2.13 Inventory
Examples of SEC Comments
-
We note your disclosure that inventories are carried at the lower of cost or market. Please tell us how this is consistent with ASC 330-10-35-1B, which indicates that inventories should be valued at the lower of cost or net realizable value.
-
You disclose that certain manufacturing costs associated with product shipments of [X] were expensed prior to FDA approval and, therefore, were not included in cost of goods sold as of [the end of fiscal year 1] and [the end of the first quarter of fiscal year 2]. Please tell us and provide proposed disclosure to be included in future periodic reports that addresses the following:
-
The cost of the inventory build-up prior to your regulatory approval that had been expensed in prior periods as research and development expenses (i.e. zero cost inventories),
-
The estimated selling value of zero cost inventory on hand at [the end of the first quarter of fiscal year 2] and when you expect, based on your current sales trends, the zero cost inventories to be depleted, and
-
The shelf life of your inventory and your consideration of whether or not any additional inventory will be determined to be obsolete in future periods.
-
-
We note your reference to excess and obsolete inventory reserves here and the rollforward analysis in your Schedule II disclosures. Please clarify for us whether you maintain an inventory valuation allowance through which subsequent recoveries are recorded, and if so, explain how that is consistent with the guidance noted in SAB Topic 5.BB and ASC 330-10-35-14. Otherwise, revise your disclosures regarding inventory reserves in future filings.
The SEC staff may ask registrants to clarify their accounting policy
disclosures regarding inventory valuation, particularly the policies and estimates
related to the measurement of inventory. ASC 330-10-30-9 states, “Cost for inventory
purposes may be determined under any one of several assumptions as to the flow of cost
factors, such as first-in first-out (FIFO), average, and last-in first-out (LIFO). The
major objective in selecting a method should be to choose the one which, under the
circumstances, most clearly reflects periodic income.” ASC 275-10-50 requires
disclosures of significant estimates applicable to inventory.