Effective Date: 31/12/2024
1. Purpose
This policy establishes guidelines for inventory valuation and impairment assessment for TANAAKK, holding various equities, ensuring compliance with IFRS (IAS 2 – Inventories & IAS 36 – Impairment of Assets).
2. Scope
This policy applies to all inventory types held by TANAAKK:
for example, lingerie consumer products subsidiary
- Raw materials (fabrics, lace, elastics, trims)
- Work-in-progress (WIP) (unfinished lingerie pieces)
- Finished goods (bras, panties, nightwear, shapewear, hosiery)
- Obsolete & slow-moving inventory
3. Inventory Valuation Methods
3.1 Primary Accounting Valuation (IFRS 2 – Inventories)
- Inventory is recorded at the lower of cost or net realizable value (NRV).
- The following cost methods are used:
- FIFO (First-In, First-Out) → Default method for finished goods and raw materials.
- LIFO (Last-In-First-Out)→not applicable, sometimes used by oil & gas, chemicals, metals, and commodity-based industries
- Weighted Average Cost (WAC) → Applied for bulk fabric and lace purchases.
- Specific Identification → Used for limited-edition or high-value lingerie collections.
Net Realizable Value (NRV) Formula:
NRV = Estimated Selling Price – Costs to Complete & Sell
If NRV falls below the recorded cost, a write-down is required.
3.2 Alternative Valuation for Business & Lending Purposes
| Valuation Method | Definition | Application |
|---|---|---|
| Fair Market Value (FMV) | Price in an open market between a willing buyer and seller. | Used in M&A, audits, and fair value assessments. |
| Net Orderly Liquidation Value (NOLV) | Value after selling costs in a structured sale process. | Asset-based lending (ABL), distressed sales. |
| Orderly Liquidation Value (OLV) | Expected price when assets are sold under normal liquidation conditions. | Used in restructuring & secured lending. |
| Forced Liquidation Value (FLV) | Quick-sale valuation in an urgent disposition scenario. | Bankruptcy, foreclosure. |
Key Considerations for Lingerie Products:
- Fashion-driven seasonal changes impact NRV and liquidation values.
- Excess or obsolete inventory may require markdowns or discounting.
- High-end lingerie has a longer shelf life than trend-based fast fashion.
4. Impairment Testing (IAS 36 – Impairment of Assets)
Inventory impairment is assessed more than semi-annually( once in six months, quarterly or when impairment indicators exist).
4.1 Impairment Indicators
- Seasonal trends: Previous collections may require markdowns.
- Slow-moving SKUs: Styles with declining sales over 12+ months.
- Material degradation: Elasticity loss, fabric discoloration, etc.
- Market trends: Increased competition or lower demand.
4.2 Impairment Calculation
- Compare Carrying Value vs. NRV:
- If NRV < Carrying Amount, impairment is recorded.
- Write-Down Entry in Financial Statements:
- Impairment loss recognized as cost of goods sold (COGS).
Markdown Strategy for Lingerie Inventory:
- 30% markdown for slow-moving but relevant styles.(>6months)
- 50% markdown for previous seasonal collections.(>12months)
- 70-90% markdown or write-off for obsolete/discontinued inventory.(>24months)
5. Special Cases
5.1 Inventory Used as Loan Collateral
- When inventory is pledged for loans, valuation should follow NOLV or OLV.
- A third-party appraisal may be required for lender acceptance.
5.2 Treatment of Expired or Unsellable Inventory
- Expired or unsellable inventory (e.g., damaged fabric, returned defective items) must be fully written off in financial statements.
- Disposal must follow Company Policy on Sustainable Waste Management to minimize environmental impact.
6. Reporting & Disclosure
The company shall disclose in financial statements:
- Inventory valuation method used (FIFO, WAC, etc.).
- Impairment losses and write-downs.
- Significant changes in valuation estimates.
- Key assumptions for FMV/NOLV estimations.
7. Roles & Responsibilities
| Role | Responsibility |
| CFO | Approves valuation policies and impairment write-offs. |
| Finance Team | Performs quarterly inventory valuation & impairment tests. |
| Merchandising & Supply Chain | Reports slow-moving or obsolete inventory. |
| External Auditors | Reviews and validates inventory valuation. |
8. Policy Review and Updates
This policy shall be reviewed annually to ensure compliance with IFRS, business conditions, and lender requirements.
Approval & Acknowledgment
Version: v1.1.
Department: Finance & Accounting
Prepared by: Taro Shimizu, Attorney at law Date: 31/12/2024
Approved by: CEO, Shoichiro Tanaka Date: 31/12/2024