An inventory write-down records the loss produced by the applicable subsequent-measurement test. Begin with the controlled population, recorded cost, method route, supported comparison amount, and declared application level. The entry follows that analysis; it does not create it.
For inventory costing $10,000 with a supported comparison amount of $8,800, the write-down is $1,200. Debit the loss or cost account required by the entity's presentation policy and credit inventory or a controlled valuation account. Reconcile original cost less the adjustment to the $8,800 carrying amount. Current assets and pretax income fall by $1,200 before tax; retained earnings is lower through net income.
Keep original cost, comparison evidence, quantity, item or category, method, date, entry, tax effect, approver, and review trigger. A mathematically balanced entry does not validate the estimate or application level. ASC 330-10-35-1B covers direct NRV losses for non-LIFO, non-retail inventory. Paragraphs 35-1C through 35-7 cover the retained market path.
For a fiscal-year US-GAAP write-down, ASC 330-10-35-14 treats the reduced amount as cost for later accounting. IAS 2 has a different reversal boundary. Keep the frameworks separate.
Use the Cedar write-down and commitment example before completing Northstar practice.
Put the concept to work
Understand this concept
- Explain how a write-down reduces inventory and current income, how presentation can vary, and why later accounting depends on the reporting basis and applicable guidance.
Apply this concept
- Prepare a supplied inventory write-down entry, reconcile cost to the post-adjustment carrying amount, and trace effects to expense, assets, income, equity, and later cost transfer.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Inventory write-down — Understand
To apply this concept: Required. Application follows the carrying-amount effect.
- Lower of cost and net realizable value — Understand
To understand this concept: Helpful. LCNRV is one route to a write-down.
Lessons
Worked examples and cases
- Close Cedar Trail's inventory without pricing the wrong goods
- Price Cedar Trail's layers, measurement adjustments, and inventory estimates
- Reconcile Cedar's inventory note by population
Show 1 more examples and cases
Practice
Common mistaken ideas
Sources
Broader topics
Related concepts
Show 1 more related concepts
Use this idea next
- Inventory write-down — Apply
Required level here: understand. Required. Application follows the carrying-amount effect.