Under IFRS, inventories are reported at the lower of cost or net realizable value (NRV).
IFRS does not apply to the measurement of inventories held by producers of agricultural and forest products, mineral products, or commodity brokers and dealers. Their inventories are measured at net realizable value (above or below cost) in accordance with well-established practices in those industries.
Similarly, GAAP requires the use of the lower-of-cost-or-market valuation basis (LCM) for inventories, with market value defined as replacement cost. Reversal is prohibited, however. The LCM valuation basis follows the principle of conservatism (on both the balance sheet and income statement) since it recognizes losses or declines in market value as they occur, whereas increases are reported only when inventory is sold.
Here are some relevant terms:
Historical cost: $5,000
Now assume NRV increases from $3,000 to $4,000 and the market cost increases from $2,000 to $3,000.
|romi: there are not disadvantages and advantages of the firm that using FIFO|
|charliedba: The advantages and disadvantages of FIFO are the opposites for LIFO.|
|geok: any other examples of ISA and US GAAP on decline in inventory value? am still not clear no this|
|xenamy: Isn't fair value also market value?|
| tll936: what the meaning of "passage of title" rule?|
|Sdeni: Note that Inventories for Agricultural and Forest products, producers of Minerals and Mineral Products, Commodity broker-traders are measured at NRV always.|