Case 2 Three Little Pigs, Inc.
Re: Case 2 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,
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,