The Core Difference
IFRS 2: Inventory at lower of cost and net realisable value (NRV). NRV = selling price less costs to complete and sell.
ASC 330: Inventory at lower of cost and market. Market = replacement cost, bounded by selling price and NRV.
Key divergence: Write-downs under IFRS can be reversed if circumstances improve; ASC write-downs are permanent.
Cost Methods: LIFO, FIFO, Weighted Average
IFRS 2: LIFO is not permitted. Only FIFO and weighted average.
ASC 330: LIFO, FIFO, and weighted average all permitted.
Practical impact: US companies using LIFO (common in inflationary periods) have a cost advantage under ASC but not under IFRS. Switching from LIFO to FIFO can increase reported profit and inventory value.
Reference: IFRS 2 paragraphs 23— 7; ASC 330-10-30.
Net Realisable Value vs Market Value
IFRS NRV: Direct selling price less completion and disposal costs. Straightforward calculation.
ASC Market value: Replacement cost (what it would cost to replace the inventory), bounded by:
- Upper bound: NRV (not more than selling price less costs)
- Lower bound: NRV less normal profit margin
Difference: ASC's use of replacement cost can produce a higher valuation than IFRS NRV in some cases.
Worked Example: Inventory Write-Down and Reversal
Scenario: Electronics Inventory Obsolescence
Year 1 (Dec 2025): Inventory of electronic components.
- Cost: £500,000
- Expected selling price (per customer orders): £650,000
- Estimated costs to sell: £50,000
- NRV: £650,000 − £50,000 = £600,000
- No write-down (cost £500k < NRV £600k)
Year 2 (Mar 2026, mid-quarter): Newer technology emerges. Customer demand drops 40%.
- Revised selling price: £350,000
- Costs to sell: £50,000 (unchanged)
- Revised NRV: £300,000
- Write-down required: £500,000 − £300,000 = £200,000
IFRS 2 entry: Dr Expense £200k / Cr Inventory £200k. Inventory now £300k on balance sheet.
ASC 330 entry: Same. Inventory now £300k.
Year 2 (Sep 2026): Surprise recovery. Customers return with large orders. Selling price rebounds to £550,000.
- New NRV: £550,000 − £50,000 = £500,000
- Carrying amount: £300,000
- Write-down reversal available? £500,000 − £300,000 = £200,000
IFRS 2: Permitted to reverse the write-down up to original cost. Reverse £200k. Inventory back to £500k. P&L benefit of £200k in Sep 2026.
ASC 330: No reversal allowed. Inventory stays at £300k. The recovery is not recorded. If inventory later sells for £500k, the gain sits in gross profit (COGS line), not as an inventory reversal.
Impact: IFRS company shows £200k inventory reversal income in Sep; ASC company does not record the reversal, so profit comes later via lower COGS when inventory is sold.
Write-Down Reversals: The Key Difference
IFRS 2: Write-downs must be reversed if circumstances improve, up to original cost. Reversals go through P&L.
ASC 330: Write-downs are permanent and cannot be reversed. If inventory later sells for more than the written-down value, the gain is recorded as lower COGS, not as a reversal.
Audit implication: IFRS auditors will ask: Have you reassessed NRV each period and reversed any write-downs? ASC auditors do not expect reversals; they expect management to document why write-downs are permanent.
Obsolete Inventory
Both standards require write-down of obsolete inventory. IFRS may reverse if the inventory becomes usable again; ASC will not. This creates timing differences in how profit is recognised.
Audit Implications
- LIFO inventory: If ASC, ensure LIFO election is documented and consistent year-to-year. If IFRS, LIFO is not allowed.
- NRV testing: Challenge selling price assumptions. Are they based on actual orders, historical margins, or wishful thinking?
- Write-down reversals (IFRS only): Verify improvements in circumstances. Don't let management reverse too aggressively.
- Obsolete inventory: Request a list of slow-moving and obsolete items. NRV should be zero or near-zero for items with no foreseeable use.
Need help with inventory accounting?
Use our free tools to research IFRS 2 vs ASC 330, or ask an expert in the Meeting Room.
Compare Standards →Frequently Asked Questions
Is LIFO allowed under IFRS?
No. IFRS 2 prohibits LIFO. Only FIFO and weighted average are permitted. ASC 330 allows all three methods.
Can inventory write-downs be reversed?
Under IFRS 2, yes — if circumstances improve, you reverse write-downs up to original cost. Under ASC 330, no — write-downs are permanent.
What is net realisable value?
Selling price less costs to complete and sell (IFRS). ASC uses a different "market" definition based on replacement cost.
This guide is simplified for educational purposes. Inventory accounting depends on specific facts and circumstances. Consult IFRS 2 and ASC 330 full text, and your own advisors, before finalising treatment.
Real-Life Case Study: Valuing Inventory Under IAS 2 vs ASC 330
Scenario. A US-parented manufacturer values raw-material inventory that has fallen in price, and uses LIFO in its US filings.
The differences. LIFO is permitted under ASC 330 but prohibited under IAS 2, so the group must restate to FIFO/weighted-average for IFRS. On write-downs, IAS 2 measures at the lower of cost and net realisable value and allows reversals if NRV recovers; US GAAP (for FIFO/average cost) uses lower of cost and NRV but prohibits reversal.
Takeaway. Two live differences on one balance, the LIFO ban and the reversal rule, mean the same warehouse can carry a materially different value under each framework. (Note: this topic is IAS 2, despite the legacy "ifrs-2" filename.)
Illustrative composite scenario for educational purposes. Figures are indicative and do not represent any specific company.