{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/255/10/#50-disclosure","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"255","topic_title":"Changing Prices","subtopic":"255-10","subtopic_title":"Overall","section":{"number":"50","label":"50 Disclosure","anchor":"50-disclosure","is_sec":false,"groups":[{"block":null,"heading":"Introduction","paragraphs":[{"citation":"255-10-50-1","para":"50-1","html":"A business entity that prepares its financial statements in U.S. dollars and in accordance with U.S. generally accepted accounting principles (GAAP) is encouraged, but not required, to disclose supplementary information on the effects of changing prices. Entities are not discouraged from experimenting with other forms of disclosure.
This Subtopic provides guidance on those encouraged disclosures. For that reason, the guidance that describes how to present the disclosures is included in this Section rather than Section 250-10-45.
An entity shall disclose all of the following information for each of the five most recent years: - a
Net sales and other operating revenues
- b
- c
- d
Increase or decrease in the current cost or lower recoverable amount of inventory and property, plant, and equipment, net of inflation - e
- f
Net assets at year-end on a current cost basis
- g
Income per common share from continuing operations on a current cost basis
- h
Cash dividends declared per common share
- i
Market price per common share at year-end.
For the purposes of this Subtopic, except where otherwise provided, inventory and property, plant, and equipment shall include land and other natural resources and capitalized leasehold interests but not goodwill or other intangible assets.
An entity that presents consolidated financial statements shall present the information required by this Subtopic on the same consolidated basis. The information required by this Subtopic need not be presented for a parent company, an investee company, or other entity in a financial report that includes the results for that entity in consolidated financial statements.
The information required by this Subtopic shall be presented as supplementary information in any published annual report that contains the primary financial statements of the entity except that the information need not be presented in an interim financial report. The information required by this Subtopic need not be presented for segments of a business entity although such presentations are encouraged.
The information presented in the five-year summary shall be stated as either of the following: - a
In average-for-the-year or end-of-year units of constant purchasing power
- b
In dollars having a purchasing power equal to that of dollars of the base period used by the Bureau of Labor Statistics in calculating the Consumer Price Index for All Urban Consumers. As a practical matter, this option is not available to entities that measure a significant part of their operations in one or more functional currencies other than the U.S. dollar and that elect to use the restate-translate method for measuring inflation-adjusted current cost information.
An entity shall disclose the level of the Consumer Price Index for All Urban Consumers used for each of the five most recent years. If the level of the Consumer Price Index at the end of the year and the data required to compute the average level of the index over the year have not been published in time for preparation of the annual report, they may be estimated by referring to published forecasts based on economic statistics or by extrapolation based on recently reported changes in the index.
If the entity has a significant foreign operation measured in a functional currency other than the U.S. dollar, it shall disclose whether adjustments to the current cost information to reflect the effects of general inflation are based on the Consumer Price Index for All Urban Consumers (the translate-restate method) or on a functional currency general price level index (the restate-translate method). The entity shall provide an explanation of the disclosures required by this Subtopic and a discussion of their significance in the circumstances of the entity. Disclosure and discussion of additional information to help users of the financial report understand the effects of changing prices on the activities of the entity are encouraged.
In addition to the information required by paragraphs , an entity shall provide the information specified in paragraphs if income from continuing operations on a current cost-constant purchasing power basis would differ significantly from income from continuing operations in the primary financial statements. An entity shall disclose certain components of income from continuing operations for the current year on a current cost basis (see paragraphs ), applying the same constant purchasing power option used for presentation of the five-year summary. The information may be presented in any of the following formats: - a
In a statement format (disclosing revenues, expenses, gains, and losses)
- b
In a reconciliation format (disclosing adjustments to the income from continuing operations that is shown in the primary income statement)
- c
In notes to the five-year summary required by paragraph 255-10-50-3.
Formats for presenting the supplementary information are illustrated in Example 1 (see paragraphs ). Whichever format is used, the presentation shall disclose (for example, in a reconciliation format) or allow the reader to determine (for example, in a statement format) the difference between the amount in the primary statements and the current cost amount of all of the following items: - a
Cost of goods sold and depreciation
- b
Depletion
- c
Amortization expense.
