Intermediate Accounting Case Summary

The FASB codifications for the cost flow assumption and the lower-of-cost-or-market for the inventory accounting are ASC 330-10-30-9 and ASC 330-10-35-1.

This case would be treated differently if Andrew applies international financial reporting standards instead of generally accepted accounting principle. First of all, the relevant guidance for GAAP is ASC330, while for IFRS is IAS 2. And under GAAP and IFRS, the inventory cost flow both are not required to portray the actual flow of goods. However, in terms of possible inventory cost flow assumptions for use by Yusef Burgos Manufacturing, IFRS is more restrictive unavailable assumptions comparing with GAAP. Although both GAAP and IFRS allow the companies using Specific Identification, Weighted

However, the revaluation of inventory differs between GAAP and IFRS because instead of requiring inventory to be reported as lower of cost or market, IFRS requires inventory to be reported as lower of cost or net realizable value. Net realizable value “refers to the net amount that a company expects to realize from the sale of inventory” (Page 526, “Intermediate Accounting-15 Edition” by Kieso, Weygandt, and Warfield). This IFRS requirement is the estimated inventory value, less the estimated costs of completion and estimated selling expenses. IFRS also permits that if inventory is written down in one period under lower of cost or net realizable value, the write-down may be reversed to write back its original cost in a subsequent period. On the other hand, GAAP prohibits inventory from being written back in a subsequent period if it has already been written down under lower of cost or market (Page 526, “Intermediate Accounting-15 Edition” by Kieso, Weygandt, and Warfield). In conclusion, GAAP and IFRS share many similar components in inventory valuation accounting standards