Answer
It is correct to conclude that obsolete items are excludable from inventory.
Work Step by Step
Cost attributable to such items are “non-useful” and “non-recoverable” cost (except for possible scrap value) and should be written off. If the cost of obsolete items was simply excluded from ending inventory, the resultant cost of goods sold would be overstated by the amount of these costs. The cost of obsolete items, if immaterial, should be commingled with cost of goods sold. If material, these costs should be separately disclosed.
