Asc 330-10

October 13, 2011 330 p arntage 10 Over severally 330-10-00 Status account ecumenical pock The Status role identifies dislodges to this Subtopic settlementing from account Standards modifys. The Section caters eccentrics to the affected Codification content and links to the matchd to account statement Standards Updates. Nonsubstantive changes for specifics much(prenominal) as editorial, link and same corrections be implicated separately in Maintenance Updates. world-wide 330-10-00-1 330- 10-00No updates have been made to this subtopic. 330-10-05 Overview and Background position habitual notice The Overview and Background Section provides all overview and background natural for the instruction contained in the Subtopic. It does non provide the historic background or cod process. It whitethorn contain plastered genuine that delectationrs everydayly consider netable to at a lower placestand the typical situations addressed by the standards. The Section does non summarize the write up and reportage filmments. ecumenical 330-10-05330-10-05-1 The Inventory Topic addresses the report principles and reporting practices applicable to pedigree. 30-10-05330-10-05-2 An fund has pecuniary signifi stoogece because revenues may be obtained from its sale, or from the sale of the goods or services in the undertaking of which it is used. commonly such revenues build up in a continuous repetitive process or cycle of operations in which goods be acquired, created, and sold, and hike up goods are acquired for surplus gross revenue. 330-10-05330-10-05-3 Thus, the stock at any tending(p) date is the balance of m wizardtary regard ass applicable to goods on hand remaining after the matching of absorbed equals with con flowing revenues.This balance is appropriately carried to emerging full stops provided it does non exceed an amount properly chargeable against the revenues judge to be obtained from ultimate appetite of the go ods carried forward. In practice, this balance is de barrierined by the process of pricing the articles included in the document. 330-10-10 Objectives spirit frequent Note The Objectives Section provides the high-level objectives that the Subtopic is intended to accomplish or attain. The Section does not summarize or discuss the main principles of chronicle system and reporting requirements.General 330-10-10330-10-10-1 A study objective of accounting for inventories is the proper goal of income d 1 the process of matching appropriate damages against revenues. 330-10-15 screen background and Scope Exceptions Note General Note The Scope and Scope Exceptions Section outlines the positions (for example, the entities, transactions, instruments, or events) to which the focus in the Subtopic does or does not apply. In somewhat groundss, the Section may contain commental or opposite text to frame the scope. General > Overall GuidanceThe Scope Section of the Overall Subtopi c establishes the pervasive scope for the Inventory Topic. 330-10-15330-10-15-1 > Entities The charge in the Inventory Topic applies to all entities, with the fol baseborning qualifications. The guidance in this Topic is not necessarily applicable to the adjacent entities 330-10-15330-10-15-2 330-10-15330-10-15-3 a. Not-for-profit entities (NFPs) b. Regulated utilities. 330-10-20 rubric Note General Note The Master G bolshieary contains all terms determine as burnish terms throughout the Codification.Clicking on any term in the Master G blemishary will let out where the term is used. The Master Glossary may contain identical terms with unlike definitions, some of which may not be appropriate for a particular Subtopic. For any particular Subtopic, users should only use the burnish terms included in the particular Subtopic Glossary Section (Section 20). Direct effectuate of a transform in explanation linguistic radiation pattern Those recognized changes in assets or liabil ities necessary to effect a change in accounting principle. An example of a irect effect is an adjustment to an document balance to effect a change in memorial valuation regularity. Related changes, such as an effect on deferred income assess assets or liabilities or an impairment adjustment issuanceing from applying the unhorse-of- follow-or- market place test to the adjusted inventory balance, also are examples of convey effects of a change in accounting principle. Inventory The aggregate of those concomitants of tangible personal shoes that have any of the by-line characteristics a. Held for sale in the ordinary stratum of ph wholeness line b.In process of labor for such sale c. To be currently consumed in the merchandise of goods or services to be functional for sale. The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of point of intersectionion ( cipher in process ), and goods to be consumed directly or indirectly in output signal (raw materials and supplies). This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified.The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory. sorefangled materials and supplies leveraged for production may be used or consumed for the construction of long-term assets or another(prenominal) purposes not related to production, but the fact that inventory items representing a small portion of the resume may not be absorbed ultimately in the production process does not require separate potpourri.By trade practice, operating materials and supplies of certain types of entities such as oil producers are usually treated as inventory. market As used in the phrase lower of salute or market, the term market means current alt ernatement constitute (by purchase or by reproduction, as the case may be) provided that it meets both(prenominal) of the undermentioned(a) conditions a. foodstuff shall not exceed the net realizable value b. Market shall not be little than net realizable value reduced by an allowance for an rough everyday profit margin. make Realizable Value Estimated interchange bell in the ordinary course of business less reasonably predictable be of completion and disposition. 