Comparison between U.S. GAAP and International ... - Grant Thornton

Comparison between U.S. GAAP and International Financial Reporting Standards 54
IFRS
the production process or in the rendering of services
IAS 2 applies to all inventories except (IAS 2.2)
• Work in progress arising under construction
contracts, including directly related service contracts
(see IAS 11)
• Financial instruments (see IAS 32, IAS 39, and
IFRS 9)
• Biological assets related to agricultural activity and
agricultural produce at point of harvest (see IAS 41)
U.S. GAAP
• In process of production for such sale
• To be currently consumed in the production of
goods or services to be available for sale
Measurement of inventories
Inventories shall be measured at the lower of cost and net
realisable value (IAS 2.9). Net realisable value is the
estimated selling price less the estimated costs of
completion and the estimated costs necessary to make
the sale (IAS 2.6).
Unlike IFRS, inventories are measured at the lower of
cost or market (but with a ceiling of net realizable value
and a floor of net realizable value less normal profit
margin) (ASC Master Glossary, “Market”).
IAS 2 does not apply to the measurement of inventories
held by (IAS 2.3):
• Producers of agricultural and forest products,
agricultural produce after harvest, and minerals and
mineral products, to the extent that they are
measured at net realisable value in accordance with
well-established practices in those industries
• Commodity broker-dealers who measure their
inventories at fair value less costs to sell
Cost of inventories
The cost of inventories shall comprise all costs of
purchase, costs of conversion, and other costs incurred in
bringing the inventories to their present location and
condition (IAS 2.10).
Abnormal amounts of wasted materials, labour, or other
production costs are excluded from the cost of inventories
and recognised as expenses in the period which they are
incurred. (IAS 2.16).
The allocation of fixed production overheads to the costs
of conversion is based on the normal capacity of the
production facilities (IAS 2.13).
Similar to IFRS, costs include all costs incurred in the
normal course of business in bringing the product or
service to its present location and condition
(ASC 330-10-30-1).
Similar to IFRS, ASC 330 states that abnormal amounts
of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as
current period charges. In addition, the allocation of
fixed production overheads to the costs of conversion
should be based on the normal capacity of the
production facilities (ASC 330-10-30-3 and 30-7).
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