What it is
The workbook tests inventory item by item. For each item it computes extended cost, net realizable value from the selling price less costs of completion, disposal and transportation, the lower amount and the write-down required. A basis switch on Settings applies the lower of cost and net realizable value to inventory measured other than by LIFO or the retail inventory method (ASC 330-10-35-1B) and the lower of cost or market to LIFO and retail inventory (330-10-35-1C through 35-7), where market is replacement cost limited between a net realizable value ceiling and a floor of that value less a normal profit margin.
Months on hand flags slow-moving and unsold items from units sold in the last 12 months, and an evidence column holds the price list, invoice or subsequent sale behind each selling price. Summary totals the write-down, compares each category as a group with the item-by-item result, measures the reserve needed against the one on the books and ties the inventory at cost to the ledger.
When to use it
- Year-end inventory valuation and the reserve for excess, obsolete or declining-value inventory.
- Audit testing of valuation, using post year-end selling prices.
- Manufacturing and distribution clients whose prices fell or whose products turned slow.
What’s inside
- Settings: measurement basis and the months-on-hand screening level
- Test: 60 item rows with cost, NRV build-up, market inputs, lower amount, write-down and evidence
- Slow-moving and no-sales flags
- Summary: totals, reserve adjustment entry, ledger tie-out
- Category comparison of item basis against group basis
Standard cited
This template follows ASC 330-10-35. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
What is net realizable value?
The estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The workbook builds it per unit from the four inputs on each row.
Can I test by group instead of by item?
The unit of account is item by item or a reasonable grouping, whichever most clearly reflects periodic income (ASC 330-10-35-8). Test is item by item; Summary shows each category as a group so the effect of grouping is visible. Apply the choice consistently.
Can a write-down be reversed if prices recover?
No. A write-down establishes a new cost basis and a later recovery is not written back up (ASC 330-10-35-14). The reserve adjustment measures the reserve required against the one recorded and releases only on sale or disposal.
What does months on hand tell me?
Quantity on hand divided by average monthly units sold over the last 12 months. It is a screen for slow-moving and no-sales items. Excess and obsolete exposure is judged from sales trends, product life and returns, not from the ratio alone.
Related templates
- Audit Program: Inventory
- Inventory Observation Memo and Test Count Sheet (AU-C 501)
- Cutoff Testing Workpaper (Sales, Purchases, Inventory)
- PBC List — Audit Request List (Excel)
Last updated 11/05/2026. All free templates.