330-10-30 Initial measurement Note General Note The Initial Measurement Section provides guidance on the criteria and amounts used to measure a particular item at the date of initial knowledge. General > approach Basis 330-10-30330-10-30-1 The primary basis of accounting for inventories is appeal, which has been define globally as the outlay paid or consideration given to acquire an asset.As applied to inventories, hail means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in speech an article to its existing condition and location. It is understood to mean acquisition and production cost, and its decision involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory be may be easily give tongue to, their screening, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the apportioning of cost and charges. 30-10-30330-10-30-3 For example, variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. However, the parcelling of fixed production overheads to the costs of conversion is ground on the typical capacity of the production facilities. Normal capacity call downs to a range of production levels. Normal capacity is the production expected to be achieved over a number of periods or seasons under usual deal, taking into account th e loss of capacity terminusing from intend maintenance.Some variation in production levels from period to period is expected and establishes the range of normal capacity. 330-10-30330-10-30-4 The range of normal capacity will vary based on business- and industry-specific factors. Judgment is required to determine when a production level is abnormally low (that is, outside the range of expected variation in production). 330-10-30330-10-30-5 utilizations of factors that might be anticipated to cause an abnormally low production level include significantly reduced demand, labor and materials shortages, and unplanned facility or equipment down date. 30-10-30330-10-30-6 The actual level of production may be used if it uncuts normal capacity. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production shall be decreased so that inventories are not measured above cost. The amount of fixed overhead allocated to each unit of production shal l not be increased as a consequence of abnormally low production or idle plant. 330-10-30330-10-30-7 Unallocated overheads shall be recognized as an expense in the period in which they are incurred. other(a) items such as abnormal freight, handling costs, and amounts of wasted materials (spoilage) require treatment as current period charges quite than as a portion of the inventory cost. 330-10-30330-10-30-8 Also, under most set, ecumenical and administrative expenses shall be included as period charges, except for the portion of such expenses that may be clearly related to production and thus absent shape a part of inventory costs (product charges). Selling expenses constitute no part of inventory costs. The exclusion of all overheads from inventory costs does not constitute an trustworthy accounting modus operandi.The exercise of judgment in an undivided situation involves a consideration of the adequacy of the procedures of the cost accounting system in use, the soundness of the principles thereof, and their pursuant(predicate) application. General and administrative expenses ordinarily shall be aerated to expense as incurred but may be accounted for as contract costs under the completed-contract mode of accounting or, in some mass, as indirect contract costs by government contractors. > ending of Inventory Costs 30-10-30330-10-30-9 Cost for inventory purposes may be determined under any one of several assumptions as to the flow of cost factors, such as first-in first-out (FIFO), second-rate, and last-in first-out (last in first out). The major objective in selecting a method should be to choose the one which, under the circumstances, most clearly reflects semiannual income. 330-10-30330-10-30-10 The cost to be matched against revenue from a sale may not be the identified cost of the specific item which is sold, especially in cases in which similar goods are purchased at different periods and at different prices.While in some lines of busi ness specific lots are clearly identified from the time of purchase through the time of sale and are costed on this basis, ordinarily the identity of goods is lost between the time of acquisition and the time of sale. 330-10-30330-10-30-11 Accordingly, if the materials purchased in various lots are identical and interchangeable, the use of identified cost of the various lots may not produce the most useful fiscal statements.This fact has resulted in the global acceptance of several assumptions with respect to the flow of cost factors such as FIFO, average, and LIFO to provide practical bases for the measurement of occasional(a) income. 330-10-30330-10-30-12 Standard costs are acceptable if adjusted at honest intervals to reflect current conditions so that at the balance-sheet date standard costs reasonably approximate costs computed under one of the recognized bases.In such cases descriptive language shall be used which will demonstrate this relationship, as, for instance, app roximate costs determined on the first-in first-out basis, or, if it is want to mention standard costs, at standard costs, approximating average costs. 330-10-30330-10-30-13 In some situations a reversed mark-up procedure of inventory pricing, such as the retail inventory method, may be both practical and appropriate.The business operations in some cases may be such as to make it loveable to apply one of the acceptable methods of determining cost to one portion of the inventory or components thereof and another of the acceptable methods to other portions of the inventory. 330-10-30330-10-30-14 Although selection of the method should be made on the basis of the individual circumstances, financial statements will be much useful if like methods of inventory pricing are adopted by all companies within a given industry. > organic structure Required 330-10-30330-10-30-15 While the basis of stating inventories does not affect the overall gain or loss on the ultimate disposition of i nventory items, any inconsistency in the selection or employment of a basis may improperly affect the periodic amounts of income or loss. Because of the common use and importance of periodic statements, a procedure adopted for the treatment of inventory items shall be consistently applied in hunting lodge that the results reported may be whitely allocated between years. >Purchases and gross sales of Inventory with the Same Counterparty 330-10-30330-10-30-16 For a banter of the initial measurement of inventory purchased from an entity to which it also sells inventory in the same line of business, see dissevers 845-10-55-10 through 55-26. > Costs Resulting from Share-Based Payment Transactions See paragraph 718-10-25-2 for a banter of share-based payment capitalized as a part of inventory. 