{
  "slug": "obsolescence-reserve",
  "title": "Inventory Obsolescence Reserve Calculator",
  "heading": "Inventory Obsolescence Reserve Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/obsolescence-reserve",
  "summary": "Estimate the write-down reserve for slow-moving and excess inventory.",
  "description": "An obsolescence reserve is the accounting provision set aside against inventory that's unlikely to sell at full value because it's slow-moving, excess to forecasted demand, or nearing end-of-life. GAAP requires inventory to be carried at the lower of cost or net realizable value, so systematically underestimating this reserve overstates both inventory value and net income, which auditors will flag. This calculator applies a tiered reserve percentage based on how long inventory has been on hand without movement — the older and slower the inventory, the higher the assumed loss on eventual liquidation or write-off — and produces a total reserve dollar figure you can compare against your current book reserve. It's a starting methodology; audit committees typically want to see it refined further by product category and historical recovery rates on liquidated inventory.",
  "formula": "Reserve = Σ (Inventory value in each aging bucket × reserve % for that bucket).",
  "dateModified": "2026-09-30",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=obsolescence-reserve",
  "inputs": [
    {
      "id": "inv0to6",
      "label": "Inventory value, 0-6 months no movement",
      "kind": "number",
      "hint": null,
      "default": 850000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "inv6to12",
      "label": "Inventory value, 6-12 months no movement",
      "kind": "number",
      "hint": null,
      "default": 310000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "inv12to24",
      "label": "Inventory value, 12-24 months no movement",
      "kind": "number",
      "hint": null,
      "default": 175000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "inv24plus",
      "label": "Inventory value, 24+ months no movement",
      "kind": "number",
      "hint": null,
      "default": 95000,
      "unit": "$",
      "min": 0,
      "max": null
    }
  ],
  "outputs": [
    {
      "id": "reserve",
      "label": "Recommended obsolescence reserve",
      "format": "currency",
      "hint": null,
      "primary": true
    },
    {
      "id": "reservePct",
      "label": "Reserve as % of total slow-mover inventory",
      "format": "percent",
      "hint": null,
      "primary": false
    },
    {
      "id": "totalInv",
      "label": "Total inventory in aging buckets",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "netValue",
      "label": "Net realizable value after reserve",
      "format": "currency",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Inventory value, 0-6 months no movement: 850000 $",
      "Inventory value, 6-12 months no movement: 310000 $",
      "Inventory value, 12-24 months no movement: 175000 $",
      "Inventory value, 24+ months no movement: 95000 $"
    ],
    "outputs": [
      "Recommended obsolescence reserve: $236,500",
      "Reserve as % of total slow-mover inventory: 16.5%",
      "Total inventory in aging buckets: $1,430,000",
      "Net realizable value after reserve: $1,193,500"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter inventory value, 0-6 months no movement ($).",
      "Enter inventory value, 6-12 months no movement ($).",
      "Enter inventory value, 12-24 months no movement ($).",
      "Enter inventory value, 24+ months no movement ($).",
      "Read your recommended obsolescence reserve on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "inv0to6": 510000,
        "inv6to12": 185000,
        "inv12to24": 105000,
        "inv24plus": 55000
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "inv0to6": 850000,
        "inv6to12": 310000,
        "inv12to24": 175000,
        "inv24plus": 95000
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "inv0to6": 1360000,
        "inv6to12": 495000,
        "inv12to24": 280000,
        "inv24plus": 150000
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "Where do these reserve percentages come from?",
      "a": "The tiers used here (2%, 15%, 50%, 90%) are common industry starting points for general merchandise, reflecting that inventory idle 0-6 months is probably fine while inventory idle over 24 months usually recovers only pennies on the dollar in liquidation. Refine these percentages using your own historical recovery data from actual liquidation, clearance, or write-off events — categories differ a lot, and electronics or fashion should skew more aggressive than durable industrial parts."
    },
    {
      "q": "How often should this reserve be recalculated?",
      "a": "Quarterly at minimum, aligned with financial close, and monthly if your inventory has fast-changing velocity like seasonal or fashion goods. Auditors typically want to see a documented, consistently applied methodology rather than an ad hoc adjustment each period, so lock in your aging buckets and percentages and apply them consistently."
    },
    {
      "q": "Does building a reserve mean I should write off the inventory?",
      "a": "Not necessarily — the reserve is a balance sheet provision, not a decision to physically dispose of the stock. Many operations use the aging analysis that feeds this reserve to trigger action: a clearance sale, a return to vendor, a liquidation channel sale, or a formal write-off, rather than just letting the reserve grow indefinitely against inventory going nowhere."
    },
    {
      "q": "What's the warehouse operations angle on obsolescence?",
      "a": "Obsolete inventory isn't just a finance problem — it occupies pallet positions and pick locations, degrades cubic utilization, and adds noise to cycle counts. Tying obsolescence review to a slotting or space utilization audit often surfaces inventory that should have been cleared out long before it hit the 24-month bucket."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/inventory-turns-dsi",
    "https://www.revenuelab.fyi/toolbox/eoq-carrying-cost",
    "https://www.revenuelab.fyi/toolbox/cycle-count-accuracy"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — Inventory Obsolescence Reserve Calculator (https://www.revenuelab.fyi/toolbox/obsolescence-reserve)"
}