Inventory

Article Dean Dorton

Inventory (Topic 300): Simplifying the Measurement of Inventory

In July, the Financial Accounting Standards Board (FASB) issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires entities to measure inventories at the lower of cost and net realizable value.  The amendment is expected to increase comparability and reduce costs.  ASU 2015-11 applies to all inventory measured using first-in, first out (FIFO) and average cost, but does not apply to inventories accounted for under last-in, first-out (LIFO) or the retail inventory method.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The FASB has issued this update as part of its Simplification Initiative which is intended to “identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements.”

Except for public entities, the ASU is effective for periods beginning after December 15, 2016, including interim periods within fiscal years beginning after December 15, 2017.  The amendment is effective for periods beginning after December 15, 2016, including interim periods within those fiscal years for public entities.  Early adoption is permitted, and the ASU should be applied prospectively as of the beginning of an interim or annual reporting period.

ASU 2015-11

Dean Dorton would be happy to discuss implications for your business.  For more information, please contact Lance Mann at lmann@deandorton.com.


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Article Dean Dorton

The rules for Materials and Supplies, the third topic in our series, define materials and supplies to include items costing $200 or less.

These rules require non-incidental items to be capitalized and deducted when used or consumed, not necessarily in the year acquired.  Items are considered non-incidental if an inventory or record of consumption is maintained.  Items that are incidental (not inventoried or tracked) are to be deducted when paid or incurred if the item is one of the following:

  1. Is a component acquired to maintain, repair, or improve a unit of tangible property, that you own, lease or service and that is not acquired as part of any single unit of property, including rotable and temporary spare parts (rotables) and standby emergency spare parts;
  2. Consists of fuel, lubricants, water and similar items that you reasonably expect to  consume in 12 months or less, beginning when first used in your  operations;
  3. Is a unit of property than has an economic useful life of 12 months or less, beginning when first used or consumed in your operations;
  4. Is a unit of property that has an acquisition cost or production cost of $200 or less; or
  5. Is identified in published guidance (such as the Federal Register or in the Internal Revenue Bulletin) as materials and supplies.

What this means to you:  Through the Material and Supplies rules, incidental items meeting the above-mentioned criteria may accelerate your deductions by expensing items in the current year, rather than electing to capitalize them and depreciating over the useful life.

If you would like additional information or have any questions, please contact Jeff Crumpley (jcrumpley@deandorton.com) or Faith Crump (fcrump@deandorton.com).

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