As part of its ongoing simplification initiative, the Financial Accounting Standards Board July 15 issued proposals to existing rules for the measurement of inventory and the presentation of extraordinary items in income statements. Both proposals would require prospective application for annual periods and interim periods within those annual periods beginning after Dec. 15, 2015, and allow for early adoption, FASB said.
To simplify measurement of inventory under ASC 330, Inventory, entities would be required to consider only one measure for inventory, as opposed to the three under current U.S. generally accepted accounting principles, FASB said on July 15. The amended rules would require inventory to be measured at the lower of cost and net realizable value, the proposal states. The proposal would simultaneously eliminate the two other existing methods, the “replacement cost of inventory” method and the “net realizable value” method.
According to the FASB announcement, the changes would reduce the cost and complexity for the subsequent measurement of inventory and result in greater consistency in the measurement of inventory.
The other proposal issued by FASB would eliminate the concept of extraordinary items under Subtopic 225-20, Income Statement-Extraordinary and Unusual Items to simplify presentation of extraordinary items in income statements.
The concept of extraordinary items causes uncertainty to preparers, because it's unclear when an item should be considered both unusual and infrequent, the proposal states. By eliminating that concept, preparers would no longer be required to assess whether an event or transaction is extraordinary, thereby saving them time and reducing cost, FASB said.
FASB said it will receive comments until September 30 on the proposed ASUs, which were issued under the following titles:
• Inventory (Topic 330): Simplifying the Measurement of Inventory.
• Income StatementundefinedExtraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the concepts of Extraordinary Items.
A copy of the ASUs, including how to submit comments are available here.
