Dead Stock Calculator

Setting it out

Dead stock is inventory with no realistic prospect of selling at any acceptable price. The usual definition is anything with no sales in a defined period, commonly twelve months, and the calculation is its value at cost plus what it costs to keep holding it.

The important figure is not the value but the recoverable value: what it would fetch if disposed of now, against what it costs to keep it another year in the hope of better.

A concrete case

400 units at $18 cost, $7,200 of stock, with no sales in fourteen months. Holding it costs 25% a year, $1,800, plus a pallet of warehouse space.

A liquidator offers $2.50 a unit: $1,000. That feels like a $6,200 loss and it is not, the $7,200 was spent long ago and is gone regardless. The live comparison is $1,000 now against another year of $1,800 in carrying cost and a probably lower offer next year.

Taking the $1,000 is the better decision by roughly $2,800, and it releases the space and the administrative attention as well. The reluctance to take it comes from treating the original cost as a live number, which it is not.

What the number hides

The book value is a sunk cost and it dominates the decision anyway. Businesses hold dead stock for years because writing it off crystallises a loss on paper, while holding it quietly costs more in cash.

The twelve-month rule also misclassifies genuinely seasonal or slow-moving items. A product that sells forty units every December has eleven dead months a year and is not dead stock, and a rule applied without judgement will liquidate it in November.

Where to go from here

Compare disposal value against another year of carrying cost, and ignore what it originally cost. That single reframing resolves most dead stock decisions in about a minute.

Then run the disposal in an order of preference: bundle it with sellers, offer it to your email list, sell it on a clearance channel, offer it to staff, donate it for the tax treatment, and scrap it last. Each step recovers less and each is better than another year of storage.

The accounting and the tax position

Inventory is normally carried at the lower of cost and net realisable value, which means stock worth less than it cost should already have been written down. Carrying dead stock at full cost overstates both assets and profit, and it is one of the more common findings in a first audit.

Writing it down produces a deduction in the period the write-down occurs, which is a real tax benefit in a profitable year and one reason to deal with dead stock before a year end rather than after.

Donation can be worth more than liquidation for exactly this reason, depending on jurisdiction, the deduction may exceed the scrap value, and the goods go somewhere useful. The rules vary considerably and are worth checking with an accountant before disposal rather than after, because the treatment usually depends on how the disposal was structured.