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FASB issues ASU to simplify the measurement of inventory

  • FASB document Image

Jul 23, 2015

The FASB has issued Accounting Standards Update (ASU) No. 2015-11, “Simplifying the Measurement of Inventory,” as part of its simplification initiative. Under the ASU, inventory is measured at the “lower of cost and net realizable value,” which would eliminate the other two options that currently exist for “market”: (1) replacement cost and (2) net realizable value less an approximately normal profit margin.

The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement.

For public busi­ness en­ti­ties, the ASU is ef­fec­tive for interim and annual periods be­gin­ning after De­cem­ber 15, 2016. For all other en­ti­ties, the ASU is ef­fec­tive for annual periods be­gin­ning after De­cem­ber 15, 2016, and interim periods within annual periods be­gin­ning after De­cem­ber 15, 2017. Early ap­pli­ca­tion is per­mit­ted for all en­ti­ties. The ASU should be applied prospectively.

For more in­for­ma­tion, see De­loitte's related Heads Up newslet­ter as well as the ASU on the FASB’s Web site.

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