A Juxtaposition of Federal Income Tax Law and Generally Accepted Accounting Principles in the Treatment of Slow-Moving and Obsolete Inventories

Date of Submission


Document Type


Degree Name

Master of Science in Accounting





Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1983 no. 3


The inventory of goods for resale has long been considered a significant determinant of income; and in terms of subjective valuation, it certainly ranks as having the largest impact!

Inventory has two separate attributes: physical and financial. The physical attributes are factual, whereas the amount assigned to the inventory for financial reporting purposes is subjective. The inventory results from quantities of goods on hand at a particular date and the exercise of judgement and the application of particular accounting procedures in the valuation of the inventory.

It is the valuation of goods on hand that has created a great deal of controversy; particularly of late in the area of slow-moving and obsolete inventory. The terms slow-moving and obsolete can be sub-divided into excess stock, technically obsolete material, shelf-life obsolescence and out of style materials. The purpose of this paper is to analyze the treatment of this segment of the inventory as to accounting and tax handling. The analysis will show what has occurred historically, show current controversies as exemplified in the case of Thor Power Tool Co. and to provide some prognostication to future treatment of slow-moving and obsolete inventories.