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Intermediate Accounting - Essay Example

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Intermediate Accounting

w 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 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)

Choice of Inventory Impairment Evaluation
The options for impairment valuation before the management are as follows:
1) Evaluation for impairment under lower of cost or market method on total inventory basis.
2) Evaluation for impairment under lower of cost or market method by inventory category, i.e., processed pork products, live hogs and developing animals.
3) Evaluation for impairment under lower of cost or market method based on end product category, i.e., developing animals and live hogs to be processed internally are aggregated with processed pork products to comprise one group, and developing animals and live hogs to be sold to third parties would be aggregated to comprise another group.
4) Evaluation for impairment under the lower of cost or market method on an individual basis to the extent possible, i.e., at the individual hog level.
5) Evaluation for impairment on some other basis not mentioned above.
There also exists another option that if the Company determines an impairment of inventory is necessary then the impairment must be recognized in an interim period if prices are expected to recover before year-end.
How should management choose the...
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. ...Show more

Summary

The following essay deals with the process of marketing. Reportedly, any market as old as the livestock market is inherently resilient and quite capable of absorbing the vicissitudes and vagaries of nature. Moreover, it is capable of absorbing short-term losses…
Author : schustereaston
Intermediate Accounting essay example
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