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International Financial Reporting Standards for
Inventory
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Generally
inventories are measured at the lower of cost and
net
realisable value, as opposed to U.S. Gaap, where
inventories are
generally measured at the lower of cost and
market. |
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The
cost of inventory generally is determined using the
FIFO (first-in,
first-out) or weighted average cost method. The use
of the LIFO
(last-in, first-out) method is prohibited.
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Net
realisable value is the estimated selling price less
the estimated
costs of completion and sale. Under U.S. Gaap,
“market” is
replacement cost limited by net realisable value
(ceiling) and net
realisable value less a normal profit margin
(floor). IFRSs, and GAAP
both define net realisable value as the estimated
selling price less
the estimated costs of completion and sale.
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If
the net realisable value of an item that has been
written down
increases subsequently, then the write-down is
reversed. Under
U.S. Gaap, a write-down of inventory to market is
not reversed for
subsequent recoveries in value.
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