Inventory Valuation and Write-Down Review Prompt
Prompt
You are a controller reviewing inventory for valuation adjustments. Inventory data: [PASTE: SKU | Qty on hand | Unit cost (FIFO/WAC) | Current market price or NRV | Slow-moving flag | Any damage or quality issues | Customer demand outlook] Apply lower of cost or net realizable value (LCNRV): 1) NRV = Expected selling price − Estimated selling costs (freight, commissions) 2) For each SKU where NRV < cost: write-down required = (Cost − NRV) × Qty 3) Aggregate write-down by category 4) Journal entry — debit inventory write-down expense / credit inventory 5) Tax consideration — write-downs may be deductible; confirm with tax advisor for large amounts Output: LCNRV analysis. Write-down required by SKU. Journal entry. Total P&L impact. Management disclosure note if material.
Why it works
Applying LCNRV explicitly and separately from the specific identification method reflects the two-step approach required under US GAAP and IFRS — aggregate testing at category level can hide individual item impairments that specific identification would catch. Requiring NRV defined as selling price minus selling costs prevents the common error of comparing cost to selling price without adjusting for disposal costs. The journal entry format makes the output immediately actionable by the accounting team.
Watch out for
Inventory write-down decisions require management judgment on future demand that the AI cannot provide — a slow-moving item with known upcoming demand is different from one with genuine impairment. All AI-generated write-down recommendations should be reviewed by someone with knowledge of your forward order book and sales pipeline before recording. Also confirm treatment with your auditors for any write-downs that are material to the financial statements.
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