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IFRS and US GAAP, with Website: A Comprehensive Comparison by Steven E. Shamrock

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4

INVENTORY

The accounting and reporting for inventory are very similar under IFRS and US GAAP. It has the same definition and in most cases the same basis. The costs of inventory sold is matched to revenues, and obsolete or slow-moving inventories are written down. However, IFRS requires inventories that are held for trading and used in agriculture to be carried at fair value.

INITIAL COST UPON RECOGNITION

Inventory is made of goods that are held for resale, or used to create goods held for resale (e.g., glue used in constructing furniture). Like property plant and equipment, inventory is generally initially recognized on a historical costs basis (there is some exception for trading and agricultural inventory under IFRS). All the costs, including allocation of certain overhead, to bring the inventory into salable condition must be capitalized to inventory.

Under both IFRS and US GAAP, production overhead is allocated to inventory based on normal capacity, which is the volume that a plant or facility can produce in a period (usually a year) based on the expected work schedule, staffing, and downtime (for repairs, holidays, experience, etc.). Any excess cost is expensed in the period incurred. Conversely, in periods production is higher than normal, allocated overhead is reduced so as to not overstate inventory. To summarize, significant variances as a result of production different from normal capacity is a one-way concept; excess overhead due to lower-than-normal production cannot ...

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