Three Pigs Corporation

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* Relevant Facts
1. There are essentially three major categories of hog inventory—live hogs ready for sale, developing animals, and processed pork products. 2. Not all live hogs in other locations that cannot be easily transported and processed at the Company’s main processing plants. As a result, these live hogs must be sold to third parties at spot market prices. 3. There are several factors, including increased supply of pork due to the capture of the Big Bad Wolf, have lead to the declining prices for their live hog on the spot market.

* Solution Analysis
Complying with the periodicity assumption and the conservative principle, marking inventories down will better reflect the value of the inventory.

There are several parts mentioned the inventory impairment in ARB43, Ch.4 Par.9:
"The rule of cost or market whichever is lower is intended to provide a means of measuring the remaining usefulness of an inventory expenditure."
"Inventory losses from market declines should not be deferred beyond the interim period in which the decline occurs."

There are four alternatives to deal with this inventory case of the Company.
i) Under the lower of cost or market method on a total inventory basis GAAP requires that the inventory be written down to the lower of cost or market when substantial evidence exists that market prices will recover before the inventory is sold. A write-down is generally required unless the decline is due to seasonal price fluctuations (FASB Cod. # 270-10-45-6).

In this case, if it can be determined that the future prices for lean hogs decline only for a temporary period and will recover before the end of the fiscal year, the inventory could be record on a total inventory basis.

However, IRS regulations say the types of items to be included in the same pool should be...
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