Question

Note that for US GAAP companies reporting on LIFO or the retail inventory method, the lower of cost or market is the appropriate accounting method. Limit your response to three SHORT paragraphs,as specified below.

Discussion A:
Read the objectives for IFRS (IAS 2, paragraph 1) and US GAAP (ASC 330-10-10-1).

Based upon what is stated in these objectives, which set of standards is more concerned with the balance sheet presentation of inventories? Explain in 1 sentence.

Discussion B:
Currently, IFRS is more likely than US GAAP to report assets at fair value (e.g., property, plant and equipment can be revalued under IFRS, but not US GAAP.)

Is the IFRS requirement that prior inventory write-downs be reversed just a different way of saying that inventory should be reported at market value under IFRS? Three sentences limit to respond to this question.

Discussion C:
While neither IAS 2 nor ASC 330 provides the reasoning for why the reversal of inventory write-downs is allowed or not allowed, the issues surrounding long-lived asset impairments should be quite similar. Read the basis of conclusions under US GAAP (SFAS No. 144, paragraph B53) and under IFRS (IAS 36, paragraphs BCZ 182 through BCZ 186) that provide a discussion of the reasons the Boards made the decisions that they did.

Do you believe that companies should be allowed/required to reverse prior inventory write-downs if the market value of the inventory increases in periods subsequent to the initial write-down? Three sentences limit to respond to this question.

Answer 1

A. Both IFRS and US GAAP are the primary source of guidance on accounting of inventories and are concerned with the balance sheet presentation of inventories.

B. No. It is the requirement of US GAAP, any write-downs of inventorybto the lower of cost or market creates a new cost basis that subsequently can't be reversed.

C.The reversal of write-downs better reflects the inventory information. I think the companies should reverse the write-downs even if the market value of the inventory increase in periods subsequent to initial write-down since it shows the potential future benefits benefits of the asset. It hows re-assessing the economic benefits.