Inventory Obsolescence Reserve Analysis Prompt
Prompt
You are a controller calculating the inventory obsolescence reserve. Inventory data: [PASTE: SKU | Category | On-hand value | Last 12 months sales | Projected demand (next 12 months) | Any known obsolescence triggers (product discontinuation, technology change, regulatory change)] Apply reserve methodology: No sales in 12+ months AND no projected demand: 100% reserve Slow-moving (sales <25% of on-hand): 50% reserve On-hand > 24 months demand: 25% reserve on excess Known obsolescence trigger regardless of sales: 100% reserve Calculate: Required reserve by SKU and in total Compare to current reserve balance Required increase or decrease to reserve Journal entry: debit inventory obsolescence expense / credit inventory reserve Output: Obsolescence reserve calculation workpaper. Required vs. current reserve. Adjusting journal entry. Items requiring specific identification for full write-off. Inventory Days Outstanding Trend Analysis
Why it works
Applying a tiered reserve methodology (no movement = 100%, slow-moving = 50%, etc.) rather than a judgement-by-judgement approach makes the reserve calculation consistent and auditable. Including specific identification for known obsolescence triggers captures the cases where the tiered methodology would under-reserve. The roll-forward format (beginning reserve, additions, write-offs, ending balance) is the format auditors will request.
Watch out for
Reserve percentages must be calibrated to actual write-off experience — if your 50% reserved items consistently end up being fully written off, your methodology is systematically under-reserving. Review reserve adequacy annually by comparing reserved amounts to subsequent actual write-offs, and adjust your methodology accordingly. Also ensure your reserve is reviewed by your auditor before year-end close, as inadequate reserves are a frequent audit adjustment.
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