3.1 Inventory
The key similarities and differences in terms of inventory will be evaluated in following
aspects, costing method, measurement and write-downs. Firstly, when preparing inventory
for sale or use, they are always associated with direct and indirect costs. The methods of
recognising those costs are multiple. In UK, FIFO (first in first out) and weighted-average
costing are permitted, which can also be used in US and Vietnam. However, LIFO (last in
last out) is precluded in UK. Furthermore, there is still a method called specific
identification used in Vietnam. It applies to enterprises having a few goods or stable and
identifiable goods items. The each cost will be traced directly to the inventory.
In light of measurement, inventory is measured at the lower of cost and net realizable
value (NRV) in UK and Vietnam. NRV is estimated selling price less costs of completion
and sale. However, in US, inventory is measured at the lower of cost or market value
which is the current replacement cost. And the replacement cost cannot be greater than the
NRV.
Finally, inventory write-downs is used for the formal recognition that a portion of a
company’s inventory no longer has value. But when there is clear evidence of an increase
in NRV due to changes in economic circumstances, the amount of the write-down is
reversed in UK and Vietnam even if the inventories remain unsold. On the contrary,
reversals of write-downs are prohibited in US.
Due to different costing methods, profit measurement will be affected. Because LIFO
