Inventory obsolescence
In one sentenceInventory losing part or all of its value because it has become old or is no longer in demand, such as a discontinued model, an expired fashion, or approaching expiry.
Simply put
An obsolete item will not sell at its normal price, and may never sell at all, so it should not stay in the books at its original cost.
You estimate what it can be sold for after selling costs, write its value down to that, and record the difference as a loss in the same period.
Worked example
A spare parts store holds parts for a discontinued car model costing 30,000 SAR, which are expected to sell in full for 12,000 SAR after selling costs.
Cost in the books30,000 SAR
Net realizable value12,000 SAR
Obsolescence loss = 30,000 − 12,00018,000 SAR
Don't confuse it with
Slow-moving inventorySlow-moving stock sells slowly but may keep its value, while obsolete stock has actually lost its value.