330-10-30330-10-30-17 > Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed 30-10-30330-10-30-18 See Sections 985-20-25 and 985-20-35 and paragraphs 985-20-55-2 through 55-3 for a discussion of accounting for the costs of producing and acquiring computer software, including software that is marketed as part of a product or process. > Costs of definite Construction-Type and Production-Type Contracts 330-10-30330-10-30-19 See Section 605-35-25 for a discussion of accounting for contract and precontract costs of certain construction-type and production-type contracts. 330-10-35 Subsequent MeasurementNote General Note The Subsequent Measurement Section provides guidance on an entitys accompanying measurement and subsequent recognition of an item. Situations that may result in subsequent changes to carrying amount include impairment, fair value adjustments, depreciation and amortization, and so forth. General > Adjustments to Lower of Cost or Market 330-10-35330-10-35-1 A personnel casualty from the cost basis of pricing the inventory is required when the emolument of the goods is no longer as great as their cost.Where there is test that the expediency of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the variation shall be recognized as a loss of the current period. This is principally accomplished by stating such goods at a lower level commonly designated as market market. 330-10-35330-10-35-2 The cost basis of transcription inventory ordinarily achieves the objective of a proper matching of costs and revenues.However, under certain circumstances cost may not be the amount properly chargeable against the revenues of future periods. A departure from cost is required in these circumstances because cost is satisfactory only if the utility of the goods has not fall since their acquisition a loss of utility shall be reflected as a charge against the revenues of the period in which it occurs. Thus, in accounting for inventories, a loss shall be recognized whenever the utility of goods is im paired by damage, deterioration, obsolescence, changes in price levels, or other causes.The measurement of such losses shall be accomplished by applying the radiation diagramr of pricing inventories at the lower of cost or market. This provides a practical means of measuring utility and thereby determining the amount of the loss to be recognized and accounted for in the current period. 330-10-35330-10-35-3 The rule of lower of cost or market is intended to provide a means of measuring the residual return of an inventory expenditure.The term market is therefore to be interpreted as indicating utility on the inventory date and may be thought of in terms of the equivalent expenditure which would have to be made in the ordinary course at that date to procure corresponding utility. 330-10-35330-10-35-4 As a general guide, utility is indicated primarily by the current cost of replacement of the goods as they would be obtained by purchase or reproduction. In applying the rule, however, judgment must(prenominal) always be exercised and no loss shall be recognized unless the evidence indicates clearly that a loss has been sustained.There are therefore exceptions to such a standard. replacing or reproduction prices would not be appropriate as a measure of utility when the estimated sales value, reduced by the costs of completion and disposal, is lower, in which case the realizable value so determined more appropriately measures utility. 330-10-35330-10-35-5 Furthermore, when the evidence indicates that cost will be recovered with an around normal profit upon sale in the ordinary course of business, no loss shall be recognized even though replacement or reproduction costs are lower.This might be true, for example, in the case of production under firm sales contracts at fixed prices, or when a reasonable volume of future orders is assured at stable sell prices. 330-10-35-6 If inventory has been the hedged item in a fair value hedge, the inventorys cost basis used i n the lower 330- 10-35of cost or market accounting shall reflect the effect of the adjustments of its carrying amount made pursuant to paragraph 815-25-35-1(b). 330-10-35330-10-35-7 Because of the many variations of circumstances encountered in inventory pricing, the definition of market is intended as a guide rather than a literal rule.It shall be applied rea numerateically in light of the objectives expressed in this Subtopic and with due think to the form, content, and spell of the inventory. For example, the retail inventory method, if adequate markdowns are currently interpreted, accomplishes the objectives described herein. It is also recognized that, if a business is expected to lose money for a sustained period, the inventory shall not be compose down to offset a loss inherent in the subsequent operations. 30-10-35330-10-35-8 Depending on the character and composition of the inventory, the rule of lower of cost or market may properly be applied each directly to each item or to the total of the inventory (or, in some cases, to the total of the components of each major category). The method shall be that which most clearly reflects periodic income. 330-10-35330-10-35-9 The purpose of reducing inventory to market is to reflect fairly the income of the period. The most common practice is to apply the lower of cost or market rule separately to each item of the inventory.However, if there is only one end-product category the cost utility of the total stockthe inventory in its entiretymay have the greatest significance for accounting purposes. Accordingly, the reduction of individual items to market may not always lead to the most useful result if the utility of the total inventory to the business is not below its cost. This might be the case if selling prices are not affected by temporary or small fluctuations in current costs of purchase or manufacture. 