FASB recently issued Accounting Standards Update 2015-11 Inventory (Topic 33) Simplifying the Measurement of Inventory. The amendments in this Update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method.
Prior to this update, entities were required to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin.
The update provides that entities should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016. The amendments in this Update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.
For more information, please contact Denis Higgins.