Skip to main navigation

US GAAP versus IFRS - Inventory - EY - United States

US GAAP versus IFRS

Inventory

  • Share



Similarities

ASC 330, Inventory, and IAS 2, Inventories, are based on the principle that the primary basis of accounting for inventory is cost. Both define inventory as assets held for sale in the ordinary course of business, in the process of production for such sale or to be consumed in the production of goods or services.

Permissible techniques for cost measurement, such as retail inventory method, are similar under both US GAAP and IFRS. Further, under both sets of standards, the cost of inventory includes all direct expenditures to ready inventory for sale, including allocable overhead, while selling costs are excluded from the cost of inventories, as are most storage costs and general administrative costs.

Significant differences


 US GAAPIFRS
Costing methodsLIFO is an acceptable method. Consistent cost formula for all inventories similar in nature is not explicitly required.LIFO is prohibited. Same cost formula must be applied to all inventories similar in nature or use to the entity.
Measurement Inventory is carried at the lower of cost or market. Market is defined as current replacement cost, but not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and not less than net realizable value reduced by a normal sales margin.Inventory is carried at the lower of cost or net realizable value. Net realizable value is defined as the best estimate of the net amount inventories are expected to realize.
Reversal of inventory write-downsAny write-down of inventory to the lower of cost or market creates a new cost basis that subsequently cannot be reversed.Previously recognized impairment losses are reversed up to the amount of the original impairment loss when the reasons for the impairment no longer exist.
Permanent inventory markdowns under the retail inventory method (RIM)Permanent markdowns do not affect the gross margins used in applying the RIM. Rather, such markdowns reduce the carrying cost of inventory to net realizable value, less an allowance for an approximately normal profit margin, which may be less than both original cost and net realizable value.Permanent markdowns affect the average gross margin used in applying the RIM. Reduction of the carrying cost of inventory to below the lower of cost or net realizable value is not allowed.

Convergence

No further convergence is planned at this time.



<< Previous | Next >>

Back to top