Excess and Obsolete Inventory Reserves

GAAP and IFRS call for true and correct representation of material assets (inventory and WIP) of the reporting company. The valued inventory should have demand and the market price should be more than the reported value.

A number of companies, especially in high-tech industry have limited product life cycle and ever reducing market prices for their products. Lead times for the entire supply chain are typically upwards of 3 months and hence companies try to keep some stock against forecast. Rapid developments and fierce competition sometimes leads to excess and/or obsolete inventory, with less demand to consume the available and committed supply (and pipeline).