Research Case 2
Summary of Facts
Three Little Pigs (PIGS) provides pork products to the wholesale and retail food service and institutional markets, as well as selling live hogs to outside third parties, though they have no firm commitments to do so. There are three major categories of inventory: live hogs ready for sale, developing animals, and processed pork products.
The CEO of PIGS has stated that processed pork prices exceed the costs of producing such products, and believes that because of this there is no lower of cost or market issue related to hogs being developed for processing. The hogs that cannot be easily transported and processed will be sold to third parties (not ...view middle of the document...
b. Should inventory be evaluated for impairment under the lower of cost or market method by inventory category, e.g., processed pork products, live hogs, and developing animals?
Yes, inventory should be evaluated by inventory category. 905-360-30-1 states that:
“All direct and indirect costs of developing animals shall be accumulated until the animals reach maturity and are transferred to a productive function. All direct and indirect development costs of animals raised for sale shall be accumulated, and the animals shall be accounted for at the lower of cost or market until they are available for sale.”
While 905-360-30-2 states:
“Agricultural producers shall report animals available and held for sale either:
• a. At the lower of cost or market
• b. In accordance with established industry practice at sales price, less estimated costs of disposal, if all of the following conditions exist:
o 1. There are reliable, readily determinable, and realizable market prices for the animals.
o 2. The costs of disposal are relatively insignificant and predictable.
o 3. The animals are available for immediate delivery.”
Since the treatment of animals available for sale and the treatment of developing animals are reported...