Changing Prices

ASC 255 covers voluntary supplementary disclosure of the effects of changing prices (inflation) on financial statements. ASC 255-10 encourages — but does not require — business entities reporting in U.S. dollars to present a five-year summary of current cost/constant purchasing power data (255-10-15-3; 255-10-50-1, 50-3), and supplies the measurement mechanics: current cost or lower recoverable amount for inventory and PP&E (255-10-50-20, 50-36 through 50-37), restatement of only cost of goods sold and depreciation, depletion, and amortization (255-10-50-39 through 50-40) with no adjustment to income tax expense (255-10-50-41), CPI-U restatement, translate-restate vs. restate-translate methods for foreign functional currency operations (255-10-50-45 through 50-49), and computation of the purchasing power gain or loss on net monetary items (255-10-50-50; 255-10-55-1 through 55-13). ASC 255-912 layers on an industry rule for federal government contractors that elect to make these disclosures: contract inventories, fixed-price contract advances, and warranty obligations are nonmonetary, while accrued losses on contracts are monetary (255-912-50-1). The central idea is that the monetary/nonmonetary classification of each balance sheet item drives the purchasing power gain or loss, the key inflation-effect metric.

Subtopics

1. 10Overall157 ¶

   ASC 255-10 governs supplementary disclosure of the effects of changing prices (inflation) on financial statements. Business entities reporting in U.S. dollars under GAAP are *encouraged but not required* to disclose a five-year summary of current cost-constant purchasing power data — including income from continuing operations on a current cost basis, purchasing power gain or loss on net monetary items, and the inflation-adjusted change in the current cost of inventory and PP&E. The Subtopic also supplies the measurement rules for current cost and lower recoverable amount, the CPI-U restatement mechanics, the translate-restate vs. restate-translate methods for foreign functional currency operations, and guidance on classifying balance sheet items as monetary or nonmonetary.

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2. 912Contractors—Federal Government3 ¶

   ASC 255-912 tells federal government contractors how to classify certain contract-related balances when they voluntarily disclose supplementary information about the effects of changing prices under Subtopic 255-10. Its core rule is a set of monetary/nonmonetary classifications used to compute the purchasing power gain or loss on net monetary items: contract inventories and fixed-price contract advances and warranty obligations are nonmonetary, while accrued losses on contracts are monetary.

   051550