10 May WHAT IS THE SEC’S POSITION ON ACCOUNTING FOR THIS RESTORATION OF INVENTORY VALUE?
FASB Codification: Inventory research1. Locate the Master Glossary in the FASB Codification and answer the following questions:a. What is the formal definition in the glossary of the term “Inventory?”b. ABC Company has a number of machines used for manufacturing its products. One of ABC’s machine suppliers is trying to get rid of its existing machines to make room for a new model and is offering them at a sharply discounted price. As such ABC has decided to purchase a number of the sale-priced machines. ABC intends to retire its existing machines early and to offer them for sale. Based on the definition above now that these machines are no longer used in production and they are held for sale should ABC reclassify them as inventory?2. What is the Codification topic number for inventory?3. What types of entities are not covered by the guidance in the Inventory Topic? (Provide the Codification reference for your answer)4. What is the objective of accounting for inventories? (Provide the Codification reference for your answer) 5. There are a number of reasons why a company might determine that it will not recover in sale the full cost that it has put into its inventory (physical deterioration obsolescence changes in price levels etc.). In this situation guidance states that the inventory must be written down to the lower of cost or market. When such a write-down occurs it is not expected that the inventory will recover in value. However on rare occasions inventory may recover its value prior to being sold.
FASB Codification: Inventory research1. Locate the Master Glossary in the FASB Codification and answer the following questions:a. What is the formal definition in the glossary of the term “Inventory?”b. ABC Company has a number of machines used for manufacturing its products. One of ABC’s machine suppliers is trying to get rid of its existing machines to make room for a new model and is offering them at a sharply discounted price. As such ABC has decided to purchase a number of the sale-priced machines. ABC intends to retire its existing machines early and to offer them for sale. Based on the definition above now that these machines are no longer used in production and they are held for sale should ABC reclassify them as inventory?2. What is the Codification topic number for inventory?3. What types of entities are not covered by the guidance in the Inventory Topic? (Provide the Codification reference for your answer)4. What is the objective of accounting for inventories? (Provide the Codification reference for your answer) 5. There are a number of reasons why a company might determine that it will not recover in sale the full cost that it has put into its inventory (physical deterioration obsolescence changes in price levels etc.). In this situation guidance states that the inventory must be written down to the lower of cost or market. When such a write-down occurs it is not expected that the inventory will recover in value. However on rare occasions inventory may recover its value prior to being sold. What is the SEC’s position on accounting for this restoration of inventory value? If it becomes apparent prior to sale that inventory previously written-down will recover in value should the inventory continue to be carried at the reduced market value? Should it be restored to the new market value (not to exceed original historical cost)? (Provide the Codification reference for your answer)
If it becomes apparent prior to sale that inventory previously written-down will recover in value should the inventory continue to be carried at the reduced market value? Should it be restored to the new market value (not to exceed original historical cost)? (Provide the Codification reference for your answer)
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