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October 2015
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FASB ASU 2015-11, Simplifying the Measurement of Inventory

FASB ASU 2015-11, Simplifying the Measurement of Inventory Background

The FASB’s Simplification Initiative is a tightly-focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting.

In addition to the Simplification Initiative, the FASB recently completed several projects, and currently is working on several projects, that are intended to reduce cost and complexity in financial reporting. The FASB launched the initiative in 2014 to reduce the cost and complexity of financial reporting by making targeted changes to U.S. GAAP while maintaining or improving the usefulness of information for investors.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, as part of that initiative. The FASB heard from stakeholders that the guidance on the subsequent measurement of inventory is unnecessarily complex because there are several potential outcomes.

Existing Guidance

When inventory declines in value below its original cost, the inventory should be written down to reflect the loss. This loss of utility in inventory should be charged against revenue in the period in which the loss occurs. ASC 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market.

The term “market” in lower of cost or market generally refers to the replacement cost of an inventory item. Market value should not exceed net realizable value (NRV), nor should it be less than net realizable value less a normal markup. These are known as the upper (ceiling) and lower (floor) limits of market, respectively. Market is defined as replacement cost if such cost falls between the upper and lower limits. Should replacement cost be above the upper limit, market would be defined as net realizable value. If replacement cost falls below the lower limit, market is defined as net realizable value less a normal markup. The appendix includes an illustration of this inventory valuation.

To arrive at the final inventory valuation, market value must be determined and then compared to cost. Market value is determined by comparing replacement cost of the inventory with the upper and lower limits. If replacement cost of the inventory in the example is $550, then $550 is compared to cost in determining lower of cost or market because replacement cost falls between the upper ($600) and lower ($500) limits.

If replacement cost of the inventory is $650, it would exceed the upper limit. Then the upper limit ($600) would be compared to cost in determining lower of cost or market. Similarly, if replacement cost of the inventory is $450, it would be lower than the lower limit and thus the lower limit of $500 would be compared to cost in determining lower of cost or market. The amount that is compared to cost, often referred to as designated market value, is always the middle value of the three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin.

Main Provisions

ASU 2015-11 amends ASC 330 to require inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 also amends some of the other guidance in ASC 330 to more clearly articulate the requirements for the measurement and disclosure of inventory. Those clarifications should not result in any changes in practice. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory, there are no other substantive changes to the guidance on measurement of inventory.


The amendments in ASU 2015-11 do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments do apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The FASB received feedback from stakeholders that the proposed amendments would reduce costs and increase comparability for inventory measured using FIFO or average cost but potentially could result in significant transition costs that would not be justified by the benefits for inventory measured using LIFO or the retail inventory method due to the complexity inherent in those methods. Therefore, the FASB decided to limit the scope of the simplification to exclude inventory measured using LIFO or the retail inventory method.

Effective Date and Transition

For public business entities, the amendments in ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.
Managing a Virtual Team

Managing a Virtual Team A virtual team is “any group of people who must work together, but have individuals in the group who can't frequently meet face-to-face”.

A virtual team would include:
  • Any person who works in a different location.
  • Any person who works a different time schedule.
  • Any person who is often out of the workplace.
  • Any person who works less than full-time with the group.
Other examples are team members who travel frequently, who work in shifts, who are assigned to multiple project teams, who report to more than one manager, who work remotely in their car or who work remotely at home.

This model represents the role of the manager in virtual teams. The seven competencies of a leader include:

1. The Leader
The leader inspires high degrees of motivation and alignment across time, space, and cultural distances.

2. The Results Catalyst
The results catalyst helps the team improve performance; get good results without resorting to authoritarian methods, manages by principles, operating guidelines, and technology use protocols, rather than exclusively by policy; uses boundaries rather than directives.

3. The Facilitator
The facilitator brings together the necessary tools, information, and resources for the team to get the job done; can start or refocus a virtual team effectively; adept at communication technologies.

4. The Barrier Buster
The barrier buster opens doors and builds trust; challenges the status quo; helps people overcome isolation; breaks down artificial barriers.

