# ASC 330-10-55: Inventory — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/330/10/#55-implementation-guidance-and-illustrations) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:db93578e3e072edec46122e2781f91ffdf34290a562c3184a5e9fadbdf75689a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 330-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/330/10/#55-implementation-guidance-and-illustrations) SEC content: no ##### [330-10-55-1](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:613957398de308d5d689249e013fd482b5e6696b6d05431dc53467b3ce45ee36 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section, which is an integral part of the requirements of this Topic, provides general guidance to be used in accounting for [inventory](https://asc.understandingaccounting.org/glossary/i/#inventory "The aggregate of those items of tangible personal property that have any of the following characteristics: Held for sale in the ordinary course of business In process of production for such sale To be currently consumed in the production of goods or services to be available for sale. The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified. The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory. Raw materials and supplies purchased for production may be used or consumed for the construction of long-term assets or other purposes not related to production, but the fact that inventory items representing a small portion of the total may not be absorbed ultimately in the production process does not require separate classification. By trade practice, operating materials and supplies of certain types of entities such as oil producers are usually treated as inventory."). Certain assumptions have been made to simplify the computations and focus on the issue at hand in each illustration. #### Implementation Guidance ##### [330-10-55-2](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:0b4ad80ad03189855caac18e69687d2a62f14e846e9e60e28221036ea151b0ff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If near-term price recovery is uncertain, a decline in the [market](https://asc.understandingaccounting.org/glossary/m/#market "As used in the phrase lower of cost or market, the term market means current replacement cost (by purchase or by reproduction, as the case may be) provided that it meets both of the following conditions: Market shall not exceed the net realizable valueMarket shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin.") value (for inventory measured using LIFO or the retail inventory method) or [net realizable value](https://asc.understandingaccounting.org/glossary/n/#net-realizable-value "Estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.") (for all other inventory) of inventory below cost during an interim period shall be accounted for consistent with annual periods, except as described in paragraph [270-10-45-6](https://asc.understandingaccounting.org/asc/270/10/#270-10-45-6). 1. a [Subparagraph superseded by Accounting Standards Update No. 2015-11](https://asc.understandingaccounting.org/updates/asu-2015-11/). 2. b [Subparagraph superseded by Accounting Standards Update No. 2015-11](https://asc.understandingaccounting.org/updates/asu-2015-11/). ##### [330-10-55-3](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:bad09ce8042007a4934688238168f8176243309efda806532c5405e82c307c8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following provides guidance as to whether the types of costs that are required to be allocated to inventories for tax purposes under the Uniform Capitalization Rules for Inventory under the Tax Reform Act of 1986 would be capitalizable under generally accepted accounting principles (GAAP) and, if so, whether the costing method required for tax purposes is a preferable method for purposes of justifying a change in accounting principle. ##### [330-10-55-4](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:7bee60da281d43eb68966635314e6d3c78f9db52126cfaccd41c0c825d3637fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fact that a cost is capitalizable for tax purposes does not, in itself, indicate that it is preferable, or even appropriate, to capitalize that cost for financial reporting purposes. Certain of the additional costs that are required to be capitalized for tax purposes may also be capitalizable for financial reporting purposes, depending on factors such as the nature of the entity's operation and industry practice. That determination, however, can only be made after an analysis of the individual facts and circumstances. ##### [330-10-55-5](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:ed85d5cdd0989705f439341ccacc0edafa132c163b4c0739281daa61b77258aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-07](https://asc.understandingaccounting.org/updates/asu-2017-07/). ##### [330-10-55-6](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:e9d2085729f55a63d77680152e1638931d776687347753cc2b983dcfd106f30e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-07](https://asc.understandingaccounting.org/updates/asu-2017-07/). ##### [330-10-55-6A](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-6A) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:e32cb0393869c016e8eea6676dc7eba47329ea9c8f1cd678ae427c23fcf9fb7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The service cost component of net periodic pension cost and net periodic postretirement benefit cost is the only