This is my sandbox page.
The article cites only one source: "FASB Accounting Standards Update, No. 2015-11, July 2015, p. 1" Instead of including a citation after every new fact or quote, the article includes the citation at the very end because there is one source. The article could be improved by adding information from accounting journals and other publications.
The article is only two paragraphs long and includes one main section about the topic, as well as "See also" and "References" sections. This article could be expanded by creating new sections. For example, one section could describe the problems associated with lower of cost or market. The article does not clearly explain why FASB changed the term "lower of cost or market" to "lower of cost and net realizable value." How does this update make it easier to measure inventory? The article could also explain the difference between market and net realizable value.
I will try to improve this article by explaining some of the problems associated with lower of cost or market. There are three values that can represent market value: the replacement cost of the inventory, the net realizable value (also known as the "ceiling"), and the "floor" (the difference between the net realizable value and the normal profit). [1][2] In the lower of cost or market approach, companies must determine these three values and find the median of the values. The companies then compare the median value, which is called the designated market value, to the inventory cost that is recorded. The lower of these two values is subsequently reported on the balance sheet. [1] Because the lower of cost or market approach requires companies to use three possible market values, the companies' financial statements can be difficult to compare. [2]
I will also elaborate further on the recent FASB Accounting Standards Update. Companies that use the FIFO (first-in, first-out) and average-cost methods of inventory valuation are required to implement the changes from the recent Accounting Standards Update. However, companies that use the LIFO (last-in, first-out) and retail inventory methods are not affected by the update. [2]
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- ^ a b Wampler, Bruce; Holt, Travis (January 2013). "Valuing Inventory at the Lower of Cost or Market". CPA Journal. 83: 34–9. ISSN 0732-8435. Retrieved October 24, 2016.
- ^ a b c Penner, James; Kreuze, Jerry; Langsam, Sheldon. "Analysis of Simplification of Accounting Initiative for Inventory and Update of Other Simplification Proposals". Journal of Corporate Accounting & Finance. 27: 9–12. ISSN 1044-8136. Retrieved October 24, 2016.