One among other accounting issues, which is inevitable, in the inventory area is having future value of inventory that is in doubt (e.g. inventory items that are used, out-dated models, damage or any other obsolete conditions.) A similar situation also arise in the case that we find inventory items have been over charged.

Letting such inventory accounted at its original cost is definitely not acceptable. Doing so, may result in overstated assets in the balance sheet and mislead its users. What should you do?

Inventory value may be varying a product to another; they could have hundred or even thousand different values in the retail businesses—depends on how many types of inventory you have in the warehouse. But they have thing in common: they are reported at cost (i.e. the cost of goods sold.) Occasionally, however, it becomes necessary to report inventory at an amount that is lower than cost. This happens when the future value of the inventory is in doubt. How? Read on…