If depreciation has been allocated among various expense categories in the supplementary computations of income from continuing operations (for example, among cost of goods sold and other functional expenses), the aggregate amount of depreciation on a current cost basis shall be included in the notes to the supplementary information. In addition to information about income from continuing operations, the entity may include the following items in a schedule of current year information: - a
The purchasing power gain or loss on net monetary items
- b
The increase or decrease in the current cost or lower recoverable amount of inventory and property, plant, and equipment, net of inflation
- c
The translation adjustment.
As illustrated in Example 1 (see paragraphs ), income from continuing operations does not include the information that is described in paragraph 255-10-50-14(a) through 50-14(c). An entity shall also disclose all of the following: - a
Separate amounts for the current cost or lower recoverable amount at the end of the current year of inventory and property, plant, and equipment (see paragraphs and ) - b
The increase or decrease in current cost or lower recoverable amount before and after adjusting for the effects of inflation of inventory and property, plant, and equipment for the current year (see paragraphs ) - c
The principal types of information used to calculate the current cost of inventory; property, plant, and equipment; cost of goods sold; and depreciation, depletion, and amortization expense (see paragraphs ) - d
Any differences between:
- 1
The depreciation methods, estimates of useful lives, and salvage values of assets used for calculations of current cost-constant purchasing power depreciation
- 2
The methods and estimates used for calculations of depreciation in the primary financial statements (see paragraph 255-10-50-29).
For its mineral reserves other than oil and gas, an entity shall disclose all of the following additional information for each of its five most recent fiscal years:- a
Estimates of significant quantities of proved mineral reserves or proved and probable mineral reserves (whichever is used for cost amortization purposes) at the end of the year or at the most recent date during the year for which estimates can be made (if estimates are not made as of the end of the year, the disclosures shall indicate the dates of the estimates) - b
The estimated quantity, expressed in physical units or in percentages of reserves, of each mineral product that is recoverable in significant commercial quantities if the mineral reserves included under (a) include deposits containing one or more significant mineral products
- c
The quantities of each significant mineral produced during the year (if the mineral reserves included under (a) are ones that are milled or similarly processed, the quantity of each significant mineral product produced by the milling or similar process shall also be disclosed)
- d
The quantity of significant proved, or proved and probable, mineral reserves purchased or sold in place during the year
- e
For each significant mineral product, the average market price or, for mineral products transferred within the entity, the equivalent market price prior to use in a manufacturing process.
In determining the quantities to be reported in conformity with the preceding paragraph: - a
If the entity issues consolidated financial statements, 100 percent of the quantities attributable to the parent entity and 100 percent of the quantities attributable to its consolidated subsidiaries (whether or not wholly owned) shall be included.
- b
If the entity's financial statements include investments that are proportionately consolidated, the entity's quantities shall include its proportionate share of the investee's quantities.
- c
If the entity's financial statements include investments that are accounted for by the equity method, the investee's quantities shall not be included in the disclosures of the entity's quantities. However, the entity's (investor's) share of the investee's quantities of reserves shall be reported separately, if significant.
This Subtopic provides guidance on disclosure. For that reason the guidance that describes how to measure items provided in the disclosures is included in this Section rather than Sections
255-10-30 or
255-10-35.
Current cost amounts of inventory and property, plant, and equipment are measured as follows: - a
Inventory at current cost or lower recoverable amount at the measurement date
- b
Property, plant, and equipment at the current cost or lower recoverable amount of the assets' remaining service potential at the measurement date
- c
Resources used on a partly completed contract at current cost or lower recoverable amount at the date of use on or commitment to the contract.
The current cost of inventory owned by an entity is the current cost of purchasing the goods concerned or the current cost of the resources required to produce the goods concerned (including an allowance for the current overhead costs according to the allocation bases used under GAAP), whichever would be applicable in the circumstances of the entity.
