![]() ![]() The International Accounting Standards Board (IASB® Board) eliminated the use of LIFO because of its lack of representational faithfulness of inventory flows. Unlike US GAAP, IAS 2 prohibits LIFO as a cost formula. IAS 2 prohibits LIFO US GAAP allows its use. Here we summarize what we see as the top 10 differences in measurement of inventories under IFRS Standards and US GAAP. While both IAS 2 and ASC 330 share similar objectives, certain differences exist in the measurement and disclosure requirements that can affect comparability. The amount of inventories and writedowns recognized as an expense in the period are disclosed. In our view, writedowns of inventory, as well as any reversals, should be presented in cost of sales. When the NRV of an item of inventory falls below its cost or current carrying amount, the item is written down to its NRV and the associated loss is recognized immediately in the income statement. It is based on the most reliable evidence available at the time the estimate is made, of the amount expected to be realizable from the inventories. NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Techniques for measuring the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate cost. Conversely, when there are many interchangeable items, cost formulas – first-in, first-out (FIFO) or weighted-average cost – may be used. If items of inventory are not interchangeable or comprise goods or services for specific projects, then cost is determined on an individual item basis. Cost includes not only the purchase cost but also the conversion and other costs to bring the inventory to its present location and condition. Inventories are generally measured at the lower of cost and net realizable value (NRV) 3. raw materials, packaging).Ĭommercial samples, returnable packaging or equipment spare parts typically do not meet the definition of inventories, although these might be managed using the inventory system for practical reasons. in the form of materials or supplies to be consumed in the production process or rendering of services (e.g.in the process of production for such sale (i.e.finished goods, merchandise purchased for resale) held for sale in the ordinary course of business (e.g.Here we summarize what we see as the main differences on inventory accounting between the two standards. Despite similar objectives, IAS 2 1 differs from ASC 330 in a number of areas 2. In accounting for inventory determining and capturing the costs to be recognized as an asset through the inventory lifecycle is key, because it affects a company’s KPIs such as gross profit margin. Inventory represents a significant part of the balance sheet for many companies. From the IFRS Institute – December 3, 2021
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