Lower of cost and net realizable value applies under US GAAP to non-LIFO inventory that does not use the retail method. First identify the population and cost method. Then compare supported cost with supported NRV at the declared application level.
ASC 330-10-35-1A creates the routing decision. Paragraph 35-1B requires the lower of cost and NRV for the in-scope population and recognizes a loss when NRV is lower. Do not send LIFO or retail-method inventory through this direct comparison; those populations retain the market path.
Declare whether the test applies by item, category, or another supported level. Keep quantity, unit of measure, cost, NRV evidence, date, method, and reviewer aligned. For an item with $620 cost and $580 supported NRV, carrying amount is $580 and the write-down is $40. Debit the stated loss or cost account and credit inventory or an approved allowance according to policy. Reconcile the preadjustment balance, adjustment, and ending balance.
Under US GAAP, ASC 330-10-35-14 treats the reduced year-end amount as cost for later accounting. IAS 2 has a different reversal rule. Confirm the reporting framework rather than transferring one rule into the other.
Follow the Cedar example into independent Northstar practice.
Put the concept to work
Understand this concept
- Explain the lower-of-cost-and-NRV comparison and identify the US-GAAP populations to which the NRV path applies rather than the retained market path.
Apply this concept
- Compute a lower-of-cost-and-NRV adjustment at the declared application level, prepare the entry, and reconcile pre- and post-adjustment inventory.
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Build on these ideas
- Inventory net realizable value — Understand
To understand this concept: Required. The test compares cost with a supported NRV estimate.
- Lower of cost and net realizable value — Understand
To apply this concept: Required. The scope and comparison unit govern the calculation.
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Use this idea next
- Inventory write-down — Understand
Required level here: understand. Helpful. LCNRV is one route to a write-down.
- Lower of cost and net realizable value — Apply
Required level here: understand. Required. The scope and comparison unit govern the calculation.