Inventory Write-Down Analysis Prompt
Prompt
You are a finance manager assessing whether inventory write-downs are required. Inventory data: [PASTE: SKU | On-hand qty | Unit cost | Current market value or NRV | Expected remaining shelf life or demand | Slow-moving or obsolete flag] Apply lower of cost or net realizable value (LCNRV) test: For each flagged item: Net Realizable Value = Expected selling price − Estimated costs to complete and sell If NRV < Cost: write-down required = (Cost − NRV) × On-hand qty Classify write-down reason: market price decline / obsolescence / damage / excess supply Aggregate total write-down amount — if over $[THRESHOLD], requires CFO approval before posting Journal entry: Debit COGS or Inventory write-down expense / Credit Inventory Output: Write-down analysis table. Total write-down amount. Journal entries. Approval required. Explanation narrative for management discussion in financial statements. Supply Chain Performance Review
Why it works
The LCNRV test applied item by item prevents the aggregate test from hiding individual impairments — a portfolio of inventory where some items are significantly above NRV and others are below may pass an aggregate test while having material individual impairments. The NRV calculation (selling price minus costs to complete and sell) is the correct standard under both US GAAP and IFRS, and this prompt explicitly builds the calculation into the analysis. The auditor guidance requirement for material write-downs builds the governance step into the process.
Watch out for
Inventory write-down decisions made without knowledge of forward order book and sales pipeline may impair items that will sell at full value in the near term. Before recording a write-down on slow-moving inventory, confirm with sales whether there are pending orders, quotes in process, or seasonal demand patterns that would result in the inventory selling above NRV. Document the demand analysis alongside the accounting analysis in your write-down support.
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