30-10-35330-10-35-10 Similarly, where more than one major product or operational category exists, the application of the lower of cost or market rule to the total of the items included in such major categories may result in the most useful determination of income. When no loss of income is expected to take place as a result of a reduction of cost prices of certain goods because others forming components of the same general categories of finished products have a market equally in excess of cost, such components need not be adjusted to market to the extent that they are in balanced quantities.Thus, in such cases, the rule of lower of cost or market, may be applied directly to the totals of the entire inventory, rather than to the individual inventory items, if they enter into the same category of finished product and if they are in balanced quantities, provided the procedure is applied consistently from year to year. 330-10-35330-10-35-11 To the extent, however, that the stocks of particular materials or components are excessive in relation to others, the more widely recognized proce dure of applying the lower of cost or market to the individual items constituting the excess shall be followed.This would also apply in cases in which the items enter into the production of unrelated products or products having a material variation in the rate of turnover. Unless an effective method of classifying categories is practicable, the rule shall be applied to each item in the inventory. 330-10-35330-10-35-12 See paragraphs 330-10-30-9 through 30-14 for guidance on inventory pricing methods. > Loss Due to Sales Incentive 330-10-35330-10-35-13 The offer of a sales incentive that will result in a loss on the sale of a product may indicate an impairment of existing inventory under this Subtopic. gt New Cost Basis 330-10-35-14 In the case of goods which have been written down below cost at the almost of a fiscal year, such 330- 10-35reduced amount is to be considered the cost for subsequent accounting purposes. Paragraph 270-10-45-6 provides guidance for preparing interim fi nancial statements. > Stating Inventories Above Cost 330-10-35330-10-35-15 Only in exceptional cases may inventories properly be give tongue to above cost.For example, precious metals having a fixed monetary value with no substantial cost of marketing may be stated at such monetary value any other exceptions must be justifiable by inability to determine appropriate approximate costs, spry marketability at quoted market price, and the characteristic of unit interchangeability. 330-10-35330-10-35-16 It is generally recognized that income accrues only at the time of sale, and that gains may not be anticipated by reflecting assets at their current sales prices.However, exceptions for reflecting assets at selling prices are permissible for both of the following a. Inventories of gold and silver, when there is an effective government-controlled market at a fixed monetary value b. Inventories representing agricultural, mineral, and other products, with all of the following criteria 1. Units of which are interchangeable 2. Units of which have an immediate marketability at quoted prices 3. Units for which appropriate costs may be difficult to obtain.Where such inventories are stated at sales prices, they shall be reduced by expenditures to be incurred in disposal. > Purchase Commitments 330-10-35330-10-35-17 A net loss on firm purchase commitments for goods for inventory, measured in the same way as are inventory losses, shall be recognized in the accounts. The recognition in a current period of losses arising from the stemma in the utility of cost expenditures is equally applicable to similar losses which are expected to arise from firm, uncancelable, and unhedged commitments for the future purchase of inventory items. 30-10-35330-10-35-18 The utility of such commitments is not impaired, and hence there is no loss, when the amounts to be realized from the disposition of the future inventory items are adequately protected by firm sales contracts or when there a re other circumstances that reasonably assure continuing sales without price decline. > chronicle Changes 330-10-35330-10-35-19 Paragraph 250-10-55-1 explains that a change in composition of the factors of cost included in inventory is an accounting change and provides related guidance. 30-10-35330-10-35-20 The definition of direct effects of a change in accounting principle includes a change in inventory valuation methods as an accounting change. > Vendor business relationship for Consideration Given to a Customer or Reseller See Subtopic 605-50 for a discussion of consideration given by a vendor to a customer. 330-10-35330-10-35-21 > Customer or Reseller history for Consideration Received from a Vendor 330-10-35330-10-35-22 See Section 605-50 for a discussion of accounting by a customer (including a reseller) for consideration received from a vendor. >Interim Financial reportage See paragraph 270-10-45-6 for a discussion of practices used in determining costs of invent ory on an 330-10-35330-10-35-23 interim basis. 330-10-45 Other Presentation Matters Note General Note The Other Presentation Matters Section provides guidance on other introduction matters not addressed in the Recognition, Initial Measurement, Subsequent Measurement, and Derecognition Sections. Other presentation matters may include items such as current or long-term balance sheet classification, hard currency flow presentation, earnings per share matters, and so forth.The FASB Codification also contains Presentation Topics, which provide guidance for general presentation and display items. See those Topics for general guidance. General > Change in Composition is Accounting Change 330-10-45330-10-45-1 See paragraph 330-10-35-19 for guidance on dealing with the effects of an accounting change resulting from a change in elements of cost included in inventory inventory. > Costs of Certain Construction-Type and Production-Type Contracts 330-10-45330-10-45-2 See paragraphs 605-35-45 -3 through 45-5 for guidance on presenting contract costs of certain construction-type and production-type contracts. 30-10-50 disclosure Note General Note The disclosure Section provides guidance regarding the disclosure in the notes to financial statements. In some cases, disclosure may relate to disclosure on the face of the financial statements. General > Basis for Stating Inventories 330-10-50330-10-50-1 The basis of stating inventories shall be consistently applied and shall be disclosed in the financial statements whenever a significant change is made therein, there shall be disclosure of the nature of the change and, if material, the effect on income. A change of such basis ay have an important effect upon the interpretation of the financial statements both before and after that change, and hence, in the event of a change, a full disclosure of its nature and of its effect, if material, upon income shall be made. > Losses from Application of Lower of Cost or Market 330- 10-50330-10-50-2 When substantial and unusual losses result from the application of the rule of lower of cost or market it will frequently be desirable to disclose the amount of the loss in the income statement as a charge separately identified from the consumed inventory costs described as cost of goods sold. gt Goods Stated Above Cost Where goods are stated above cost this fact shall be richly disclosed. 