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Case 4-04

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TrueBlood Case 04-4 - Inventory

The FASB Codification provides guidance on how developing animals and animals available and held for sale are to be valued. Section 905-330-35-2 states that developing animals are to be valued at the lower of cost or market. Section 05-330-32-3 states that animals available and held for sale are to be valued: a. The lower of cost or market 
 b. At sales price less estimated costs of disposal, if all the following conditions exist: 
 1. The product has a reliable, readily determinable, and realizable market price. 
 2. The product has relatively insignificant and predictable costs of disposal. 
 3. The product is available for immediate delivery.
In the case of Three Little Pigs, Inc. it is clear that inventory is valued at the lower of cost or market. Section 330-10-35-1 provides the conditions under which inventory should be evaluated for impairment:
A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost. 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, changes in price levels, or other causes, the difference shall be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly designated as market.
In this case, the company has recognized that there have been changes in price levels and as such, the inventory should be valued for impairment. In valuing the inventory, the FASB codification provides further guidance on how to value inventory at the lower of cost or market when there are various categories of inventory. Section 330-10-35-8 states:
Depending on the character and composition of the inventory, the rule of lower of cost or…...

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