Deloitte Three Little Pigs Essay

The main goal of evaluating disability of archive is to provide users of financial statements an accurate judgement of how the company stands. PIGS has three categories of line go hogs ready for change, ontogeny animals, and touch on porc products.Within these categories, PIGS has inventory of fit hogs and ontogenesis animals which are to be internally touch into pork products, and also live hogs and developing animals which are held for sale to third parties. The step up of holding inventory at light of cost of mart is with the hogs sold to third parties (PIGS feels that the internally processed products cover cost sufficiently and go forth not stir a LCM issue). However, with the Big heavy(a) Wolf being captured, market scathes for endure pork have decreased collectable to the increased supply of pork.The carrying cost of the live and developing hogs is now (and for the next hardly a(prenominal) months) much expensive than the market value. However, the chi ef operating officer believes that this is just a seasonal worker fluctuation. I feel that the way to best cost hebdomadary income is to evaluate for impairment of each(prenominal) end product category. Since the internally processed hogs do not have a LCM issue, the live hogs and developing hogs for sale to outdoors parties should be tested for impairment.This is back up by the FASB codification in subdivision 330-10-35-8 as well as 330-10-35-10. 35-8 states Depending on the character and composition of the inventory, the notice of deject of cost or market whitethorn properly be applied every immediately to each item or to the tot up of the inventory (or, in slightly cases, to the total of the components of each major category). The method acting shall be that which most clearly reflects periodic income. I would classify the inventory into twain categories, outside parties and internally processed. sectionalization 330-10-35-10 states Similarly, where more than one majo r product or operable category exists, the application of the write downward of cost or market rule to the total of the items included in such(prenominal) major categories may result in the most useful determination of income. When no loss of income is expected to take fanny as a result of a reduction of cost prices of certain goods because others forming components of the identical general categories of end products have a market equally in glut of cost, such components need not be adjusted to market to the extent that they are in match quantities.Thus, in such cases, 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 form to year. By using these two operational categories, it seems that applying lower of cost or market forget giv e the best military rating of income. 2)If the company determines that an impairment of inventory is necessary, should the impairment be recognized in an meantime period if prices are expected to date from before the year end?Section 330-10-55-2 in the codification states the followers If near-term price recovery is uncertain, a pedigree in the market price of inventory on a lower floor cost during an interim period shall be accounted for as follows. Paragraph 270-10-45-6 requires that the inventory be written down to the lower of cost or market unless either of the following conditions is met a. Substantial evidence exists that market prices will recover before the inventory is sold.  In the case of last-in, first-out (LIFO) inventory, substantial evidence exists that inventory amounts will be restored by year-end.A write-down is generally required unless the decline is due to seasonal price fluctuations. When aspect at the information provided, two things in particular ca tch my attention. The CEO says that total revenues for pork products and total revenues for sales to outside parties, based on current prices, will exceed the cost to complete the sales. Also, when flavour at the futures prices (and considering Farmer Joe already say that it was a seasonal fluctuation) it appears that the price frame is temporary. According to 330-10-55-2, a write down is required unless the decline is due to seasonal price fluctuations.