Inventory Impairment

• Inventories are valued at the lower of cost and net realizable value (IFRS) based on the most reliable evidences available at the date of the estimation.
• Impairment of inventories in case of:
• Damage;
• Obsolescence;
• Sales price fall;
• Increase of necessary cost for completion or sale.
• Impairments are posted in the fiscal year the event occurs and as well the reversals.
• Impairments for slow moving are not accepted unless it can be proved that sales prices decrease in line with age or movements of products (IFRS).
• No impairment for strategic materials and for materials with unit value > 15000 € and lifetime > 12 months (= tangible assets).
• No automatic posting in accounting (we keep the unit gross value of each material).
• Periodicity: mandatory once in a year but more usually quarterly.
• Possible to group materials similar or linked together (e.g. same product line), but not appropriate to group a whole activity sector or geographical zone.

A) There are two types of flow that are function of the materials:

1)  For the industrial supplies: The program edits a proposition of the stock depreciation, based on a search notion of the last effective issue date of the stock.

2)  The other materials: Primary goods, merchandises, half-finished products and end products, packaging. The system proceeds in three phases to execute the proposition of the depreciation:

a) Calculate depreciation based on the coverage rate,

b) Calculate depreciation based on the market price,

c) Edit a proposition that uses those 2 calculations.

B) There are 2 types of Inventory Impairment:

 1) Rotation Depreciation : Calculation of a percentage of impairment based on

a) Last consumption date or last “first acquisition” date for industrial supplies,

b) Monthly average consumption on the analysis period for other materials,

Only if: Range of coverage > 0. Percentage of inventory value at Material Price (MP)

2) Financial Depreciation: It is based on the Market Value or Net Realizable Value (NRV_S) of the last 12 months.

Calculation based on COPA:

Only used for finished products (Z150) and trading goods (Z130).

Only if:  Net Realizable Value (NRV_S) < Material Price “end of period of reference” (MP). Financial Impairment = (MP – NRV_S) x Inventory Quantity.

Calculation of Provisions for Inventory Impairment

Financial  depreciation = 0

• Rotation provision = Rotation depreciation
• Financial provision = 0

Rotation depreciation = 0

• Rotation provision = 0
• Financial provision = Financial depreciation

Rotation depreciation > Financial depreciation

• Financial provision = Financial depreciation
• Rotation provision = Rotation depreciation – Financial depreciation

Rotation depreciation < Financial depreciation

• Financial provision = Financial depreciation
• Rotation provision = 0