Don Ho: When you purchase inventory you enter the raw materials at the price you paid for the item. Then when you make a particular product a portion of the raw material is removed from inventory at the price it was entered or on an average cost basis depending on how you value inventory. You would also enter the finished product at its current value. Then when you sell the product the current value is removed from inventory as a cost of goods sold and the difference between this amount and the sale price is your profit.

What you are missing in your scenario is the final step as you have not sold the product. To remove the product and scrap it you would have to take its value from inventory and charge it against an account such as inventory variance or an expense account for inventory write off. You only have to deal with the value as it is in your inventory.

There is another twist and that is your taxes. If you claimed a tax credit for the sales taxes paid at time of purchase of the raw material you should then be reversing this claim as the product is no longer available for sale. This would be similar to the self assessing of taxes on goods removed from inventory for personal use or for samples.

Don Ho said:

Not sure how to value finished, unsold goods that I have been carrying for a couple of years. They are unsellable
now

GAAP is to value inventory at the lower of Cost or Market.   If they're truly unsellable, then their market value.is zero. 

Any unrecorded prior cost such as labour, etc. is no longer relevant, as it would be redundant to add those costs to the value of dead stock inventory only to immediately write it off.