ASC 330 inventory explained

Inventory rules under US GAAP are familiar in outline but have two features IFRS does not: LIFO and the lower of cost or market test. This guide explains what goes into inventory cost under ASC 330, the cost flow assumptions, the two write-down tests and how write-downs work.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 3 minute read.

Short answer

ASC 330 is the US GAAP topic on inventory. Inventory is measured at cost, including the costs of bringing it to its existing condition and location, using a cost flow assumption such as FIFO, average cost or LIFO. Inventory measured using FIFO or average cost is carried at the lower of cost and net realizable value; inventory measured using LIFO or the retail inventory method is carried at the lower of cost or market. Write-downs create a new cost basis and are not reversed in later years.

At a glance

Measure at
Cost, then a write-down test
Cost flows
FIFO, average, LIFO, specific ID
FIFO and average
Lower of cost and NRV
LIFO and retail method
Lower of cost or market
Write-down reversal
Not after year end
Excel
Inventory costing comparison
ASC 330 inventory explainedMeasure at: Cost, then a write-down test; Cost flows: FIFO, average, LIFO, specific ID; FIFO and average: Lower of cost and NRV; LIFO and retail method: Lower of cost or market; Write-down reversal: Not after year end; Excel: Inventory costing comparison.KEY FACTS AT A GLANCEASC 330 inventory explainedMeasure atCost, then a write-downtestCost flowsFIFO, average, LIFO,specific IDFIFO and averageLower of cost and NRVLIFO and retail methodLower of cost or marketWrite-down reversalNot after year endExcelInventory costingcomparisonTax BakersASC 330 inventory explainedMeasure at: Cost, then a write-down test; Cost flows: FIFO, average, LIFO, specific ID; FIFO and average: Lower of cost and NRV; LIFO and retail method: Lower of cost or market; Write-down reversal: Not after year end; Excel: Inventory costing comparison.KEY FACTS AT A GLANCEASC 330 inventory explainedMeasure atCost, then a write-down testCost flowsFIFO, average, LIFO, specific IDFIFO and averageLower of cost and NRVLIFO and retail methodLower of cost or marketWrite-down reversalNot after year endExcelInventory costing comparisonTax Bakers
Key facts at a glance, as set out in this guide.

What goes into inventory cost under ASC 330?

All costs incurred to bring inventory to its existing condition and location: purchase price, freight-in, direct materials, direct labor, and an allocation of fixed and variable production overhead. Fixed overhead is allocated on the basis of normal capacity, so the cost of idle facilities and abnormal amounts of freight, handling and spoilage are expensed. Selling costs and general and administrative costs are expensed.

Which cost flow assumptions are allowed?

Cost flow assumptions and write-down testsCost flow assumptions and write-down testsAllowed under ASC 330?Write-down testFIFOYesLower of costand NRVAverage costYesLower of costand NRVLIFOYes (not under IFRS)Lower of costor marketRetail methodYesLower of costor market
The cost flow assumption decides which write-down test applies.

Specific identification is used for unique items. Many companies use different methods for different types of inventory, for example LIFO for US inventory and FIFO for foreign inventory, because LIFO is generally available only for US tax purposes. See LIFO explained.

How do the two write-down tests work?

  • Lower of cost and net realizable value, for FIFO and average cost inventory: net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This matches IFRS.
  • Lower of cost or market, for LIFO and the retail method: market is current replacement cost, but not more than net realizable value (the ceiling) and not less than net realizable value less a normal profit margin (the floor).

A worked example: lower of cost or market

A LIFO item costs $100. Its replacement cost is $80, its net realizable value $95, and the normal profit margin $20, so the floor is $75 and the ceiling $95. Replacement cost of $80 lies between them, so market is $80 and the item is written down by $20. If the same item were on FIFO, the test would be lower of cost and net realizable value: $95, a write-down of only $5.

Can inventory write-downs be reversed?

A write-down at year end establishes a new cost basis, which is not marked back up if prices recover. Write-downs in an interim period may be reversed later in the same fiscal year if the market price recovers, to the extent of the earlier interim loss. IFRS, by contrast, requires reversal when net realizable value recovers; see IAS 2 vs ASC 330.

Who owns goods in transit and on consignment?

Ownership follows the shipping terms. Goods shipped FOB shipping point belong to the buyer from the moment they leave the seller; goods shipped FOB destination remain the seller's until they arrive. Goods held by a dealer on consignment stay in the consignor's inventory until sold, because the consignor keeps control.

What about losses on purchase commitments?

If a company has a firm, noncancelable commitment to buy inventory at a price above its current market value, and expects a loss when the goods are received, it recognizes that loss in the period the price falls, unless the loss is protected by a firm sales contract.

What must be disclosed?

The basis of stating inventory, including the cost flow assumption; significant write-downs; and, for public companies using LIFO, the LIFO reserve or the replacement cost of inventory, and the effect of any LIFO liquidations. Firm purchase commitments with expected losses must also be considered. Compare FIFO, average and LIFO in the Inventory costing comparison (Excel).

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Questions people ask

What is ASC 330?

The US GAAP topic on inventory, covering cost, cost flow assumptions and write-downs.

What is the difference between lower of cost and NRV and lower of cost or market?

Lower of cost and NRV applies to FIFO and average cost inventory; lower of cost or market, using replacement cost within a ceiling and floor, applies to LIFO and the retail method.

Can inventory write-downs be reversed under US GAAP?

Not after year end; the written-down amount becomes the new cost. Interim write-downs can be recovered within the same fiscal year.

Is LIFO allowed under ASC 330?

Yes. US GAAP allows LIFO; IFRS does not.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 330, Inventory
  2. Financial Accounting Standards Board

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ASC 330LIFO explained, and why IFRS does not allow itIFRS vs US GAAPIAS 2 vs ASC 330: inventory, LIFO and write-downsIAS 2IAS 2 inventories explained

More in ASC 330

Next in this topicLower of cost and net realizable valueTopicAll 3 guides in ASC 330

This guide is general information. It is not tax or legal advice for your situation.