Inventory Write-Down Calculator

About the Inventory Write-Down Calculator

An inventory write-down is required when the net realizable value (NRV) of inventory falls below its book (carrying) value. Under both US GAAP (ASC 330) and IFRS (IAS 2), companies must report inventory at the lower of cost or net realizable value, recognizing any shortfall as a loss.

Write-downs commonly occur due to price erosion, damage, obsolescence, or changes in customer demand. The write-down amount equals the difference between book value and NRV multiplied by the number of units affected.

This calculator helps you determine the total write-down amount for a given inventory item or lot. Enter the book value per unit, the estimated NRV per unit, and the number of units to see the total adjustment and its impact on the income statement.

Use the result to compare operating scenarios, pressure-test assumptions, and rerun the model when volumes, rates, or service targets change.

When This Page Helps

Failing to write down impaired inventory overstates assets and profits. This calculator ensures you recognize the correct loss amount, supporting compliance with accounting standards and giving management accurate data for pricing, purchasing, and disposal decisions.

How to Use the Inputs

1. Enter the book (carrying) value per unit of the inventory item.
2. Enter the estimated net realizable value (NRV) per unit.
3. Enter the number of units affected.
4. Review the write-down per unit and total write-down amount.
5. Record the adjustment as a charge to COGS or a separate loss line item.
6. Reassess NRV at each reporting date and reverse if values recover (IFRS only).

Example Calculation

Tips & Best Practices

• NRV = estimated selling price minus estimated costs to complete and sell.
• Under US GAAP, write-downs are permanent; under IFRS, reversals are allowed if NRV recovers.
• Assess NRV at the individual item level or by category if items are related.
• Document NRV estimates with market data, recent sale prices, or appraisals for audit support.
• Combine write-down analysis with obsolescence reserve calculations for comprehensive inventory management.
• Review raw materials NRV too — not just finished goods.

Accounting Standards for Write-Downs

US GAAP (ASC 330) uses the "lower of cost or market" rule with a floor and ceiling. IFRS (IAS 2) uses the simpler "lower of cost or NRV" test. Both require write-down when carrying value exceeds recoverable value, but differ on reversibility.

Impact on Financial Statements

A write-down reduces both the balance sheet (lower inventory asset) and the income statement (higher COGS or loss). This can affect debt covenants, tax liability, and management bonuses tied to profitability metrics. Transparent disclosure is essential.

Preventing Excessive Write-Downs

Proactive inventory management — demand forecasting, regular ABC analysis, and slow-mover identification — reduces the frequency and magnitude of write-downs. Companies that track aging and turnover by SKU catch NRV issues early before they become material.

Frequently Asked Questions

• What triggers an inventory write-down?

  A write-down is triggered when the NRV of inventory drops below its book value. Common causes include price declines, product obsolescence, damage, changes in technology, and reduced market demand.

• What is net realizable value?

  NRV is the estimated selling price in the ordinary course of business minus the estimated costs of completion, marketing, and distribution. It represents the actual cash you expect to receive.

• Where is the write-down recorded?

  Write-downs are typically recorded as an increase in COGS or as a separate inventory loss line item on the income statement. The balance sheet inventory value is reduced by the same amount.

• Can write-downs be reversed?

  Under IFRS (IAS 2), write-downs can be reversed if NRV subsequently increases, up to the original cost. Under US GAAP (ASC 330), once written down, the new lower cost becomes the permanent cost basis — no reversal is allowed.

• How often should I assess NRV?

  NRV should be reassessed at each reporting date (quarterly for public companies, at least annually for private companies). More frequent assessment is appropriate for volatile or perishable inventory.

• Is a write-down the same as a write-off?

  No. A write-down reduces the carrying value to NRV — the inventory still has some value. A write-off reduces the value to zero, typically when inventory is unsalvageable, expired, or destroyed.