Three Little Pigs Essay
Case Analysis
Three Little Pigs, Inc. (PIGS) is a provider of pork product. Its inventories consist of three categories: live hogs ready for sale, developing animals and processed pork product. Management thinks it is unnecessary to apply the lower of cost or market method to live hogs ready for sale or developing animals which will be internally processed and sold as processed pork product. However, there are live hogs in some locations have to sold at the declined spot market prices due to the problem of transportation and processing .
On September 30, 2002, management perceived a further decline in future prices and considered the lower of cost or market to record the impairment for live hogs and developing animals held for sale to third …show more content…
parties. But the CEO of PIGS, Farmer Joe thought it was unnecessary to write down the inventory because he believed the decline resulted from seasonal price fluctuations and the price would recover soon.
In my opinion, I will write down the inventory under the lower of cost or market based on end product category of developing animals and live hogs to be sold to third parties.
According to ASC 330-10-35-10, “where more than one major product or operational category exists, the application of the lower of cost or market rule to the total of the items included in such major categories may result in the most useful determination of income. When no loss of income is expected to take place as a result of a reduction of cost prices of certain goods because others forming components of the same general categories of finished products have a market equally in excess of cost, such components need not be adjusted to market to the extent that they are in balanced quantities.” And only live hogs and developing animals to be sold to third parties have market value. Other live hogs and developing animals do not possess market value because they are internally processed and sold as processed pork product. Therefore, the price of live hogs and developing animals to be sold to third parties is useful to determine the income. Thus, under this circumstance, I will evaluate the impairment under the lower of cost or market based on end product category of developing animals and live hogs to be sold to third
parties.
I think there is no need to recognize the impairment in an interim period if prices are expected to recover before year-end. Based on ASC 270-10-45-6, “Some market declines at interim dates, however, can reasonably be expected to be restored in the fiscal year. Such temporary market declines need not be recognized at the interim date since no loss is expected to be incurred in the fiscal year.” Therefore, the company should ignore the temporary decline in its interim financial statements.
Three Little Pigs, Inc. (PIGS) is a provider of pork product. Its inventories consist of three categories: live hogs ready for sale, developing animals and processed pork product. Management thinks it is unnecessary to apply the lower of cost or market method to live hogs ready for sale or developing animals which will be internally processed and sold as processed pork product. However, there are live hogs in some locations have to sold at the declined spot market prices due to the problem of transportation and processing .
On September 30, 2002, management perceived a further decline in future prices and considered the lower of cost or market to record the impairment for live hogs and developing animals held for sale to third …show more content…
parties. But the CEO of PIGS, Farmer Joe thought it was unnecessary to write down the inventory because he believed the decline resulted from seasonal price fluctuations and the price would recover soon.
In my opinion, I will write down the inventory under the lower of cost or market based on end product category of developing animals and live hogs to be sold to third parties.
According to ASC 330-10-35-10, “where more than one major product or operational category exists, the application of the lower of cost or market rule to the total of the items included in such major categories may result in the most useful determination of income. When no loss of income is expected to take place as a result of a reduction of cost prices of certain goods because others forming components of the same general categories of finished products have a market equally in excess of cost, such components need not be adjusted to market to the extent that they are in balanced quantities.” And only live hogs and developing animals to be sold to third parties have market value. Other live hogs and developing animals do not possess market value because they are internally processed and sold as processed pork product. Therefore, the price of live hogs and developing animals to be sold to third parties is useful to determine the income. Thus, under this circumstance, I will evaluate the impairment under the lower of cost or market based on end product category of developing animals and live hogs to be sold to third
parties.
I think there is no need to recognize the impairment in an interim period if prices are expected to recover before year-end. Based on ASC 270-10-45-6, “Some market declines at interim dates, however, can reasonably be expected to be restored in the fiscal year. Such temporary market declines need not be recognized at the interim date since no loss is expected to be incurred in the fiscal year.” Therefore, the company should ignore the temporary decline in its interim financial statements.