330-10-50330-10-50-3 > Stating Inventories at Sales Prices 330-10-50330-10-50-4 Where such inventories are stated at sales prices, the use of such basis shall be fully disclosed in the financial statements. > Losses on Firm Purchase Commitments 330-10-50330-10-50-5 The amounts of net losses on firm purchase commitments increase under paragraph 330-10-35-17 shall be disclosed separately in the income statement. > disclosure of Significant Estimates 330-10-50330-10-50-6 See Example 1 (paragraph 330-10-55-8) for an illustration of the disclosure of significant estimates appli cable to inventories as required by Section 275-10-50. 330-10-55 slaying Guidance and Illustrations Note General Note The Implementation Guidance and Illustrations Section contains implementation guidance and illustrations that are an integral part of the Subtopic. The implementation guidance and illustrations do not address all potential variations.Users must consider carefully the actual facts and circumstances in relation to the requirements of the Subtopic. General 330-10-55330-10-55-1 This Section, which is an integral part of the requirements of this Topic, provides general guidance to be used in accounting for inventory Certain assumptions have been made to change the computations and focus on the inventory. issue at hand in each illustration. > >> Implementation Guidance Market Decline in Interim Period 30-10-55330-10-55-2 If near-term price recovery is uncertain, a decline in the market price of inventory below cost during an interim period shall be accounted for as follows. Paragraph 270-10-45-6 requires that the inventory be written down to the lower of cost or market unless either of the following conditions is met a. cheering evidence exists that market prices will recover before the inventory is sold. b. In the case of last-in, first-out (LIFO) inventory, substantial evidence exists that inventory amounts will be restored by year-end. A demean is generally required nless the decline is due to seasonal price fluctuations. >> Costs Capitalized to Inventory for Tax Purposes 330-10-55330-10-55-3 The following provides guidance as to whether the types of costs that are required to be allocated to inventories for tax revenue purposes under the Uniform Capitalization Rules for Inventory under the Tax purify Act of 1986 would be capitalizable under generally accepted accounting principles (GAAP) and, if so, whether the costing method required for tax purposes is a preferable method for purposes of justifying a change in accounting principl e. 30-10-55330-10-55-4 The fact that a cost is capitalizable for tax purposes does not, in itself, indicate that it is preferable, or even appropriate, to capitalize that cost for financial reporting purposes. Certain of the additional costs that are required to be capitalized for tax purposes may also be capitalizable for financial reporting purposes, depending on factors such as the nature of the entitys operation and industry practice. That determination, however, can only be made after an analysis of the individual facts and circumstances. gtgt gtgtgt Capitalizing Pension and Other Postretirement Cost Into Inventory Interest Cost Component 330-10-55330-10-55-5 A fundamental aspect of Sections 715-30-35 and 715-60-35 is to combine or aggregate the various pension and other postretirement cost components, including service cost, interest cost, expected return on plan assets, and amortization of all of the following items recognized in accumulated other comprehensive income a. plu nder transition asset or covenant b. Prior service cost or credit c.Net gain or loss. 330-10-55330-10-55-6 In the aggregate, net periodic pension and other postretirement cost is viewed as an element of employee compensation. Therefore, when it is appropriate to capitalize employee compensation in radio link with the construction or production of an asset, the net periodic pension and other postretirement cost applicable to the apt(p) employees for the period (including interest cost), not individual components of that amount, is the relevant amount. gtgtgt Net Periodic Pension Income 30-10-55330-10-55-7 If an entitys cost allocation process capitalizes net periodic pension cost as part of the cost of inventory or other assets, net periodic pension income also shall be capitalized, thereby reducing the total employee compensation and other costs being capitalized. > >> Illustrations Example 1 revelation of Significant Estimates 330-10-55330-10-55-8 This Example illustrate s the guidance in paragraph 330-10-50-6 regarding the disclosure of significant estimates related to inventory. Entity A manufactures high technology stereo equipment.In June 19X7, one of Entity As competitors introduced a new model stereo system with the same features as Entity As prototype A. The competitors version sells for significantly less than Entity As suggested retail price for prototype A. The introduction of this product resulted in a sharp decrease in the sales volume of Model A. As of celestial latitude 31, 19X7, Entity A has accumulated significant inventory quantities beyond its normal short-term needs of its Model A system. Inventory for Model A ($6 million) represents approximately 20 percent of Entity As inventory at that date.The remaining 80 percent of Entity As inventory consists of products experiencing only normal competitive pressures. Entity A has launch preps for obsolescence for this latter group of products in the normal course of business. 330-10-55 330-10-55-9 counseling has developed a program to provide substantial dealer incentives on purchases of the Model A, which it expects will result in the sale of this inventory in the near term. Because of the existing high profit margin on its stereo systems, Entity A would continue to earn a marginal profit on sales of the Model A under the new program.It is also reasonably possible, however, that the program will not be alone successful, and, accordingly, a material loss could ultimately result on the disposal of the inventory. 