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Obsolete Inventory

What is 'Obsolete Inventory'

Obsolete inventory is a term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company.

Also referred to as "dead inventory" or "excess inventory".

Explaining 'Obsolete Inventory'

Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic of poor products, poor management forecasts of demand, and poor inventory management. Looking at the amount of obsolete inventory a company creates will give investors an idea of how well the product is selling and of how effective the company's inventory process is.


Further Reading


Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management
meridian.allenpress.com [PDF]
… When obsolete inventory is identified and written off as a current-period expense, it reduces operating income … related MWIC to affect inventory transactions throughout the year more than they affect the year-end inventory balances reported on financial statements filed …

Lowest value principle implementation in inventory measurement of financial statements of the enterprisesLowest value principle implementation in inventory measurement of financial statements of the enterprises
www.richtmann.org [PDF]
… When obsolete inventory is identified and written off as a current-period expense, it reduces operating income … related MWIC to affect inventory transactions throughout the year more than they affect the year-end inventory balances reported on financial statements filed …

Detecting fraudulent financial reporting using financial ratioDetecting fraudulent financial reporting using financial ratio
www.emerald.com [PDF]
… When obsolete inventory is identified and written off as a current-period expense, it reduces operating income … related MWIC to affect inventory transactions throughout the year more than they affect the year-end inventory balances reported on financial statements filed …

Inventory management under financial distress: an empirical analysisInventory management under financial distress: an empirical analysis
www.tandfonline.com [PDF]
… When obsolete inventory is identified and written off as a current-period expense, it reduces operating income … related MWIC to affect inventory transactions throughout the year more than they affect the year-end inventory balances reported on financial statements filed …

Detecting false financial statements using published data: some evidence from GreeceDetecting false financial statements using published data: some evidence from Greece
www.emerald.com [PDF]
… When obsolete inventory is identified and written off as a current-period expense, it reduces operating income … related MWIC to affect inventory transactions throughout the year more than they affect the year-end inventory balances reported on financial statements filed …



Q&A About Obsolete Inventory


What is obsolete inventory?

Obsolete inventory is a term that refers to inventory that has not seen any sales or usage for a set period of time.

How do you know if your company's products are good or bad?

You look at how much they sell and how effective their process for managing their inventories is.

What can large amounts of obsolete inventory be symptomatic of?

Large amounts of obsolete inventories can be symptomatic of poor products, poor management forecasts, and poor inventory management.

Why does obsolete inventory have to be written down?

Because it is at the end of its product life cycle and will not be sold again.

Is there more than one type of obsolete inventory?

Yes, there are two types. One is called dead inventory and the other excess inventory.