must distinguish physical quantity, recorded cost and realizable value. An accurate accounting inventory does not guarantee salability. A commercial projection does not prove a net realization price. Data must be linked to sales, margins, necessary costs and specific constraints. The results can affect EBITDA and NWC, with consistency to be preserved in the pricing mechanism.

I would request quantities, unit cost, location, age, movements, sales and accounting value adjustments or provisions for charges by reference. The units must be consistent and the data reconciled in accounting. Internal transfers can reset a date without making merchandise inventory more recent. Code changes can mask the continuity of a reference. You need to understand how the system calculates seniority.

Inventories of third-party goods, consigned or held for others, require verification of ownership. Stocks of safety goods and replacement supporting documents may require different logic than finished goods. A single method applied to all categories risks producing erroneous conclusions. Exceptions must be identified and supported, not simply removed because management considers them strategic.

I would compare merchandise inventory on hand, consumption and subsequent sales, then look at no-movement or low-margin SKUs. A post-closing sale can provide an indication of price, but its comparability and terms must be assessed. An unusual liquidation is not necessarily representative of the entire stock of merchandise. Customer commitments and production needs may support certain quantities, subject to their reality.

If IAS 2 applies, the assessment involves in particular the comparison of cost and net realizable value. It is necessary to verify the accounting framework actually applicable to the target. The costs necessary to complete or sell must be considered according to the relevant rules. The financial approach does not replace a technical inspection when the condition of the product requires specific expertise.

The stock of goods costs 100 k€. The expected revenue from the sale is 70 k€ and the costs required to sell are 5 k€. In this simplified example, the net realizable value is 65 k€ and the required total loss 35 k€. An accounting adjustment of value or provision for charges of 10 k€ is already recognized: the additional adjustment is therefore 25 k€. It is necessary to verify that these amounts relate to the same set of data.

I would ask for proof of price, costs and quantities. If the price depends on an uncertain future sale, the conclusion should reflect this limitation. If completion costs are necessary, they must also be examined according to the applicable method. Arithmetic does not validate business assumptions.

Transactional processing must be consistent with QoE and NWC. Depreciation may affect historical results and the value of merchandise stocks retained at closing. The definitions and periods determine the presentation. Deducing 35 k€ without taking into account the 10 k€ already recorded would overestimate the complement in this case.

I would prepare a register per family or significant reference: set of data, reason, proof of completion, accounting adjustment of value or provision for charges and proposed supplement. Sensitivity can be useful when prices are uncertain. A distinction must be made between accounting value adjustment or provision for substantiated charges, potential exposure and data limits. Extrapolating a technical or commercial observation to all references requires justification.

The management discussion can explain a long sales cycle or a product change. The elements received must be compared with the history. The report should also consider whether the accumulation of merchandise inventories is a recurring symptom of production or purchases, as this issue influences the future need for cash beyond the accounting value adjustment or provision for charges at a given date.

AI can reconcile references, commercial documents and management comments. I would test the replaced codes, units and internal transfers. The file must retain the calculations and report missing evidence. A classification of obsolescence without product knowledge is a professional avenue for examination.

For Solenor or another tool, the useful gain is a faster professional examination of risk references and a transferable file. The judgment on salability remains based on operational elements and the applicable accounting framework. Technology should not turn a sales hypothesis into certainty.