POLICY INFORMATION
Ref Number:
4016a
Policy Authors - Initials: AMC, LG, LK, MK (revision),
DNP (revision), DHP (revision)
Title:
Inventory Valuation - LIFO
Category:
Accounting / Reporting
Policy Authors - Names: Andy Czyzewski, Linda
Green, Linda Kimble, Michelle Kimker (revision), Doug
Page (revision), Donna Perry (revision)
Additional Review:
JSW, KG, ANC (revision),
JSW (revision)
Final Approval: JSW
Orig Approval Date:
2003/05/28
Date Revised:
2011/02/23
Organizational Scope:
Geographical Scope:
Corporate
Global
POLICY & PROCEDURE
Approved
TABLE OF CONTENTS
Objective
Scope
Policy
I. General
II. SAC US (Co 931)
III. COV US (Co 030)
IV. Exhibits
OBJECTIVE
The objective of this policy is to document the accounting procedures in effect at Sealed
Air Corporation’s domestic (U.S.) operations relative to the Company’s LIFO inventory
valuation method.
SCOPE
This policy is applicable to SAC US (Co. 931) and COV US (Co. 030) inventory to be
valued on a LIFO basis.
POLICY
I. General
• In compliance with current accounting requirements, the Company use the
following inventory valuation methods at its domestic operations:
• FIFO (first-in, first-out) inventory valuation method is utilized in order to
revalue inventory from standard cost to current replacement cost, in
conformance with GAAP. (SAC US only).
• LIFO (last-in, first-out) inventory is utilized for external reporting and
federal tax purposes (SAC US and COV US).
• Inventory valuation reserve and related calculations are maintained/prepared
separately for SAC US (Co 931) and COV US (Co 030) operations.
•
•
The LIFO (and FIFO, if applicable) reserve adjustment calculations and related
journal entries should be prepared and booked on a quarterly basis at a minimum.
It is important to maintain consistency in the LIFO accounting practices. As such,
any changes to the LIFO accounting practices must be approved by the VP Global
Supply Chain Finance and the Corporate Controller.
II. SAC US (Co 931)
• The inventory valuation calculation is administered by the Supply Chain finance
group in Mayhill.
• The inventory valuation calculation is prepared and booked on a quarterly basis.
• Book value of the inventory at SAC US is maintained at standard cost (for
finished goods and work in process) and moving average (for raw materials), with
a corresponding FIFO reserve account, which is representative of current cost.
• All inventory price and quantity data required for both the FIFO and LIFO
calculations are generated from SAP.
• The inventory valuation calculation and related workpapers are maintained on
Excel spreadsheets.
• The dollar-value LIFO method is used for calculating the LIFO reserve
adjustment, and the double-extension method for determining the LIFO index.
• SAC US currently has two LIFO pools: Food and Packaging. The Food pool
includes the Sealed Air Driloc products that are still contained within the SAC US
entity.
• Except for equipment, parts and solar collector inventory, all inventory is valued
on the LIFO basis. Inventory for equipment, parts and solar collectors are carried
on the books at standard cost and then revalued to FIFO on a quarterly basis;
contingent on significant changes in raw material costs.
• Calculation (see attached Exhibits A, B and C):
1. Generate and download LIFO/FIFO reports from SAP.
2. Revalue inventory by “pool” from standard cost to FIFO basis.
3. Record FIFO reserve adjustment.
4. Layer ending LIFO inventory by “pool” using base year cost and current
year cost.
5. Calculate the current year LIFO index using the double-extension method.
6. Determine whether a LIFO increment or decrement has occurred for the
current year.
7. If a LIFO increment is recognized, value at the current year cost by
multiplying the increment by the current year LIFO index, and add to prior
year’s ending LIFO balance to arrive at the current year’s ending LIFO
inventory.
8. If a LIFO decrement is recognized, it should be deducted from the prior
years’ LIFO increments to arrive at the ending LIFO inventory.
• Record LIFO reserve adjustment (i.e. difference between ending FIFO and LIFO
inventories). The LIFO reserve adjustment is approved by the Director-Supply
Chain Finance NA (PP/SM).
•
•
Inventory valuation reserve adjustments and related journal entries are booked by
Corporate each quarter in consolidation at the Profit Center level and then pushed
down to SAC US (and posted in SAP G/L) at the beginning of each year.
LIFO/FIFO reserve adjustments are maintained at the division level and do not
impact the monthly financials of the individual plant operations.
III. COV US (Co 030)
• The LIFO inventory valuation calculation is prepared by the Supply Chain
finance group in Duncan.
• The LIFO inventory valuation calculation is prepared and reviewed on a monthly
basis. As required, entries are booked so that the projected year end reserve will
be in place by 12/31. Therefore, depending on the projection for the year end
LIFO reserve, entries may or may not be made to book to the monthly calculation.
At 12/31 the LIFO reserve is always adjusted to agree to the December LIFO
inventory valuation calculation.
• Book value of the inventory for COV US is maintained at standard cost for
finished goods and work in process and moving average price for raw materials,
which is representative of current costs. (Standard costs are reviewed periodically
and revised as necessary; contingent on significant changes in raw material costs.)
• All inventory price and quantity data required for the LIFO calculation are
generated from SAP.
• The inventory valuation calculation and related workpapers are maintained in
Excel spreadsheets. See Exhibit D for these spreadsheets.
• The dollar-value LIFO method is used for calculating the LIFO reserve
adjustment and the link-chain method for determining the LIFO index.
• COV US currently has one LIFO pool.
• All inventories, except for inventory purchased for resale and equipment, are
valued on the LIFO basis. Inventory items purchased for resale and equipment
are valued at replacement cost (i.e. standard cost).
• A detail description of the COV US calculation is attached in Exhibit E.
• Cryovac-US LIFO White Paper was written in the mid-1990’s after an IRS audit
of Cryovac’s LIFO accounting to document Cryovac’s LIFO accounting
methodology and practices. The white paper is included in Exhibit F. An
example based on the calculation in the white paper is in Exhibit G.
• Journal entry to record necessary LIFO reserve adjustments are manually keyed in
to the SAP general ledger. This entry is approved by the Director-Supply Chain
Finance NA (COV).
• LIFO reserve adjustment is maintained at the division level and does not impact
the monthly financials of the individual plant operations.
IV. Exhibits
[See separate attachments]