Drug and consumables inventory and expiry

Pharmaceutical and consumable inventory is high-turnover and expiry-sensitive; late detection of near-expiry or expired batches causes both direct write-off losses and, if not tracked, undetected shrinkage. Because drugs and implants are often the largest working-capital and P&L inventory-loss line for a hospital or pharmacy, getting NRV write-downs and batch controls right materially affects reported margin and audit findings.

Is expiry tracked by batch or lot at SKU level with enough lead time to redirect, discount, return or donate near-expiry stock before it lapses? Is any recovery route (supplier buy-back, discounted transfer, donation) realistically available, or should the batch be written down to net realizable value now? Is a cold-chain breach or physical damage tracked and written off separately from normal time-based expiry?

1) Track every SKU by batch/lot and expiry date at receipt. 2) Run a periodic (at least monthly) near-expiry report flagging items within a defined lead-time window (e.g. 90-120 days) before expiry. 3) For flagged items, assess realistic recovery options in order: return to supplier under buy-back terms, discounted sale/transfer to a unit that can use it, or donation/scrap. 4) Write down to net realizable value (NRV) any batch where full recovery at cost is not realistically expected, recognizing the loss in cost of sales/inventory expense immediately, not at physical expiry. 5) Expense items on physical expiry, damage, or cold-chain breach as incurred; do not carry them at cost pending disposal. 6) Reconcile physical counts to book records at least at each reporting date to catch shrinkage separate from expiry.

Cost includes purchase price, import duties and directly attributable delivery costs including cold-chain handling, net of trade discounts and rebates. NRV is the estimated realistic recovery through supplier return rights, discounted sale, or scrap value, net of remaining costs to sell/dispose. Reassess NRV at each reporting date; if circumstances that caused a write-down no longer exist (e.g. a return arrangement is secured), reverse the write-down up to the lower of original cost and the revised NRV.

Disclose the inventory costing method (e.g. weighted average, FIFO) and basis of NRV determination; disclose the amount of write-downs and expired-stock losses recognized in the period, and reversals if NRV subsequently recovers before disposal; disclose supplier return, buy-back or consignment arrangements that mitigate expiry risk; disclose significant judgments in estimating recoverable value for near-expiry stock.

• Not tracking expiry at batch/lot level, leading to late discovery of expired stock and larger, lumpier losses
• capitalizing free samples or manufacturer discounts/rebates incorrectly into inventory cost instead of treating them as a reduction of cost or separate income
• failing to expense breakage or cold-chain failures promptly, leaving damaged stock on the books at full cost
• using a blanket write-down percentage across all drug categories regardless of actual shelf life and demand patterns
• not reversing a write-down when an item is unexpectedly used or returned before expiry (NRV write-downs can be reversed up to original cost, unlike PP&
• E impairment).