330-10-55330-10-55-10 The entity would disclose the following. As of December 31, 19X7, some portion of $6 million of inventory of one of the entitys products is in excess of Entity As current requirements based on the recent level of sales. Management has developed a program to reduce this inventory to desired levels over the near term and believes no loss will be incurred on its disposition.No estimate can be made of a range of amounts of loss that are reasonably possible should the program not be successful. 330-10-55330-10-55-11 This situation meets the criteria for disclosure under paragraph 275-10-50-8 because circumstances that existed at the date of the financial statements, including the lessen sales volume and excessive quantities of inventory of Model A, make it at least reasonably possible that managements plan to liquidate its excess inventory without a loss will be less than fully successful and that such an outcome would have a near-term material effect on the entitys financial statements. 30-10-55330-10-55-12 In this Example, Entity A discloses the existence of potentially excess quantities of inventory at the date of the financial statements and indicates that the uncertainty is expected to be resolved in the near term. The disclosure is intended to provide users with insight into managements assessment of recoverability of the cost of inventories existing at the date of the financial statements.Although disclosure of the $6 million carrying amount of the inventory of Model A is not required because, based on the facts presented, $6 million does not constitute a reasonable estimate of loss on the disposal of the inventory or the maximum amount in an estimated range of loss, disclosure of this amount is not misleading and may provide useful information. 330-10-55330-10-55-13 Discussion of Entity As provision for obsolescence for the remaining 80 percent of its inventory is not required because it is not considered reasonably possible that additional aterial losses on this inventory will occur. 330-10-75 XBRL portions Note General Note This section contains a list of XBRL elements that reference paragraphs in this Subtopic. For additional details regarding changes to the development version of the US GAAP Financial Reporting Taxonomy, refer to the FASB taxonomy review and comment system on the FASB web site (www. fasb. org). Adjustments for Change in Accounting precept Domain section unwrap C hangeInAccountingPrincipleMember This XBRL element references the following paragraph(s)/term(s) in this Subtopic Direct Effects of a Change in Accounting Principle This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) Accounting Change Change in Accounting Principle Indirect Effects of a Change in Accounting Principle 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-1(b)(1)-(2) 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-2Adjustments for New Accounting Pronouncement Member Element draw NewAccountingPronouncementMember This XBRL element references the following paragraph(s)/term(s) in this Subtopic Direct Effects of a Change in Accounting Principle This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) Accounting Change Change in Accounting Principle Indirect Effects of a Change in Accounting Principle Inventory AdjustmentsEleme nt Name InventoryAdjustments This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > 50 Disclosure > General, 50-1 This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 isotropy Sheet > 10 Overall > S99 dry Materials > General, S99-1(SX 210. 5-02. 6(b)) Inventory Finished Goods, Policy Policy Text Block Element Name InventoryFinishedGoodsPolicy This XBRL element references the ollowing paragraph(s)/term(s) in this Subtopic Inventory 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-2 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-3 270 Interim Reporting > 10 Overall > 45 Other Presentation > General, 45-12 270 Interim Reporting > 10 Overall > 45 Other Presentation > General, 45-13 270 Interim Reporting > 10 Overall > S99 mho Materials > General, S99-1(SX 210. 0-01. (b)(6)) Selling, General and Administrative Expense Element Name SellingGeneralAndAdministrativeExpense This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > 30 Initial Measurement > General, 30-8 This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 225 Income Statement > 10 Overall > S99 siemens Materials > General, S99-2(SX 210. 5-03. 4) 2011-01Type of Change Domain (Deprecated 2011-01-31)Element Name TypeOfChangeDomain This XBRL element references the following paragraph(s)/term(s) in this Subtopic Direct Effects of a Change in Accounting Principle This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) Accounting Change Change in Accounting Principle Indirect Effects of a Change in Accounting Principle Retrospective Application 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-1(a) 250 Accounting Changes and Error C orrections > 10 Overall > 50 Disclosure > General, 50-2 250 Accounting Changes and Error Corrections > 10 Overall > 50 Disclosure > General, 50-3 250 Accounting Changes and Error Corrections > 10 Overall > S99 second Materials > General, S99-5(SAB result 11. M) 330-10-S00 Status Note General Note The Status Section identifies changes to this Subtopic resulting from Accounting Standards Updates.The Section provides references to the affected Codification content and links to the related Accounting Standards Updates. Nonsubstantive changes for items such as editorial, link and similar corrections are included separately in Maintenance Updates. General 330-10-S00330-10-S00-1 Paragraph 330-10-S35-2 The following table identifies the changes made to this Subtopic. Action Amended Accounting Standards Update Accounting Standards Update No. 2009-07 Date 09/15/2009 330-10-S35 Subsequent Measurement Note General Note The Subsequent Measurement Section provides guidance on an entitys subsequent measurement and subsequent recognition of an item.Situations that may result in subsequent changes to carrying amount include impairment, fair value adjustments, depreciation and amortization, and so forth. General > Restoration of Previously Written-Down Inventory Value 330-10-S35330-10-S35-1 See paragraph 330-10-S99-2, SAB Topic 5. BB, for SEC mental faculty views on restoration of inventory value following a previous write-down to lower of cost or market. > Classification of Inventory Markdowns and Other Costs Associated with a Restructuring 330-10-S35330-10-S35-2 See paragraph 420-10-S99-3, SEC commentator Comment Classification of Inventory Markdowns and Other Costs Associated with Restructuring, for SEC faculty views on income statement classification of inventory markdowns associated with a restructuring. 