Route subsequent measurement before comparing amounts

Build supported NRV, separate the non LIFO/non retail path from the retained LIFO/retail market path, and preserve an explicit IAS 2 boundary.

Updated Sep 10, 2026 Review due Nov 8, 2026

The controller writes one formula across every SKU: MIN(cost, NRV). Half the items use LIFO. The formula is computationally tidy and conceptually wrong.

Build NRV from evidence

Inventory NRV begins with estimated ordinary-course selling price and subtracts reasonably predictable completion, disposal, and transportation costs under the applicable guidance. Retain item or category, condition, channel, price source, date, expected discount, completion work, transport, selling cost, subsequent sale, preparer, sensitivity, and reviewer. List price and gross cash receipt are not NRV.

Route the US-GAAP population

The split exists because current US GAAP retained an older market test for LIFO and retail-method inventory when ASU 2015-11 simplified the test for other Topic 330 inventory. Begin with a label-free question: Does this population use LIFO or the retail inventory method? If no, compare cost directly with NRV. If yes, constrain replacement cost between an NRV ceiling and an NRV-less-normal-profit floor before comparing with cost.

For inventory measured by methods other than LIFO or the retail inventory method, compare cost directly with NRV. Cedar Trail's ordinary item costs $980 and has a supplied $900 NRV. Carrying amount is $900; the adjustment is $80.

For LIFO or retail-method inventory, use the retained market route. NRV is the ceiling. NRV less an approximately normal profit margin is the floor. Constrain replacement cost to that range to obtain designated market, then compare cost with designated market.

For the separate LIFO item:

cost: $1,000;
NRV/ceiling: $940;
normal profit: $100, so floor: $840;
replacement cost: $880, inside the range; and
designated market: $880, producing a $120 write-down.

Do not use replacement cost on the ordinary item or direct NRV on the LIFO item. The population decision precedes the subtraction.

IFRS comparison

US GAAP: This inventory follows either the direct net-realizable-value test or the retained market test, based on its cost method. A write-down creates a new cost basis and is not later reversed.

IFRS: IAS 2 uses lower of cost and net realizable value and does not permit LIFO. A later increase in net realizable value reverses an earlier write-down, but not above the original cost.

Effect: If the ordinary item's net realizable value later rises from $900 to $950, US GAAP leaves it at $900. IFRS increases it to $950 and recognizes a $50 reversal.

Evidence challenge

Change only the LIFO item's replacement cost to $800. Designated market becomes the $840 floor, not $800. Then remove support for normal profit. The arithmetic still runs if someone types $100, but the measurement file is not releasable.

Follow the focused learning path

Start with the Cedar subsequent-measurement example. It builds NRV and then routes separate ordinary and LIFO populations. Complete the Northstar review with new evidence and a below-floor replacement cost. Use the broad Cedar Trail example later for a full method comparison.