Question

Explain the difference between IFRS and US GAAP in terms of inventory management..

Answer 1

Answer :

difference between IFRS and US GAAP in terms of inventory management

1) Inventory Method

IFRS standards does not allow for the use of LIFO, or last-in, first-out method of calculating inventory. Under US GAAP, however, businesses can use either LIFO or FIFO, or first-in, first-out method to estimate inventory.

The IFRS approach doesn’t allow for LIFO because it doesn’t demonstrate the flow of inventory and may represent lower levels of income than is actually the case. The flexibility to use either FIFO or LIFO under US GAAP, however, allows organizations to choose the method that is most convenient when valuing their inventory.

2) Inventory Reversals

Beyond having different inventory tracking methods, IFRS and US GAAP also differ in how reversals are handled.US GAAP specifies that if the market value of the asset increases, the write-down cannot be reversed. With IFRS, however, you can reverse the write-down. US GAAP is overly-cautious of inventory reversal and doesn’t reflect positive changes in the marketplace.

Simply Under U.S.​ GAAP, once inventory is down it can never be written back up even if its market value increases. Under​ IFRS, inventory can be written back​ up, but only to the extent of original cost if its market value has increased.

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