> Basis for Stating Inventories
330-10-50-1. The basis of stating inventories shall be consistently applied and shall be disclosed in the financial statements; whenever a significant change is made therein, there shall be disclosure of the nature of the change and, if material, the effect on income. A change of such basis may have an important effect upon the interpretation of the financial statements both before and after that change, and hence, in the event of a change, a full disclosure of its nature and of its effect, if material, upon income shall be made. See paragraph 210-10-50-1.
> Losses from Application of Lower of Cost or Market
330-10-50-2. When substantial and unusual losses result from the application of the rule of lower of cost or market it will frequently be desirable to disclose the amount of the loss in the income statement as a charge separately identified from the
consumed inventory costs described as cost of goods sold.
> Goods Stated Above Cost
330-10-50-3. Where goods are stated above cost this fact shall be fully disclosed.
> Stating Inventories at Sales Prices
330-10-50-4. Where such inventories are stated at sales prices, the use of such basis shall be fully disclosed in the financial statements.
> Losses on Firm Purchase Commitments
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330-10-50-5. The amounts of net losses on firm purchase commitments accrued under paragraph 330-10-35-17 shall be disclosed separately in the income statement.
> Disclosure of Significant Estimates
330-10-50-6. See Example 1 (paragraph 330-10-55-8) for an illustration of the
disclosure of significant estimates applicable to inventories as required by Section 275-10-50.
SEC Guidance
> LIFO Inventories
1 FR 205.02c. SEC registrants should avoid terminology such as “LIFO reserve” or
“LIFO adjustment”.
2 SAB Topic 11.F. Disclose income realized as a result of a last-in, first-out (LIFO) liquidation. Disclosure may be made either in a footnote or parenthetically on the face of the income statement.
> Consigned Inventory
3 SAB 104 Topic 13.A.2. Amount of any inventory consigned to others should be reported separately as “inventory consigned to others” or other appropriate caption.
> Purchase Obligations
4 S-K, 3-03(a)(5). Disclose purchase obligations including agreements to purchase goods and services.
KPMG and Other Guidance
> LIFO Inventories
1 For LIFO inventories (AICPA Issues Paper, Identification and Discussion of Certain Financial Accounting and Reporting Issues Concerning LIFO Inventories, November 30, 1984):
a. For non-SEC registrants, LIFO reserve or replacement cost of the inventory.
(See Regulation S-X Rule 5-02.6(c) above for SEC registrants.)
b. Dollar amount of inventory valued on LIFO and, separately, the dollar amount of inventory valued on other acceptable methods, e.g., FIFO.
c. Extent to which LIFO is used for entities not fully adopting LIFO.
> > Optional Supplemental Disclosures Regarding the Effect of Using LIFO (From AICPA Issues Paper, Identification and Discussion of Certain Financial Accounting and Reporting Issues Concerning LIFO Inventories, November 30, 1984) 2 Supplemental non-LIFO disclosures may include the effects on the income
statement and the statement of financial position and include certain pro forma effects of using LIFO. However, there are limitations on nature of the supplemental non-LIFO disclosures that may be provided, with an overarching principle that when such supplemental disclosures are provided, the disclosures should not imply that
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the non-LIFO earnings are the “real earnings” of the entity.
3 In presenting supplemental non-LIFO disclosures some entities may want to include the effects of non-discretionary, variable expenses that would have affected the income statement or the statement of financial position, such as a profit sharing arrangement. In providing supplemental non-LIFO disclosures, an entity should include changes in discretionary, variable expenses if it is probable that the non-discretionary variable expenses would have been different based on the
supplemental information. Assessing probability is enhanced when such non-discretionary, variable expenses are based on a pre-determined formula. When such expenses are not based on a pre-determined formula but it is probable that the variable expense would have changed based on the supplemental information, the basis for the determination of the non-discretionary, variable expense should be disclosed.
4 In addition to adjusting non-LIFO supplemental disclosures for the probable effects of non-discretionary, variable expenses, the effects of income taxes also should be considered in such disclosures. The income tax effect in such disclosures should be computed in accordance with GAAP and should not be adjusted for any interest costs associated with losing the tax advantages associated with using LIFO.
5 SEC FR 205.02c. In order to promote better understanding of the non-LIFO supplemental disclosures, the SEC requires entities to:
a. State clearly that the use of LIFO results in a better matching of costs and revenues.
b. Indicate the reason why the supplemental disclosures are provided.
c. Present essential information about the supplemental income calculation to enable users of the financial statements to appreciate the quality of the information presented.
6 SEC FR 205.02c. Supplemental non-LIFO disclosures, if any, should be included in the notes to the financial statements or in MD&A. The SEC does not permit such disclosures to be made in financial highlights, press releases, or the president’s letter in an annual report to shareholders.
34 Topic 340-10: Deferred Costs and Other Assets—Overall — SEC Guidance > Pre-Production Costs Related to Long-Term Supply Agreements
1 SEC Observer Comment: Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements. Registrants will be expected to disclose their
accounting policy for pre-production design and development costs (paragraph 340-10-25-1) as well as the aggregate amount of:
a. Assets recognized pursuant to agreements that provide for contractual reimbursement of pre-production design and development costs
b. Assets recognized for molds, dies, and other tools that the supplier owns c. Assets recognized for molds, dies, and other tools that the supplier does not
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own.
35 Subtopic 340-20: Deferred Costs and Other Assets—Capitalized Advertising Costs