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The SEC staff comments for inventory focused on disclosing the basis of accounting for inventory.
For cost of sales, the SEC staff focused on the components of cost of sales, ensuring non-cash items, like depreciation, were allocated to cost of sales, and questioning the calculation of gross margin when it was not.
Comment Examples
Guidance references
  • You present cost of goods sold exclusive of depreciation and amortization expense along with the subtotal, gross profit. Please tell us how your presentation complies with the guidance in SAB Topic 11:B, as gross profit appears to represent a figure for income before depreciation.
  • Please disclose the basis of stating inventories and consider disclosing the major classes of inventories in future filings. Refer to ASC 330-10-50-1 and paragraph 6 of Rule 5-02 of Regulation S-X .
  • Please tell us and disclose in an accounting policy footnote the specific types of amounts included in cost of sales, operating expenses and general and administrative expenses.
  • We note your disclosures related to inventory valuation. Please enhance your critical accounting estimate disclosures to more fully explain the material assumptions you used to estimate reserves, quantify the impact these assumptions had during each period, and discuss the impact potential changes in these assumptions could have on future results.
  • 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. Alternatively, revise your disclosures in future filings to state, if true, that inventories are stated at the lower of cost or net realizable value.
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