5. The Business Analyzer
The business analyzer understand the big picture, is able to translate changes in the business environment into opportunities for the organization, and acts as an advocate for the customer; unifies team members across functions and cultures. Business focus is important to any organization, but it is especially important to virtual teams. These operations have a more significant risk of becoming disconnected from others in the company. They are also prone to focus time and energy on the topics that are of most importance to their particular site rather than to the overall business.

6. The Coach
The coach teaches others and helps them develop their potential, maintains an appropriate authority balance, and ensures accountability in others. Some distance leaders, for example, will regularly engage in performance discussions with team members via videoconferencing. This kind of ongoing coaching combined with face to face performance reviews provides a powerful opportunity for developing potential and ensuring accountability.

7. The Living Example
The living example serves as a role model for others by “walking the talk” and demonstrating the desired behaviors of team members and leaders. Virtual “walking the talk” includes a number of activities that can be practiced by distance leaders. For example, although the distance leader has few opportunities to set an example of how to act around the office, he or she can set an example of how to work with customers by inviting team members to join him or her on sales calls or other activities. While the distance leader can't regularly demonstrate proper meeting behavior, he or she can model things such as appropriate virtual meeting behavior, Internet etiquette, and e-mail usage.

For more information, refer to the Checkpoint Learning course Managing a Virtual Team.
Providing Accounting, Tax, and Business Advice for a Revitalized Car Dealership Industry

Providing Accounting, Tax, and Business Advice for a Revitalized Car Dealership Industry In this article, Charles R. Goulding and Michael R. Wilshere discuss potential tax incentives for U.S. car dealers.

Since the Great Recession, the number of U.S. car dealerships has declined from over 32,000 dealers to approximately 18,000 dealers. The remaining dealers are often part of multi-dealer organizations and typically much stronger financially than pre-recession. Since 2009, dealers have benefited from increasing sales resulting from an overall improved economy, lower gasoline prices, low cost financing, leasing programs, and auto technology improvements.   The following chart presents the growth of U.S. car sales from 2009 to 2014 ("U.S. Car Sales 1951-2014 | Statistic." Statista. N.p., n.d. Web. 11 Sept. 2015.).

Growth in American Car Sales
The attractiveness of the industry is evidenced by Warren Buffet’s recent purchase of Van Tuyl Group, the nation’s largest privately held dealership chain. In fact, only four national dealers are larger than Van Tuyl including AutoNation Inc., Penske Automotive Group Inc., Group 1 Automotive Inc., and Sonic Automotive Inc. (Production. "Top 125 Dealership Groups." Automotive News (2014): Crain Communications, Inc., 17 Mar. 2014. Web. 11 Sept. 2015.) A strong, sustained industry provides major opportunities for the advisor community.

Accounting Services

Larger, multi-brand dealers can benefit from continuous analytical review of individual brand performance. Individual brands require manufacturer driven periodic capital expenditure upgrades and accountants can assist in cash flow planning and help obtain required financing. 


Dealers can benefit from a wide range of tax services, particularly with the need to regularly upgrade testing equipment related to the increasing amount of technology in today's cars.  Accordingly, dealers should take full benefit of capital expenditure tax expensing and bonus deprecation programs related to both equipment and software purchasing.

In recent years, the equipment expensing tax provisions and bonus deprecation provisions have been part of yearend tax extender packages. Tax advisors should meet with car dealers now and create an equipment purchase program that integrates the auto dealers’ business needs and the corresponding anticipated tax incentives.   

Dealers have large, lighting related electricity costs related to both facility and outdoor lighting. Dealers should consider utilizing Section 179D lighting tax incentives for energy saving, long life, LED lighting upgrades. 

Business Advice

Larger, multi-brand dealers require regular business advice including brand investment allocations, employee and management training, and succession planning. 

Your local car dealer may be part of a larger and more sophisticated business than you may realize. Informed advisers can provide the level of services needed for this strong industry sector.
Managing as a Coach

Managing as a Coach Stereotypical forms of management include a rigid formal structure where supervisors tell employees what to do, when to do it and how to do it. This type of management style leaves little, if any, room for personal growth or potential advancement.

