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Fasb Comment Letter

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Courtney
Intermediate Accounting 3
October 20th, 2015

FASB Comment Letter

On May 13th, 2015 FASB issued Accounting Standards Update, Simplifying the Measurement of Inventory. The Board came to the decision of abandoning inventory measured using the LIFO method, which is using last-in, first-out. They also decided on excluding the retail inventory methods. The Board also requires inventory to be measured at net realizable value and at the lower of cost. They believe that the result will cause a reporting entity to not be required to consider replacement costs. There will not be additional disclosures required in the periods after the amendments. The amendments will be applied in the annual reporting periods after December 15th, 2016 with interim reporting periods starting after December 15th, 2017. If LIFO is used for tax purposes, it must also be used for financial reporting of a company. This can cause trouble for certain companies. When prices rise, companies using LIFO minimize their tax liability, but the companies minimize their net income as well, in turn causing failure of the companies to meet the minimum level of profitability under a loan or meet what analysts have forecasted for the company. LIFO is also not used in a good portion of foreign jurisdictions. This limits the ability to expand abroad for companies valuing inventory using LIFO. If a company chose to expand internationally, they would have to keep two sets of inventory records; one for US tax law and domestic financial reporting and one for international reporting. Keeping two separate reports can become expensive for the company to maintain. With the decision of FASB excluding LIFO, CPAs will more than likely be called upon to help companies manage their changes in inventory methods. LIFO layering issues also have become a problem. As the inventory costs change, the

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