Inventory Obsolescence and NRV Review Controls for UAE Distributors

A cycle count can confirm that inventory exists without proving that it can be sold at its recorded amount. UAE distributors need a separate obsolescence and net realisable value review that connects warehouse facts, commercial expectations and accounting evidence.

Start with a clean item-level population

Reconcile the inventory subledger to the general ledger and identify location, quantity, unit cost, last movement, receipt date, batch or expiry information and responsible product owner. Remove duplicate item codes and investigate negative quantities, blocked stock and goods held for third parties before analysing age.

Segment by economic risk

Use product-specific ageing rather than one universal threshold. Fast-changing electronics, seasonal goods, spare parts, food items and long-life industrial components behave differently. Group items by lifecycle, expiry, condition, demand pattern, contractual restrictions and availability of alternative uses.

Test net realisable value with current evidence

IAS 2 measures inventory at the lower of cost and net realisable value, defined as estimated selling price in the ordinary course of business less estimated completion and selling costs. Support the review with recent selling prices, approved price lists, subsequent sales, customer orders, forecast demand, discounts, refurbishment, freight and disposal costs as relevant.

Challenge apparent exceptions

An old item is not automatically obsolete, and a recent receipt is not automatically recoverable. Ask whether a service commitment requires the stock, whether customer orders are genuine, whether substitute products have reduced demand, whether packaging or specifications changed and whether the item can be transferred or repurposed. Record the evidence behind every override.

Approve write-downs transparently

Define materiality and approval thresholds. The schedule should show cost, supported net realisable value, proposed write-down, prior provision, current adjustment and owner. Keep formula logic protected and require independent review of manual values, broad percentage overlays and reversals.

Connect accounting to operational action

Assign a route for each at-risk item: sell through, return to supplier, bundle, rework, transfer, hold for service, donate or dispose where permitted. Track the owner and due date. Accounting entries should not become a substitute for clearing warehouse issues, and disposal records should match approved physical movements.

Review checklist

1. Reconcile item quantities and cost to the ledger. 2. Segment inventory by lifecycle and risk. 3. Refresh ageing, movement and condition evidence. 4. Test current selling prices and selling costs. 5. Document overrides and committed-sale evidence. 6. Approve write-downs and reversals independently. 7. Track sale, transfer, return or disposal outcomes.

This is an operational accounting guide. Product-specific valuation, estimation uncertainty, write-downs and reversals should be reviewed under the applicable reporting framework and business facts.

About the author

Haris Arif is Head of Finance and Investment. He is a finance and investment leader with experience across multi-entity businesses in technology, F&B and hospitality. He writes practical insights on financial control, management reporting, working capital, tax readiness and finance transformation for UAE founders, CFOs, investors and management teams.

Connect with Haris Arif on LinkedIn: https://www.linkedin.com/in/harisarifofficial/