FAR Inventory: ownership at year-end, lower-of-cost tests (LCNRV vs LCM), and write-downs

The rules, one page each

1. Who Owns Inventory? FOB Shipping Point, Destination, ConsignmentSort it

   FOB shipping point transfers title when the carrier accepts the goods; FOB destination transfers title at delivery to the buyer. Unsold consigned goods remain the consignor's inventory.

2. Correct Ending Inventory: Consignment and FOB TermsWorked example

   Start with the warehouse count: subtract nonowned goods included and add owned goods omitted. For goods in transit, include FOB shipping point purchases and FOB destination sales, but exclude FOB destination purchases and FOB shipping point sales.

3. FIFO Lower of Cost and NRV: Finished Goods and Raw MaterialsWorked example

   FIFO and average-cost inventory use lower of cost and NRV: selling price minus completion and selling costs. Raw materials stay at cost unless related finished goods' NRV is below total cost; then write down to replacement cost.

4. LIFO and retail: Lower of cost or market (replacement cost with ceiling and floor)Worked example

   For LIFO and retail-method inventories, measure at the lower of cost and ‘market’; market equals replacement cost limited by the ceiling (NRV) and the floor (NRV − normal profit). No reversal of prior write-downs under U.S. GAAP.

5. FIFO vs LIFO: Which ‘lower-of’ test applies? Mixed sets and poolsSide by side

   Apply LCNRV to FIFO and average-cost; apply LCM (replacement cost bounded by ceiling and floor) to LIFO and retail inventories. Evaluate at the stated level (item, pool, or category).

6. Inventory write-downs: when to record, no reversals (U.S. GAAP), and subsequent eventsContrasting cases

   Recognize an inventory write-down in the period NRV falls below cost at the balance sheet date. Under U.S. GAAP, do not reverse prior write-downs. Subsequent declines after year-end are nonrecognized events unless they provide evidence of conditions existing at the balance sheet date.

7. Year-end checklist: ownership plus LCNRV/LCM in one calculationWorked example

   Step 1: Adjust the physical/preliminary count for ownership using FOB and consignment rules. Step 2: Apply LCNRV (FIFO/avg) or LCM (LIFO/retail) at the stated level to the owned goods; do not reverse prior write-downs.