330-10-S45 Other Presentation MattersNote General Note The Other Presentation Matters Section provides guidance on other presentation matters no t addressed in the Recognition, Initial Measurement, Subsequent Measurement, and Derecognition Sections. Other presentation matters may include items such as current or long-term balance sheet classification, cash flow presentation, earnings per share matters, and so forth. The FASB Codification also contains Presentation Topics, which provide guidance for general presentation and display items. See those Topics for general guidance. General > Separate Presentation of Classes of Inventory 330-10-S45-1 See paragraph 210-10-S99-1, principle S-X Rule 5-02. 6, for requirements for inventory presentation 330- 10-S45on the balance sheet. 30-10-S50 Disclosure Note General Note The Disclosure Section provides guidance regarding the disclosure in the notes to financial statements. In some cases, disclosure may relate to disclosure on the face of the financial statements. General > Inventory Disclosure Requirements See paragraph 210-10-S99-1, principle S-X Rules 5-02. 6(b) through (d), for inventory disclosure 330-10-S50330-10-S50-1 requirements. > LIFO resolutions 330-10-S50330-10-S50-2 See paragraph 330-10-S99-3, SAB Topic 11. F, for SEC supply views on disclosure of income realized as a result of a last-in, first-out (LIFO) colonization. 330-10-S55 Implementation Guidance and IllustrationsNote General Note The Implementation Guidance and Illustrations Section contains implementation guidance and illustrations that are an integral part of the Subtopic. The implementation guidance and illustrations do not address all possible variations. Users must consider carefully the actual facts and circumstances in relation to the requirements of the Subtopic. General > LIFO Inventory Practices 330-10-S55330-10-S55-1 See paragraph 330-10-S99-1, SAB Topic 5. L, for SEC Staff views on appropriate last-in, first-out (LIFO) accounting practices. 330-10-S75 XBRL Elements Note General Note This section contains a list of XBRL elements that reference paragraphs in this Subt opic.For additional details regarding changes to the development version of the US GAAP Financial Reporting Taxonomy, refer to the FASB taxonomy review and comment system on the FASB web site (www. fasb. org). Effect of LIFO Inventory Liquidation on Income Element Name EffectOfLIFOInventoryLiquidationOnIncome This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S50 Disclosure > General, S50-2 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-3 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-3(SAB TOPIC 11. F) Inventory, Raw Materials, Net of ReservesElement Name InventoryRawMaterialsNetOfReserves This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-2(SAB TOPIC 5. BB) This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 Balance Sheet > 10 Overall > S9 9 SEC Materials > General, S99-1(SX 210. 5-02. 6(a)(4)) Inventory, Supplies, Net of Reserves Element Name InventorySuppliesNetOfReserves This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-2(SAB TOPIC 5. BB) This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 Balance Sheet > 10 Overall > S99 SEC Materials > General, S99-1(SX 210. 5-02. 6(a)(5))Inventory, Work in Process and Raw Materials, Net of Reserves Element Name InventoryWorkInProcessAndRawMaterialsNetOfReserves This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-2(SAB TOPIC 5. BB) This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 Balance Sheet > 10 Overall > S99 SEC Materials > General, S99-1(SX 210. 5-02. 6(a)(3),(4)) Inventory, Work in Process, N et of Reserves Element Name InventoryWorkInProcessNetOfReserves This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-2(SAB TOPIC 5.BB) This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 Balance Sheet > 10 Overall > S99 SEC Materials > General, S99-1(SX 210. 5-02. 6(a)(3)) Other Inventory, Net of Reserves Element Name OtherInventoryNetOfReserves This XBRL element references the following paragraph(s)/term(s) in this Subtopic 330 Inventory > 10 Overall > S99 SEC Materials > General, S99-2(SAB TOPIC 5. BB) This XBRL element references the following paragraph(s)/term(s) in other Subtopic(s) 210 Balance Sheet > 10 Overall > S99 SEC Materials > General, S99-1(SX 210. 5-02. 6) 330-10-S99 SEC Materials Note General Note As more fully described in the bring out to Constituents, the Codification includes selected SEC and SEC Staff content for reference by ublic companies. The Codification does not replace or affect how the SEC or SEC Staff issues or updates SEC content. SEC Staff content does not constitute Commission-approved rules or interpretations of the SEC. General > >> >>> SEC Staff Guidance Staff Accounting Bulletins SAB Topic 5. L, LIFO Inventory Practices The following is the text of SAB Topic 5. L, LIFO Inventory Practices. 330-10-S99330-10-S99-1 Facts On November 30, 1984, AcSEC and its travail Force on LIFO Inventory Problems (task force) issued a write up, Identification and Discussion of Certain Financial Accounting and Reporting Issues Concerning LIFO Inventories. This paper identifies and discusses certain financial accounting and reporting issues related to the last-in, first-out (LIFO) inventory method for which authoritative accounting literature presently provides no definitive guidance. For some issues, the task forces consultative conclusions advise changes in current practice to n arrow the diversity which the task force believes exists. For other issues, the task forces advisory conclusions recommend that current practice should be continued for financial reporting purposes and that additional accounting guidance is unnecessary. Except as otherwise noted in the paper, AcSEC generally supports the task forces advisory conclusions.As stated in the issues paper, Issues papers of the AICPAs accounting standards division are developed