What typically happens to inventories that are deemed unusable?

In accounting, when inventories are deemed unusable, they are typically written down to market value. This process involves assessing the realizable value of the inventory and adjusting its recorded value on the financial statements accordingly. Writing down to market value ensures that the financial statements reflect a realistic view of the company’s assets, taking into account that the unusable inventory no longer holds its original value due to factors such as obsolescence or damage. This method allows businesses to recognize losses in a timely manner and ensure compliance with accounting principles that require inventory to be reported at the lower of cost or market value.

In contrast, selling unusable inventory at a discount, writing it off entirely, or adjusting based on replacement cost may not accurately reflect the inventory's value or comply with standard accounting practices. Writing off an inventory item entirely would indicate complete loss without any possible value, which is not always the case. Adjusting based on replacement cost focuses on the cost of replacing an item rather than its current market value, potentially leading to overstatement of asset values.