Accounting For Inventory

In general, inventory is shown on the balance sheet at the lower of cost and net realizable value. If inventory value falls below historical cost, company must write down to new value.

IFRS

Net realizable value = sales proceeds minus further costs to bring inventories to completion

In case of a write-down:

• Reduce inventory amount on Balance Sheet
• Decline in inventory hits income statement (COGS if small, separate expense if large)
• Permanent and irreversible

GAAP

Net realizable value = current replacement cost
In case of write-down:

Create contra asset on BS

• Decline in inventory hits P&L (usually COGS)
• Not necessarily permanent; can be reversed
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