Net realizable value write-downs for perishable and near-expiry F&B inventory

F&B inventory carried above net realizable value overstates both inventory and profit; because perishables and near-expiry stock lose value quickly and unevenly across batches, a blanket wastage percentage embedded in standard recipe costing will not catch the specific at-risk items, creating a recurring gap between reported inventory and its true recoverable amount at each period end.

Is there identifiable inventory nearing its expiry or use-by date at the reporting date that will need to be sold at a discount, redirected to staff meals, or discarded? Does the estimated selling price, net of costs necessary to make the sale (e.g., a clearance promotion), fall below carrying cost for specific identifiable batches or categories, requiring a write-down rather than a blanket provision? Is there a systematic, recurring process for identifying near-expiry stock consistently across central kitchens, individual outlets, and room/minibar inventory?

1. At each reporting date, segment F&B inventory into categories by risk profile: fast-moving/fresh, near-expiry (e.g., within a defined shelf-life window), damaged/returned, and slow-moving/obsolete.
2. For near-expiry and damaged batches, identify them specifically (by batch/lot where tracked) rather than applying a blanket percentage.
3. For each at-risk batch, estimate net realizable value (NRV) = expected selling price in the ordinary course (including any planned clearance/discount promotion, staff-meal transfer at internal transfer value, or scrap value) less estimated costs to complete and sell.
4. Compare NRV to carrying cost item-by-item or by group of similar items (not by writing down the entire inventory class).
5. If NRV < cost, recognize a write-down to NRV as an expense (through cost of sales or a separate line) in the period the decline occurs.
6. If an item has no recoverable value (spoiled/discarded), write it down to nil and remove from inventory.
7. In subsequent periods, reassess previously written-down items: if NRV recovers (e.g., unsold near-expiry stock is instead used or an alternate market emerges), reverse the write-down, but only up to the original cost (never above).
8. Keep this NRV assessment separate from, and in addition to, routine wastage/shrinkage already built into standard costing.

Measure inventory at the lower of cost (weighted average or FIFO, as per policy) and NRV. Estimate NRV using the most reliable evidence available at the reporting date about the amount the inventory is expected to realize, including subsequent events up to the date the financial statements are authorized (e.g., an actual clearance sale price observed shortly after year end is strong evidence of NRV at year end). Deduct only costs necessary to complete and sell (e.g., promotion/marketing cost of the clearance, not general selling overhead). Assess NRV separately for items serving different purposes (e.g., minibar stock priced at a premium may have a different NRV profile than central kitchen raw materials). Reassess at each subsequent reporting date for reversal indicators.

Disclose: accounting policy for inventory measurement (cost formula and NRV basis); total carrying amount of inventories by category if material; amount of inventory write-downs recognized as an expense in the period and the line item where included; amount of any reversal of previous write-downs and the circumstances/event that caused the reversal; carrying amount of inventories pledged as security, if any; any inventories carried at NRV (i.e., cost was written down) and the amount.

• Relying solely on a standard wastage/shrinkage percentage embedded in recipe costing instead of performing a separate period-end NRV assessment on identifiable at-risk batches
• deferring the write-down until stock is physically discarded rather than at the reporting date when NRV first falls below cost
• estimating NRV using historical average selling price instead of the realistic clearance/discount price actually expected
• failing to reverse a write-down (capped at original cost) when previously written-down stock is later sold above its written-down value
• applying one blanket write-down rate across dissimilar categories (e.g., treating minibar stock the same as bulk kitchen staples) instead of assessing by appropriate grouping.