This free, guided checker walks your finance team through the key decision points for ASC 330 Inventory Costing and Write-Downs. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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The ASC 330-10-20 glossary limits inventory to items held for sale in the ordinary course of business, in production for such sale, or to be currently consumed in production. Classification drives the measurement model: long-lived operating assets follow ASC 360 and financial assets follow their own topics. Misclassifying slow-moving spare parts between inventory and fixed assets is a common trap.
Not inventory - classify and measure the asset under the applicable topic, such as ASC 360 for long-lived assets.
Official guidance: FASB Accounting Standards Codification
ASC 330 addresses three recurring questions: what cost is (ASC 330-10-30-1, with the primary basis of accounting for inventories being cost), how cost flows through the records (ASC 330-10-30-9 through 30-14), and whether cost remains recoverable at each reporting date (ASC 330-10-35). Firm purchase commitments are tested for losses even though no asset is recorded yet. Pick the question you are answering today; you can rerun the checker for the others.
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Official guidance: FASB Accounting Standards Codification
ASC 330-10-35-17 addresses net losses on firm purchase commitments for goods for inventory. Read the contract for fixed quantities and prices, termination rights, and penalty clauses; requirements contracts without fixed minimums generally are not firm. Also confirm the contract is not a derivative in scope of ASC 815 - the normal purchases and normal sales scope exception in ASC 815-10-15 often applies to physical-delivery supply contracts, but that analysis should be documented first.
No loss accrual - cancelable arrangements are not firm commitments; monitor and disclose significant obligations as appropriate.
Official guidance: FASB Accounting Standards Codification
Measure the potential loss the same way the related inventory would be measured once received: against net realizable value for FIFO and average cost inventories, and against market for LIFO and retail method inventories. If firm sales contracts assure recovery of the committed cost, utility is not considered impaired and no accrual is recognized. Reassess at every reporting date until the goods are delivered.
Accrue the net loss on the firm purchase commitment and disclose it separately in the income statement (ASC 330-10-35-17). No accrual at this date - document the price comparison and reassess at each reporting date until delivery.
Official guidance: FASB Accounting Standards Codification
ASC 330-10-30-3 requires items such as idle facility expense, excessive spoilage, double freight, and rehandling costs that are abnormal to be treated as current-period charges rather than inventory cost, and requires fixed production overhead to be allocated based on the normal capacity of the production facilities, with unallocated overheads expensed as incurred. After normalizing capitalized cost, continue: the carrying amount must still pass the recoverability test at each reporting date.
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Official guidance: FASB Accounting Standards Codification
A departure from cost is required when the utility of the goods is no longer as great as their cost, whether from physical deterioration, obsolescence, changes in price levels, or other causes. Excess and slow-moving quantities are the most commonly missed indicator: review aging, turnover, and demand forecasts, not just unit selling prices. Absence of indicators should still be documented at each reporting date.
No write-down indicated - continue to carry the inventory at cost and document the recoverability assessment.
Official guidance: FASB Accounting Standards Codification
ASC 330-10-30-9 through 30-14 permit cost to be determined under FIFO, average, LIFO, and similar cost flow assumptions; the objective is the method that most clearly reflects periodic income, and standard costs are acceptable if adjusted at reasonable intervals to approximate a recognized basis. The elected method determines the subsequent measurement model, and a change in cost flow method is a change in accounting principle under ASC 250 that requires a preferability assessment.
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Official guidance: FASB Accounting Standards Codification
ASC 330-10-35-1B requires inventory measured by any method other than LIFO or the retail inventory method to be measured at the lower of cost and net realizable value. Build NRV from current selling prices, firm orders, and contracted prices rather than list prices, and deduct completion, disposal, and transportation costs. The comparison may be applied item by item or by major category, consistently period over period, depending on the character and composition of the inventory.
Write the inventory down to net realizable value and recognize the loss in earnings (ASC 330-10-35-1B). No write-down - net realizable value covers cost; document the analysis performed at this reporting date.
Official guidance: FASB Accounting Standards Codification
For LIFO and retail method inventories, ASC 330-10-35-1C retains the traditional lower of cost or market test. Compute three values - current replacement cost, the NRV ceiling, and the floor of NRV less an approximately normal profit margin - and use the middle value as designated market for comparison with cost. Skipping the ceiling and floor bounds and comparing raw replacement cost with cost is the most common computational error.
Write the inventory down to designated market and recognize the loss in earnings (ASC 330-10-35-1C). No write-down - designated market covers cost; document the ceiling and floor computation at this reporting date.
Official guidance: FASB Accounting Standards Codification
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