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Generally, the oldest unsold or unutilized inventory items are classified as obsolete either partly or fully. Also, for certain deteriorating items the organisation would use them first to prevent deterioration.

The accounting treatment for obsolete inventory is to write off amounts which impacts bottom line.

However this premise may vary for some industries and certain types of products, eg. Wine... where appropriate batch is identified at the time of sale and accounted accordingly.

In conclusion, generally FIFO is preferred but the choice of which method to use in business is dependent on the nature of the item of inventory and the industry.


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