Per ASU 2015-11, when do entities compare the cost of inventory to its net realizable value?
Understand the Problem
The user is asking a question about accounting standards, specifically ASU 2015-11, and when entities are required to compare the cost of inventory to its net realizable value. The user wants to choose the correct answer.
Answer
Entities compare the cost of inventory to its net realizable value (NRV) and measure inventory at the lower of cost and NRV.
Per ASU 2015-11, entities compare the cost of inventory to its net realizable value (NRV). They are required to measure inventory at the lower of cost and NRV.
Answer for screen readers
Per ASU 2015-11, entities compare the cost of inventory to its net realizable value (NRV). They are required to measure inventory at the lower of cost and NRV.
More Information
ASU 2015-11 simplifies inventory measurement by removing the need to consider both replacement cost and net realizable value less a normal profit margin.
Tips
A common mistake is continuing to use the old 'lower of cost or market' method instead of switching to the 'lower of cost or net realizable value' as required by ASU 2015-11.
Sources
- FASB Simplifies Inventory Guidance - Calibre CPA Group - calibrecpa.com
- Inventory (Topic 330) - PwC Viewpoint - viewpoint.pwc.com
- Highlights of FASB's ASU 2015-11 - Dean Dorton - deandorton.com
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