FASB simplifies inventory measurement guidance

FASB simplifies inventory measurement guidance

FASB has issued new financial reporting guidance that is designed to reduce the complexity related to the subsequent measurement of inventory.

Accounting Standards Update No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory applies to all inventory except that which is measured using last-in, first-out (LIFO) or the retail inventory method. Inventory measured using first-in, first-out (FIFO) or average cost is included in the new amendments.

FASB received feedback saying the changes would decrease costs and increase comparability for inventory measured using FIFO or average cost, but could result in high transition costs for inventory measured using the LIFO or retail inventory method.

Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method.

FASB amended some other guidance in Topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory, but the board does not intend changes in practice to result from those changes.  Read more on the Journal of Accountancy.