The current cost of property, plant, and equipment owned by an entity is the current cost of acquiring the same service potential (indicated by operating costs and physical output capacity) as embodied by the asset owned; the information used to measure current cost reflects whatever method of acquisition would currently be appropriate in the circumstances of the entity. The current cost of a used asset may be calculated by measuring any of the following: - a
The current cost of a new asset that has the same service potential as the used asset had when it was new (the current cost of the asset as if it were new) and deducting an allowance for depreciation
- b
The current cost of a used asset of the same age and in the same condition as the asset owned
- c
The current cost of a new asset with a different service potential and adjusting that cost for the value of the difference in service potential due to differences in life, output capacity, nature of service, and operating costs.
The following types of information are listed as examples of the information that may be used but are not listed in any order of preferability. The entity shall select types of information appropriate to its particular circumstances, giving due consideration to their availability, reliability, and cost: - a
Indexation
- 1
Externally generated price indexes for the class of goods or services being measured
- 2
Internally generated price indexes for the class of goods or services being measured.
- b
Direct pricing
- 1
Current invoice prices
- 2
Vendors' price lists or other quotations or estimates
- 3
Standard manufacturing costs that reflect current costs.
Various types of information may be used in the measurement methods described in paragraphs to determine the current cost of inventory; property, plant, and equipment; cost of goods sold; and depreciation, depletion, and amortization expense. The information may be applied to single items or broad categories, as appropriate in the circumstances. If turnover is rapid and material amounts of depreciation are not allocated to inventory, cost of goods sold measured on a last-in, first-out (LIFO) basis may provide an acceptable approximation of cost of goods sold, measured at current cost, provided that the effect of any LIFO inventory liquidations (that is, any decreases in earlier years' LIFO layers) is excluded.
An entity may substitute historical cost amounts adjusted by an externally generated price index of a broad-based measure of general purchasing power (that is, historical cost-constant purchasing power amounts) for current cost amounts if that substitution would not result in a significantly different number for income from continuing operations than other means of estimating current cost amounts described in this Subtopic. For example, an entity with small amounts of inventory and property, plant, and equipment apart from certain specialized assets (see paragraphs ) may be able to report historical cost-constant purchasing power information. In such circumstances, disclosure of the increase or decrease in the current cost or lower recoverable amount of inventory and property, plant, and equipment, net of inflation (see paragraphs 255-10-50-3(d) and 255-10-50-16(b)) is not required, but the disclosures described in paragraphs 255-10-50-10 and 255-10-50-16(a), 50-16(c), and 50-16(d) are required. Current cost measurements shall be based on production or purchase of the asset in whatever location or market would minimize total cost including transportation cost. For a U.S. operation, either: - a
The purchase would be made in the United States and current cost would be estimated directly in dollars.
- b
The purchase would be made in a foreign market and the current cost in that market would be translated into dollars at the current exchange rate.
An entity may need to measure the current cost of inventory and property, plant, and equipment located outside the United States. That may be difficult depending upon the availability of information in the country concerned, and, accordingly, reasonable approximations are acceptable. If a foreign operation first measures current cost in a currency other than its functional currency, that amount shall then be translated into the functional currency at the current exchange rate.
There is a presumption that depreciation methods, estimates of useful lives, and salvage values of assets for purposes of the supplementary information are the same as the methods and estimates used for calculations in the primary financial statements. However, if the primary financial statements are based on methods and estimates that partly allow for price changes, different methods and estimates may be used for purposes of the supplementary information.
