Christopher Prado
ACCT 2301
FASB Case
11/17/15
Chickenella, Inc. Research and Analysis
Should inventory be evaluated for impairment under the lower of cost or market method on a total inventory basis?
The CEO of Chickenella Inc. has argued that the prices of processed ostrich products exceed the cost to raise and produce, therefore there is no lower of cost or market issue. The company now wants to determine whether or not inventory should be evaluated for impairment under the lower of cost or market method on a total inventory basis as of December 31, 2014.
Since it’s believed that the prices of processed ostrich products exceed the cost to raise and produce, they’re profits in that section of their operation should be enough to cover a large amount of the costs. Considering that the revenue gained from processed ostrich products is enough to cover the costs, the CEO believes that no write off will be needed, as their “total inventory” will still be covering the costs.
At first glance it seems like the FASB codes has been applied given that they’ve taken their inventories into consideration and recognizing them at a net realizable value. However, Chickenella Inc. has three different inventory categories and each of them fall under different structures in regards to cost and structure. Due to these different structures, Chickenella Inc. is better off reviewing their goods under each individual category in order to better reflect the company.
The three major inventories that Chickenella Inc. has are mature-live-ostriches ready for sale, developing-fowl, and processed ostrich products. FASB 905-330-35-2 codifications is referencing developing-fowl, “Developing animals to be held for sale shall be valued at the lower of cost or market.”
The FASB codification 905-330-35-3 states that “animals held for sale should either be held at lower of cost or market, or