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Inventory Costing: A Comprehensive Case Study

Author

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  • Peter Harris
  • Umapathy Ananthanarayanan

Abstract

Under Accounting Standards Update (ASU) 330, Inventory requires an entity to measure inventory at lower of cost or market. Market value can be determined in three methods: replacement cost, net realizable value or net realizable value less profit margin. The Federal Accounting Standards Board (FASB) received comments from users that the current guidance on the measurement of inventory is unnecessarily complex because there are three potential outcomes to determine market. In response to these concerns, FASB issued ASU 2015-11 to simplify the measurement of inventory as part of the FASB’s Simplification initiative. In this paper, we outline the new mechanism proposed by FASB for measuring inventory and how it would impact entity’s financial statements. We provide a series of comprehensive questions relating to Lower of Cost and Net Realizable Value, and Lower of Cost or Market at the end of the paper. This case study is best suited for the Intermediate Accounting 1 course

Suggested Citation

  • Peter Harris & Umapathy Ananthanarayanan, 2019. "Inventory Costing: A Comprehensive Case Study," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 10(1), pages 15-24.
    • Handle: RePEc:ibf:rbfstu:v:10:y:2019:i:1:p:15-24
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    File URL: http://www.theibfr2.com/RePEc/ibf/rbfstu/rbfs-v10n1-2019/RBFS-V10N1-2019-2.pdf
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    Citations

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    Cited by:

    1. Manuela Lucchese & Ferdinando Di Carlo, 2021. "Inventories Accounting under US-GAAP and IFRS Standards: The Differences That Hinder the Full Convergence," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(7), pages 180-180, July.

    More about this item

    Keywords

    ASU 2015-11; ASC 330; Lower of Cost or Market; Lower of Cost or Net Realizable Value; Net Realizable Value; FIFO; LIFO; Replacement Cost; Inventory Floor;
    All these keywords.

    JEL classification:

    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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