Follow comparable stock through the season
Compare inventory at the same point in the selling season and separate finished goods from materials held for future production. Suppose cost of sales is €36.5 million and average inventory rises from €5 million to €6 million with annual cost of sales unchanged. On a 365-day basis, inventory days rise from 50 to 60. Two year-end balances can misrepresent a seasonal business, so use monthly or quarterly averages where available. The increase identifies a question; it does not calculate a write-down.
Estimate what each unit can still realise
Take 1,000 finished units carried at €80 each. If the expected selling price falls to €76 and the costs necessary to sell are €5 per unit, with no further completion costs, net realisable value is €71. The indicated write-down is €9,000, assuming the estimate applies to all 1,000 units. The charge reduces earnings and the carrying amount but does not itself cause an immediate cash outflow; the original purchase and a later sale have their own payment dates.
Check whether the estimate changed after the close
Subsequent selling prices, returns and the proportion cleared at full price can test management’s assumptions. Distinguish evidence about conditions already present at the reporting date from a genuinely new development. If stock consists of durable spare parts, long holding periods may support an installed customer base; for seasonal merchandise the same age profile can imply quite different recoverability.
Practical check
For the unusually old category, record quantity, unit cost, expected realised price and remaining selling costs before drawing a conclusion from inventory days.