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First of all, we ought to state that all companies are following the prudence concept, which is an important accounting principle, by writing off stock to the lower of cost or net realizable value.  The prudence concept states that doubtful profits cannot be reflected in the accounts until they are realized.  Therefore if the net realizable of stock is lower than cost then the stock value should be written down to its respective book value.  Organizations that work in the technological industry, like Nortel Networks, commonly face the issue of obsolete stock.

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The rapid technological advancements that are taking place are diminishing the live of stock.  As soon as a new product with better capabilities is issued, the previous goods of the same category are no longer demanded.  For instance, as soon as the Pentium 4 was issued, the demand for Pentium 3 decreased steadily and drastically.  Due to such feature, Nortel Networks commonly ends up with old stock that will not be sold since there is no longer demand for such product.  These companies are required to write off the value of the stock in line with the prudence concept in order to portray its true net realizable value.

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If stock that is written down is eventually sold, such transaction should be reflected in the accounts.  As regards Micron Technology they are not portraying all the respective transactions if they will not record the sale.  However, before taking any drastic actions, one should consider the materiality of such transactions.  If they are not material, they are therefore not significant and will not alter the decision of any external users if shown.  Indeed Micron Technology has probably prepared an accounting policy concerning such stock, which describes their method.


Hendriksen S. E.; Van Breda F. M. (1992). Accounting Theory. Fifth Edition. New York: Irwin McGraw-Hill Companies Incorporation.

Wood F.; Sangster A. (2002). Business Accounting 1. Ninth Edition. London: Prentice Hall.

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