The current cost of mineral resource assets shall be determined by current market buying prices or by the current cost of finding and developing mineral reserves. No generally accepted approach exists for measuring the current finding cost of mineral reserves. To indicate the effects of changes in current costs, it may be impracticable to do more than adjust historical costs by an index of the changes in specific prices of the inputs concerned. That approach may fail to yield a close approximation of the current cost of finding and developing new reserves. In recognition of that difficulty, the requirements of this Subtopic are flexible regarding the approach used to measure current cost of mineral resource assets. The approach may include use of specific price indexes, direct information about market buying prices, and other statistical evidence of the cost of acquisitions. Because paragraph 932-235-50-2 requires an entity to disclose a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities, the entity may follow the approach in the preceding paragraph or in the following paragraph for its oil and gas mineral resource assets. Paragraph 255-10-50-16(c) requires disclosure of the types of information that have been used to measure current costs. Timberlands and growing timber, income-producing real estate, and motion picture films have certain special features that raise doubts about the applicability of the current cost measurement methods required for other assets. Accordingly, an entity may disclose historical cost amounts adjusted by an externally generated index of a broad-based measure of general purchasing power as substitutes for current cost amounts for such assets and their related expenses. If an entity estimates the current cost of growing timber and timber harvested by adjusting historical cost for the changes in specific prices, those historical costs may either: - a
Be limited to the costs that are capitalized in the primary financial statements
- b
Include all costs that are directly related to reforestation and forest management, such as planting, fertilization, fire protection, property taxes, and nursery stock, whether or not those costs are capitalized in the primary financial statements.
If the entity presents the minimum information required by this Subtopic, the amount of net assets (that is, shareholders' equity) is the amount of net assets reported in the primary financial statements, adjusted for the difference between the historical cost amounts and the current cost or lower recoverable amounts of inventory and property, plant, and equipment.
If the entity elects to present comprehensive current cost-constant purchasing power financial statements as supplementary information, the amount of net assets in the five-year summary is the amount reported in the supplementary balance sheet.
Recoverable amount may be measured by considering the value in use or fair value less costs to sell of the asset concerned. Value in use is used to determine recoverable amount of an asset if immediate sale of the asset is not intended. Fair value less costs to sell is used to determine recoverable amount only if the asset is about to be sold. If the recoverable amount for a group of assets is judged to be materially and permanently lower than the current cost amount, the recoverable amount shall be used as a measure of the assets and of the expense associated with the use or sale of the assets. Decisions on the measurement of assets at their recoverable amounts need not be made by considering assets individually unless they are used independently of other assets.
An entity that is subject to rate regulation or another form of price control may be limited to a maximum recovery through its selling prices, based on the nominal currency amount of the historical cost of its assets. In that situation, historical costs measured in nominal currency may represent an appropriate basis for the measurement of the recoverable amounts associated with those assets. Recoverable amounts may also be lower than historical costs. Nevertheless, cost of goods sold and depreciation, depletion, and amortization expense shall be measured at current cost-constant purchasing power amounts provided that replacement of the service potential of the related assets would be undertaken, if necessary, in current economic conditions; if replacement would not be undertaken, those expenses shall be measured at recoverable amounts.
An entity that presents the minimum information required by this Subtopic shall measure income from continuing operations on a current cost basis as follows: - a
Cost of goods sold at current cost or lower recoverable amount at the date of sale or at the date on which resources are used on or committed to a specific contract
- b
Depreciation, depletion, and amortization expense of property, plant, and equipment on the basis of the average current cost of the assets' service potential or lower recoverable amount during the period of use.
Other revenues, expenses, gains, and losses may be measured at the amounts included in the primary income statement. (See paragraphs and for discussions of current cost or lower recoverable amount measurements.) The amount of income tax expense in computations of current cost-constant purchasing power income from continuing operations is the same as the amount of income tax expense charged against income from continuing operations in the primary financial statements. No adjustments shall be made to income tax expense for any temporary differences that might be deemed to arise as a result of the use of current cost accounting methods. Income tax expense shall not be allocated between income from continuing operations and the increases or decreases in current cost amounts of inventory and property, plant, and equipment. The increase or decrease in the current cost amounts of inventory and property, plant, and equipment represents the difference between the measures of the assets at their entry dates for the year and the measures of the assets at their exit dates for the year. Entry dates means the beginning of the year or the dates of acquisition, whichever is applicable; exit dates means the end of the year or the dates of use, sale, or commitment to a specific contract, whichever is applicable. For the purposes of this paragraph, assets shall be measured in accordance with the provisions of paragraphs and paragraphs . For the current year, the increase or decrease in current cost amounts of inventory and property, plant, and equipment shall be reported both before and after eliminating the effects of general inflation (see paragraph 255-10-50-16(b)). In the five-year summary, the increase or decrease shall be reported after elimination of the effects of each year's general inflation (see paragraph 255-10-50-3(d)). An acceptable approximate method of calculating the increase or decrease in current cost amounts and the inflation adjustment is illustrated in Example 1 (see paragraphs ). Entities that do not have significant foreign operations or that use the dollar as the functional currency for all significant foreign operations shall use the Consumer Price Index for All Urban Consumers to restate current costs into units of constant purchasing power. Acceptable approximate methods are illustrated in Example 1 (see paragraphs ). The effects of general inflation on current cost information for operations measured in a foreign functional currency shall be measured either: - a
After translation and based upon the Consumer Price Index for All Urban Consumers (the translate-restate method)
- b
Before translation and based on a broad-based measure of the change in the general purchasing power of the functional currency (the restate-translate method).
