The current problem the management is facing is the result of spot market prices for live hogs that have declined. The causes mentioned for the decline are not specific except the capture of the “Big Bad Wolf.” Whatever the reasons, they are strong enough to bring about a decline in prices due to surplus production. However, the management led by its CEO, Farmer Joe, is confident of a turnaround during the third and fourth quarters of the year with a specifically good projection for the last quarter. The management is also positive that the total revenues for the pork products and total revenues for sale of live hogs to third parties, based on current spot prices, will be favorable enough to offset losses incurred due to a price decline in the second quarter.
Due to the slump in the second quarter, the management is of the view that there may be lower of cost or market issues involved in the Company’s inventory of live hogs and developing animals held for sale to third parties as on September 30, 2002. Thus, the urge to go for impairment evaluation is present. (Lower of Cost or Market)
However, management must be cautious in acting upon impairment evaluation although the expert opinion of impairment evaluators can help increase the profit margin or decrease loss/reduction in profits. Impairment evaluation, like weather forecast, is highly unpredictable and too full of uncertainties to rely upon for major decisions. (Impairment Services)
The choice is dependent on the factors contributing to the decline in prices. ...