primarily to identify financial accounting and reporting issues the division believes need to be addressed or clarified by the Financial Accounting Standards Board. On February 6, 1985, the FASB decided not to add to its agenda a narrow project on the subject of LIFO inventory practices. Question 1 What is the SEC staffs position on the issues paper? Interpretive Response In the absence of existing authoritative literature on LIFO accounting, the staff believes that registrants and their independent accountants should look to the p aper for guidance in determining what constitutes acceptable LIFO accounting practice. FN11 In this connection, the staff considers the paper to be an accumulation of existing cceptable LIFO accounting practices which does not establish any new standards and does not start out from GAAP. FN11 In ASR 293 (July 2, 1981) see Financial Reporting Codification 205, the Commission expressed its concerns about the inappropriate use of Internal Revenue Service (IRS) LIFO practices for financial statement preparation. Because the IRS amended its regulations concerning the LIFO conformity rule on January 13, 1981, allowing companies to apply LIFO differently for financial reporting purposes than for tax purposes, the Commission strongly boost registrants and their independent accountants to examine their financial reporting LIFO practices.In that release, the Commission acknowledged the task force which has been established by AcSEC to accumulate information about LIFO application problems a nd noted that This type of effort, in addition to self-contemplation of LIFO practices by individual registrants, is appropriate The staff also believes that the advisory conclusions recommended in the issues paper are generally consistent with conclusions previously expressed by the Commission, such as 1. Pooling-paragraph 4-6 of the paper discusses LIFO inventory pooling and concludes establishing separate pools with the principal objective of facilitating inventory liquidations is unacceptable. In Accounting and Auditing Enforcement Release 35, August 13, 1984, the Commission stated that it believes that the Company improperly realigned its LIFO pools in such a way as to maximize the likelihood and magnitude of LIFO liquidations and thus, overstated net income. 2. New Items-paragraph 4-27 of the paper discusses determination of the cost of new items and concludes if the iterate extension or an index technique is used, the objective of LIFO is achieved by reconstructing the ba se year cost of new items added to existing pools. In ASR 293, the Commission stated that when the effects of inflation on the cost of new products are measured by making a comparison with current cost as the base-year cost, rather than a reconstructed base-year cost, income is improperly increased.Question 2 If a registrant utilizes a LIFO practice other than one recommended by an advisory conclusion in the issues paper, must the registrant change its practice to one specified in the paper? Interpretive Response Now that the issues paper is available, the staff believes that a registrant and its independent accountants should re-examine previously adopted LIFO practices and compare them to the recommendations in the paper. In the event that the registrant and its independent accountants conclude that the registrants LIFO practices are preferable in the circumstances, they should be prepared to justify their position in the event that a research is raised by the staff.Question 3 I f a registrant elects to change its LIFO practices to be consistent with the guidance in the issues paper and discloses such changes in accordance with APB judicial decision 20 Subtopic 250-10 will the registrant be requested by the staff to explain its past practices and its justification for those practices? Interpretive Response The staff does not expect to routinely raise questions about changes in LIFO practices which are made to make a companys accounting consistent with the recommendations in the issues paper. >>> SAB Topic 5. BB, Inventory military rating Allowance The following is the text of SAB Topic 5. BB, Inventory Valuation Allowance. 330-10-S99330-10-S99-2 Facts ARB 43, Chapter 4, Statement 5 paragraph 330-10-35-1, specifies that a departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its cost.Where there is evidence that the utility of goods, in their disposal in the ordinary course of busines s, will be less than cost, whether due to physical obsolescence, changes in price levels, or other causes, the difference should be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly designated as market. pedestrian 2 to that same chapter indicates that in the case of goods which have been written down below cost at the close of a fiscal period, such reduced amount is to be considered the cost for subsequent accounting purposes. Lastly, Opinion 20 provides inventory obsolescence as one of the items subject to estimation and changes in estimates under the guidance in paragraphs 10-11 and 31-33 of that Opinion. Question Does the write-down of inventory to the lower of ost or market, as required by ARB 43 Section 330-10-35, create a new cost basis for the inventory or may a subsequent change in facts and circumstances allow for restoration of inventory value, not to exceed original historical cost? Interpretive Response Based on ARB 43, footnote 2, the staff believes that a write-down of inventory to the lower of cost or market at the close of a fiscal period creates a new cost basis that subsequently cannot be marked up based on changes in underlying facts and circumstances. FN68 FN68 See also disclosure requirement for inventory balances in Rule 5-02(6) of Regulation S-X. >>> SAB Topic 11. F, LIFO LiquidationsThe following is the text of SAB Topic 11. F, LIFO Liquidations. 330-10-S99330-10-S99-3 Facts Registrant on LIFO basis of accounting liquidates a substantial portion of its LIFO inventory and as a result includes a material amount of income in its income statement which would not have been recorded had the inventory liquidation not taken place. Question Is disclosure required of the amount of income realized as a result of the inventory liquidation? Interpretive Response Yes. Such disclosure would be required in order to make the financial statements not misleading. Disclosur e may be made either in a footnote or parenthetically on the face of the income statement.