The forward-thinking manager can implement a more contemporary style of motivating staff like coaching in order to encourage them to work as a team or reach a goal while achieving individual personal success and satisfaction.

Coaching is a process that can evolve in different ways depending on the individual being coached. Coaching sessions are either a regular, face-to-face meeting at a scheduled time (well in advance) or are called as needed at any given time.

Coaching can be just as effective over the telephone or through a web-based interface meeting as it can in a face-to-face meeting. However, there is credence to the argument that the face-to-face meeting can be more powerful and enlightening depending on the coach and the individual being coached.

The role of the coach is to support the individual or employee who can benefit from guidance to achieve some realistic goal(s). The coach does this by listening and asking thought-provoking questions. The coach is also able to help set up a step-by-step plan of reaching goals.

The importance of essential communication skills needed for coaches cannot be understated. One of the key attributes of a good coach is the ability to listen to the client and formulate appropriate, effective questions. One of the most important skills, active listening, is the ability to focus on what the client is saying and to understand it in the context of the client's needs and desired goals.

There are different types and styles of coaching including:
  • Management coaching
  • Performance coaching
  • Strategic human rescoure coaching
Management coaching

Managerial coaching is a system that provides training and mentoring to employees. More specifically, it is a leadership training for future managers. Behind the concept of managerial coaching is the idea that managers are facilitators, teachers and coaches. They are supposed to inspire and energize individuals they coach. By so doing, the people being trained are able to realize their potential.  (Gilbert Manda, What is Management Coaching?)

Performance coaching

The goal of performance coaching is to work with an employee in order to solve performance problems and/or improve the work of an employee or team.

This type of coaching is not limited to focusing on poor performance or what needs to be done to help the employee whose performance is below acceptable standards. Rather, performance coaching extends to those individuals who are performing in an acceptable manner but who have potential to improve. These individuals may just need someone to encourage them to stretch and aim for higher standards.

Performance coaching is also not limited to a single individual. Like most sports, a coach may be directing their energy and effort towards an entire team. A team may be a group of employees assigned to a project or work flow process or simply a department or division of employees within an entity.

Strategic human resource coaching

For the strategic human resource coach, the process involves providing feedback, usually to executives and managers, on improving organizational leadership. The focus is more on the professional development of the executive or manager.

For more information, refer to the Checkpoint Learning course: Essential Coaching Skills
Providing Business Tax & Accounting Advice for 3D Printer Purchase Decisions

Providing Business Tax & Accounting Advice for 3D Printer Purchase Decisions Charles R. Goulding and Michael Wilshere discuss 3D printer integration in a broad range of industries and the potential tax incentives offered.

New and improved 3D printing technologies are enabling a wide range of businesses to offer new products or reduce the costs of existing products. Business advisors including accountants and tax professionals have an important role to play with the wide range of businesses that benefit from 3D printer purchases. To assist business owners in making the decision to purchase a 3D printer, advisors need to ask the following fundamental questions.

  • Are final product custom deliveries delayed because of long lead times related to particular parts or components?
  • Can profits be increased by measurably reducing the cost of certain components or parts?
  • Could the business potentially benefit from beta testing new and improved products before making a major production process investment?
Product manufacturers use 3D printers for several reasons. Some prefer to print vendor supplied parts that are otherwise unavailable because of long lead times or are simply too expensive. Others use them to make highly engineered components or parts that either:
1. aren't suitable for regular production runs or
2. are custom or too complex to be created using traditional processes.

Designers use them as well, typically to enter markets with a product when they don’t have manufacturing infrastructure in place. These users may obtain substantive benefits from 3D printer purchases. Some of those benefits are listed below.

Product Variation: 3D printing offers the ability to manufacture highly complex and custom products one at a time without modifying or purchasing additional equipment. Conversely, traditional manufacturing machinery is typically designed to produce homogenous products over and over again.

Material Variation: 3D printing offers a wider range of materials that can be substituted for one another when products or available materials change.

