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How to calculate an inventory provision?

Publication date: 2014-03-31 22:37:02

Let us assume that we are dealing with material that is on the stock for more than one year (e.g. check that in stock aging report or equivalent document). Its book value on the balance sheet closing (31.12.2013) is 10,000, in the opening balance sheet (31.12.2012) was equal to 15,000. Assume also that the value is 1,000 was scrapped in 2013.

Impairment can be calculated in two successive steps:

STEP 1. Calculate inventory provision ratio
% ratio = (10,000 +1,000) / 15,000 x100% = 73.3%

STEP 2. Calculate inventory privision amount
73.3% x 10,000 = 7,330

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