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Section 3140: Inventory
[U.S. GAAP Codification Topic]
330 Inventory
330-10 Overal
[U.S. GAAP before the Codification]
ARB 43, June 1953, Chapter 4, Inventory Pricing
SFAS 151, November 2004, Inventory Costs, an amendment of ARB No. 43, Chapter 4
1. Inventory
Tangible personal property of the following:
(1) held for sale --> merchandise, finished goods
(2) in the course of production --> work in process
(3) to be consumed in the production --> raw materials
2. Initial measurement
Inventories are measured at cost when first recognized
3. Cost flow assumptions
One of the following assumptions is made to determine the cost of inventory:
(1) First-in First-out (FIFO): Items that came in first are sold first
(2) Last-in First-out (LIFO): Items that came in last are sold first
(3) Average method: Weighted average cost is applied as unit cost
4. Retail inventory method is
--> allowed in some situations
5. Subsequent measurement
If the market is lower than the cost
--> inventory is measured at the market
--> "Lower of Cost or Market" (LCM)
6. Market
(1) The market refers to current replacement cost
(2) If net realizable value (NRV) is lower that current replacement cost
--> NRV is the market
(3) If current replacement cost is lower than (3a)
--> (3a) is the market
(3a) net realizable value - normal profit margin
7. Lower of Cost or Market (LCM) summary
(a) current replacement cost
(b) net realizable value
(c) net realizable value - normal profit margin
If (c) < (a) < (b) --> market = (a)
If (c) < (b) < (a) --> market = (b)
If (a) < (c) < (b) --> market = (c)
8. International Financial Reporting Standards (IFRS)
IAS 2: Inventories
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