The same method shall be used for all operations measured in functional currencies other than the dollar and for all periods presented. Acceptable approximate methods are illustrated in Example 1 (see paragraphs and ). The choice of a measure of functional currency purchasing power should take into account the availability, reliability, and timeliness of a general price level index and the frequency with which it is adjusted. It is anticipated that an appropriate index of the change in the general price level will be available for most functional currencies. Indexes are published in most countries, and some indexes are published periodically by organizations such as the International Monetary Fund, the Organisation for Economic Co-Operation and Development, and the United Nations. However, in some cases indexes may not be available on a timely basis or may not be sufficiently reliable. In those circumstances, management should estimate the change in the general price level.
If current cost information for operations measured in functional currencies other than the dollar is based on the translate-restate method, the aggregate translation adjustment on the current cost basis shall be stated net of any income taxes allocated to the aggregate translation adjustment in the primary financial statements (see paragraph 830-30-45-20(c)). If current cost information for operations measured in functional currencies other than the dollar is based on the restate-translate method, the aggregate translation adjustment on the current cost basis shall be stated net of both any income taxes allocated to the aggregate translation adjustment in the primary financial statements and the aggregate parity adjustment. The parity adjustment is the amount needed to measure end-of-year net assets in either of the following: - a
Average-for-the-year dollars, if income from continuing operations is measured in average-for-the-year functional currency units
- b
End-of-year dollars, if income from continuing operations is measured in end-of-year functional currency units.
The purchasing power gain or loss on net monetary items is the net gain or loss determined by restating in units of constant purchasing power the opening and closing balances of, and transactions in, monetary assets and monetary liabilities. Acceptable approximate methods of calculating the purchasing power gain or loss on net monetary items are illustrated in Example 1 (see paragraphs 255-10-55-45, , and 255-10-55-78). The economic significance of monetary assets and liabilities depends heavily on the general purchasing power of money, although other factors, such as creditworthiness of debtors, may affect their significance. The economic significance of nonmonetary items depends heavily on the value of specific goods and services. Nonmonetary assets include all of the following: - a
Goods held primarily for resale or assets held primarily for direct use in providing services for the business of the entity
- b
Claims to cash in amounts dependent on future prices of specific goods or services
- c
Residual rights such as goodwill or equity interests.
Nonmonetary liabilities include both of the following: - a
Obligations to furnish goods or services in quantities that are fixed or determinable without reference to changes in prices
- b
Obligations to pay cash in amounts dependent on future prices of specific goods or services.
Guidance on the classification of balance sheet items as monetary or nonmonetary is set forth in paragraphs . If inflation-adjusted current cost information is based on the translate-restate method, the purchasing power gain or loss on net monetary items is equal to the net gain or loss determined by restating the opening and closing balances of, and transactions in, monetary assets and liabilities in units of constant purchasing power as measured by the Consumer Price Index for All Urban Consumers.
If inflation-adjusted current cost information is based on the restate-translate method, the purchasing power gain or loss on net monetary items is equal to the net gain or loss determined by restating the opening and closing balances of, and transactions in, monetary assets and liabilities in units of constant purchasing power as measured by the change in the general purchasing power of the functional currency. The purchasing power gain or loss computed in that manner shall be translated into its dollar equivalent at the average exchange rate for the period.