Three Little Pigs, Inc. Essay

Custom Student Mr. Teacher ENG 1001-04 26 February 2016

Three Little Pigs, Inc.

I’m writing this in response to your question on how should the Company determine whether an impairment exists and how should management evaluate impairment. The Company should record inventory impairment when according to ASC 330-10-35-1, “the utility of the goods is no longer as great as their cost”. The rule also states “where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence…the difference shall be recognized as a loss of the current period”. More specifically, 330-10-35-3 illustrates that “the rule of lower cost or market is intended to provide a means of measuring the residual usefulness of an inventory expenditure”.

Which Methods to Use

Total inventory basis: no
Inventory category: no
End product category: yes
Individual basis: no
Some other basis: no

Reasons
Inventory should not be evaluated for impairment under the lower of cost or market method on a total inventory basis. According to 330-10-35-8, “Depending on the character and composition of the inventory, the rule of lower of cost or market may properly be applied either directly to each item or to the total of the inventory”.

PIGS should not evaluate their impairment under total inventory basis since it needs to clarify and show its company clearly by indicating the different categories of finished products that they produce; which according to 330-10-35-10, “the rule of lower of cost or market, may be applied directly to the totals of the entire inventory, rather than to the individual inventory items, if they enter into the same category of finished product and if they are in balanced quantities, provided the procedure is applied consistently from year to year”.

Inventory should not be evaluated for impairment under inventory category but it should be evaluated based on the end product. According to 330-10-35-10, “Similarly, where more than one major product or operational category exists, the application of the lower of cost or market rule to the total of the items included in such major categories may result in the most useful determination of income”. However, in the case, they have quite different finished products so it may not be appropriate to simply define the inventory categories as processed pork products, live hogs, and developing animals. In fact, developing animals can be considered either as processing inventories for producing future products or finished product for sale to the third parties.

Inventory should not be evaluated for impairment under the lower of cost or market method on an individual basis to the extent possible. According to the 330-10-35-10, “the rule of lower of cost or market may properly be applied either directly to each item or to the total of the inventory (or, in some cases, to the total of the components of each major category). The method shall be that which most clearly reflects periodic income)”. In this case, since evaluating inventory impairment under the lower of cost or market method based on end product category has been proved effective above, it is neither necessary nor plausible for the company to evaluate the inventory impairment on an individual basis. There is no reason that inventory should be evaluated by some other basis not described above since impairment could be determined by evaluating the end product.

Free Three Little Pigs, Inc. Essay Sample

B

  • Subject:

  • University/College: University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 26 February 2016

  • Words:

  • Pages:

Let us write you a custom essay sample on Three Little Pigs, Inc.

for only $16.38 $13.9/page

your testimonials