In this guide
When Stock Stops Being Worth Its Cost
Stock stops being worth its cost when what you could realise from selling it, less what it costs to sell it, falls below what you paid, and that moment has nothing to do with how long it has been sitting. Three labels get used interchangeably and should not be. Slow-moving stock is still selling, only more slowly than it was. Non-moving stock has not moved within a defined period but remains saleable. Obsolete stock will not sell at anything approaching cost because it has been superseded, has expired, or no longer fits what the market buys. Ageing analysis is the trigger that tells you where to look, not the answer to what anything is worth: a high-value spare with no movement in three years may be worth every rupee, and a fast-moving line may be about to be superseded. Net realisable value decides, item by item, supported by evidence of what the market will actually pay.
Defining the Three Categories
The three labels get used interchangeably and they describe genuinely different conditions with different accounting consequences. Slow-moving stock is measured against the consumption rate: an item is slow-moving when the quantity held represents an unusually long period of expected usage or sales, which means the definition is relative to the item rather than absolute. A spare consumed twice a year is not slow-moving at a holding of two; a consumable consumed daily is slow-moving at a holding of six months. Non-moving stock is defined over a period rather than against a rate. An item that has recorded no issue or sale within a defined window, commonly a year, is non-moving regardless of how much of it there is. It may still be entirely saleable, and frequently is, which is why the category is a trigger for examination rather than a conclusion. Obsolete stock is the only one of the three that is a statement about value. An obsolete item has no future use at any realistic price, because it has been superseded, has expired, no longer fits the product range, or relates to a customer or process that has gone.
The Provisioning Policy
A provisioning policy converts an ageing analysis into a number the accounts can carry, and it needs three features to survive scrutiny. Ageing bands with provision percentages are the mechanism: stock held beyond stated periods attracts stated provisions, rising with age. The bands should reflect the business rather than a convention borrowed from elsewhere, since the period after which a fashion item loses value has nothing in common with the period for an engineering spare. Consistency across periods is what makes any individual year's provision credible. A policy applied identically in a good year and a difficult one produces a charge that reflects the stock; a policy revised whenever the resulting number is unwelcome produces a charge that reflects the revision. The first question asked about an unusual movement in the provision is whether the basis changed. Where a policy becomes an earnings lever is the boundary worth naming. A percentage adjusted downward to protect a result, or an ageing report whose date fields are refreshed by a transfer or a recount so that stock never reaches the older bands, are both mechanisms by which a provisioning policy stops measuring anything.
Writing Off Rather Than Providing
Providing reduces the carrying value of goods that still exist and can be reversed if the position improves; writing off removes them permanently and cannot. The distinction is not presentational, so the decision to write off needs its own authority. Approval within the delegated limits, recorded before the disposal rather than after it, is the first requirement, and approvals dated after the goods have gone are treated as ratification rather than authorisation. Physical disposal and its record follow. A write-off is a statement that the goods have ceased to exist or ceased to have value, and the evidence has to match whichever is claimed: a scrap sale invoice and weighbridge slip, a destruction certificate, or a documented disposal witnessed by somebody independent. A write-off supported only by an internal note describes an intention. Tax treatment is the third consideration and it does not follow the accounting automatically. A loss on inventory is generally allowable where it is actually incurred and evidenced, so the timing of the deduction can differ from the period in which a provision was recognised, and the difference belongs in the reconciliation between the accounting and tax positions rather than being assumed away.
Testing the Ageing Report
The ageing report is the starting document, so it is tested before anything is concluded from it. The first test is whether it reconciles to the ledger. An ageing analysis whose total does not agree with the stock balance in the accounts is describing a different population, and any provision computed from it will be wrong in the same proportion. That check is arithmetic and it is skipped surprisingly often. The second is tracing a sample of items back to their last movement. Ageing is generated from a date field, and date fields are unreliable in ways that all run one direction: a re-receipt, a stock transfer between locations, a physical count adjustment or a system migration can each reset the clock on an item that has not actually moved for years. Items showing as recently moved are therefore the ones worth sampling, not the ones showing as old. The third test is what prior disposals actually realised. Where last year's obsolete stock sold for a fraction of the value it was provided at, this year's provision computed on the same basis is already known to be insufficient.
Clearing an Aged Stock Balance
Identify the stock physically before touching the paperwork. An ageing report tells you which lines to look at; walking to them tells you what they actually are, and the two frequently disagree. Items showing as aged turn out to be current stock whose date field was reset; items showing as current turn out to be damaged, superseded or in a condition nobody had recorded. Provisioning computed from the report alone therefore provides against the wrong lines. Sequence provision before disposal, and keep them distinct. Provisioning reduces the carrying value of goods that still exist and can be revisited if the position improves; disposal removes them permanently and needs its own approval and evidence. Businesses that jump straight to disposal lose the ability to demonstrate that the loss was recognised in the period it arose. An independent count establishes the baseline where the aged balance has accumulated over years, where nobody can say what is physically in the aged category, or where the provision will be questioned by an auditor or a lender. Inventory Audit / Stock Audit work is frequently commissioned for precisely this reset.