component directly arising from employees' services provided in the current period. Therefore, when it is appropriate to capitalize employee compensation in connection with the construction or production of an asset, the service cost component applicable to the pertinent employees for the period is the relevant amount to be considered for capitalization. ##### [330-10-55-7](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:a2e73a31adde2651d6742b780e10812f8c1ac412cdbc9067a70d78139901d4cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2017-07](https://asc.understandingaccounting.org/updates/asu-2017-07/). #### Illustrations ##### [330-10-55-8](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:68f2cce41209beec586bb21344aeef28bddefbdafec3857027bf888f3f751713 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [330-10-50-6](https://asc.understandingaccounting.org/asc/330/10/#330-10-50-6) regarding the disclosure of significant estimates related to inventory. Entity A manufactures high technology stereo equipment. In June 19X7, one of Entity A's competitors introduced a new model stereo system with the same features as Entity A's Model A. The competitor's version sells for significantly less than Entity A's suggested retail price for Model A. The introduction of this product resulted in a sharp decrease in the sales volume of Model A. As of December 31, 19X7, Entity A has accumulated significant inventory quantities beyond its normal short-term needs of its Model A system. Inventory for Model A ($6 million) represents approximately 20 percent of Entity A's inventory at that date. The remaining 80 percent of Entity A's inventory consists of products experiencing only normal competitive pressures. Entity A has established provisions for obsolescence for this latter group of products in the normal course of business. ##### [330-10-55-9](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:1349289d71460d11ffd57b2513cf2643648f2e880c84196458a13af606e16578 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Management has developed a program to provide substantial dealer incentives on purchases of the Model A, which it expects will result in the sale of this inventory in the near term. Because of the existing high profit margin on its stereo systems, Entity A would continue to earn a marginal profit on sales of the Model A under the new program. It is also reasonably possible, however, that the program will not be wholly successful, and, accordingly, a material loss could ultimately result on the disposal of the inventory. ##### [330-10-55-10](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:4744e27b858ca10180671b84d4517e02fe037ab8488c373e1247aafb8eb6e5b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The entity would disclose the following. - As of December 31, 19X7, some portion of $6 million of inventory of one of the entity's products is in excess of Entity A's current requirements based on the recent level of sales. Management has developed a program to reduce this inventory to desired levels over the near term and believes no loss will be incurred on its disposition. No estimate can be made of a range of amounts of loss that are reasonably possible should the program not be successful. ##### [330-10-55-11](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:22839f76360ae094774a7ec3771f698edbc30b539ed4b92bf20f5e715298380b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This situation meets the criteria for disclosure under paragraph [275-10-50-8](https://asc.understandingaccounting.org/asc/275/10/#275-10-50-8) because circumstances that existed at the date of the financial statements, including the decreasing sales volume and excessive quantities of inventory of Model A, make it at least reasonably possible that management's plan to liquidate its excess inventory without a loss will be less than fully successful and that such an outcome would have a near-term material effect on the entity's financial statements. ##### [330-10-55-12](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:df828d24e1dfd6c97df2fc1ee90f45ae7bb316d80f1fe5726c4591b19fb351a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, Entity A discloses the existence of potentially excess quantities of inventory at the date of the financial statements and indicates that the uncertainty is expected to be resolved in the near term. The disclosure is intended to provide users with insight into management's assessment of recoverability of the cost of inventories existing at the date of the financial statements. Although disclosure of the $6 million carrying amount of the inventory of Model A is not required because, based on the facts presented, $6 million does not constitute a reasonable estimate of loss on the disposal of the inventory or the maximum amount in an estimated range of loss, disclosure of this amount is not misleading and may provide useful information. ##### [330-10-55-13](https://asc.understandingaccounting.org/asc/330/10/#330-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:50:55.858Z to 2026-09-09T23:50:55.858Z Record version: sha256:f7cead5a6eb8e782ba4e44761e6629dcc813c5b0589a7f067261e621ba1523b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Discussion of Entity A's provision for obsolescence for the remaining 80 percent of its inventory is not required because it is not considered reasonably possible that additional material losses on this inventory will occur.