Reduced cost-per-unit: Mass production in traditional manufacturing is typically inefficient on a limited scale. With 3D printing, the cost per unit is stable even if a small number of products are produced.

Integration: 3D printers are relatively low cost. They are also small; thus they save floor space and can be easily integrated into existing operations.

Reduced Cost of Components: Some products and components are particularly expensive to purchase. Smart manufacturers identify these products and often 3D print them for less.

3D Printer Tax Incentives

3D printer tax incentives include potential Section 179 equipment expensing, possible bonus deprecation, and R&D tax credits related to the 3D printer integration process. Many of these yearly tax incentives typically depend on the enactment of federal tax extenders, which typically have been available in recent years.

Choosing a Printer

Some websites offer reviews of 3D printers by previous purchasers. For example, has a 3D printer guide based on the reviews of over 2,200 verified 3D printer owners with over 1,600 collective years of experience. They provide information on the following parameters; print quality, ease-of-use, build quality, reliability, failure rate, customer service, community, running expenses, openness, software and value ("2015 Best 3D Printers Guide | 3D Hubs." 3D Hubs. N.p., 2015. Web. 11 Sept. 2015.

Lease vs. Buy

During the 2014 year 3D printing industry sales have stalled in part because purchasers are anticipating new, lower cost, higher performing printers. One technique that addresses concern over technology obsolescence is a short term lease arrangement or using a 3D printer service business.


Informed 3D printer purchasing advisors can help their clients enter new markets and reduce printer costs. End users also benefit from tax incentives that may be available at the time of the purchase.
2015 Corporate Tax Update: Safe Harbor and Ratable Service Contracts

2015 Corporate Tax Update: Safe Harbor and Ratable Service Contracts The IRS provides for a safe harbor that permits taxpayers using the accrual method to treat economic performance as occurring on a ratable basis for service contracts under which the services are provided on a regular basis. Under the safe harbor, taxpayers can ratably expense the cost of regular and routine services as the services are performed under the contract. (Rev Proc 2015-39, 2015-33 IRB)

A contract is a ratable service contract if:
  • the contract provides for similar services to be provided on a regular basis, such as daily, weekly, or monthly
  • each occurrence of the service provides independent value, such that the benefits of receiving each occurrence of the service is not dependent on the receipt of any previous or subsequent occurrence of the service, and;
  • the term of the contract does not exceed 12 months (not including contract renewal provisions).
Examples include contracts for janitorial services, landscape maintenance, and IT support and maintenance.

Scenario Example as provided by Rev. Proc. 2015-39, 2015-33 IRB 195 -- IRC Sec(s). 446, 07/30/2015:

On December 31, 2015, Taxpayer enters into a one-year service contract with X. Under the contract, X will provide janitorial services on a daily basis to Taxpayer until the end of 2016. Under the contract, Taxpayer pays X $3,000 a month to clean Taxpayer's offices. The contract requires Taxpayer to pay for each month's service by the end of the prior month. On December 31, 2015, Taxpayer makes a $3,000 payment to X for the services to be provided in January 2016. Taxpayer reasonably expects X to provide the janitorial services in January. As of December 31, 2015, all events have occurred to establish the fact of Taxpayer's $3,000 contractually-required payment and the amount of the liability is determinable with reasonable accuracy.

The contract meets the requirements of a Ratable Service Contract in section 4.02 of this revenue procedure because the janitorial services are to be provided on a regular basis (daily); each daily occurrence of the janitorial service provides independent value, such that the benefits from each occurrence of the service are not dependent on the receipt of previous or subsequent janitorial services; and the contract term does not exceed 12 months. Under the provisions of this revenue procedure, Taxpayer may treat economic performance as occurring ratably under the contract. Thus, under the 3 1/2 month rule Taxpayer is allowed to incur a liability in 2015 for the $3,000 paid in 2015. For the services provided from February through December 2016, economic performance occurs ratably as the services are provided to Taxpayer each day, and a liability of $33,000 for these services is incurred in 2016.

For more information, refer to the Checkpoint Learning course: 2015 Corporate Tax Update
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