...BACKGROUND Three Little Pigs, Inc. (PIGS) is a provider of pork products. The Company produces approximately 4.1 million hogs per year; the majority of which are internally processed. However, a portion of the hogs produced are sold to outside third parties. PIGS does not have any commitments to sell live hogs to third parties and it does not hedge its live hogs through commodity futures contracts. PIGS has three major categories of hog inventory: (1) live hogs available for sale; (2) developing animals; and (3) processed pork products. Management is confident that the wholesale price of processed pork products exceeds the cost to bring such products to market. However, spot market prices charged for live hogs sold to third parties have recently declined and are currently below the Company’s cost of producing these hogs. The decline in spot market prices is due to several factors, including the capture of the Big Bad Wolf, which led to an increased supply of pork. As of the second quarter ending September 2002, futures prices for lean hogs indicate a further decline before recovering late in the fourth quarter, as illustrated below: October 2002 $29.00 November 2002 $30.00 December 2002 $33.00 January 2003 $37.00 February 2003 $42.00 March 2003 $45.00 Farmer Joe asserts that the price decline reflected above is the result of seasonality. Currently, the cost of producing a live hog is $38/cwt ($38 per 100 pounds). Therefore, live hogs available for sale are carried...
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...Accounting Issue: Three Little Pigs Inc. inventory consists of livestock held for sale, developed, and processed (both internal and external). On September 30, 2002, the company states that even though market prices fell below the cost, Three Little Pigs Inc. is unwilling to accept impairment on their inventory due to increase revenue believed to be made up in the fourth quarter which will cover all losses from the decline. Secondly, we must determine an appropriate solution for recording their inventory. Possible Solutions: * Inventory be evaluated for impairment under the lower of cost or market method by inventory category, such as processed pork products, live hogs for sale, and developing animals. * Inventory be evaluated for impairment under the lower of cost or market method based on end product category, such as separating inventory into two groups: • nternal live hogs & developing animals to be processed are combined with processed pork products • Developing animals and live hogs sold to third parties in another group * Inventory evaluated for impairment on some other basis not described above Codification: 330-10-35 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 prices levels...
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...KPMG Three Little Pigs Inc. Solution KPMG Three Little Pigs Inc. Solution Several factors including increased supply have caused declining prices for live hogs on the spot market. Also as shown bellow futures prices will remain below the carrying cost for live hogs until nearly the end of the fiscal year. However processed pork products such as bacon, loins, and ham remain above the current cost of production. Three Little Pigs Inc. is capable of processing hogs into these products internally at some locations. Unfortunately, not all hogs can be transported and processed at the main processing plants and must be sold as live hogs to third parties at spot market prices. There are four potential alternatives for dealing with the possible need to impair the value of Three Little Pigs Inc.'s inventories. Alternative 1: Continue to carry all inventories at cost basis. ARB28, Par.14c ?Such temporary market declines need not be recognized at the interim date since no loss is expected.? EITF, 86-13 Discussion ?? option 28 requires inventory be written to lower of cost or market unless (1) substantial evidence exists that market prices will recover before the inventory is sold? Write down is generally required unless the decline is due to seasonal pricing fluctuation.? ARB43, Ch.4, Par.9 ?Where evidence indicates that cost will be recovered with an approximately normal profit upon sale in the ordinary course of business, no loss should be recognized...? If it can be...
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...To: Farmer Joe, CEO, Three Little Pigs, Inc. (PIGS) From: Accounting Consultant Subject: Assessment of Impairment Date: January 1, 2003 I. Facts During this fiscal year, with the capture of the Big Bad Wolf, there is an increase of supply of pork and the market price of pork is on the decline. Although the market price for hogs is forecasted to stabilize within the year, Three Little Pigs, Inc. (PIGS) is dealt with the dilemma of whether they should impair their inventory of hogs, effective September 30, 2002. With three categories of hog inventory (live hogs for sale, developing animals, and processed pork products), PIGS is only considering to impair their inventories of live hogs and developing animals to be sold to third parties at market prices. Concerning processed pork prices, they are believed to be sufficient to cover production costs. II. Issues Management refuses to write off their inventory as they believe future stabilized prices will cover the losses from the previous quarters. However, specific scenarios must be evaluated to decide what the best solution is for PIGS to efficiently report their inventory. The issue is whether impairment should exist at September 30, 2002. If impairment shall exist, the question remains whether the impairment would be evaluated under the lower cost or market method on a total inventory basis, category basis, end product basis, or on an individual basis. If deemed necessary to impair, PIGS will need to determine...
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...Darren Fedon - DLF0011 Case 04-4 Three Little Pigs, Inc. Background Three Little Pigs, Inc. (PIGS) is a provider of pork products to the food service industry and institutional markets in the U.S. PIGS develops and produces the majority of their hogs for internal processing (processed pork products) and while selling a portion for outside third parties (live hogs). During PIGS fiscal year 2003, an external factor has increased the supply of hogs on the market which in turn is pushing down futures prices. Management believes that this decline hog prices warrants reviewing their inventory because there may be a lower of cost or market issue. The basis for this assumption is the decline in futures prices in both the second and third quarters. However, the CEO believes that the price fluctuations are due to seasonality and thus temporary in nature, referencing the price recovery in the fourth quarter of the futures market and therefore impairment isn’t necessary. Issue PIGS management has concerns about how to evaluate their pig inventory for impairment. Two issues were raised related to inventory evaluation and reporting of the impairment (if applicable). The two issues are as follows: 1) The options for inventory evaluation presented to them are as follows a) total inventory basis, b) inventory category, c) end product category or d) individual basis. 2) Once a correct method has been selected; management will need to determine if impairment is needed,...
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...Case 04-4 Three Little Pigs, Inc. Research Response Three Little Pigs, Inc. (PIGS) is a provider of live hogs and pork products. They classify inventory into three distinct categories: live hogs ready for sale, developing animals, and processed pork products. They have always evaluated inventory at cost because the wholesale price has always exceeded the cost of bringing the products to the market. Now, due to several factors, PIGS believes that they may have a lower of cost or market issue related to valuing some of the hogs. 1) Does PIGS need to write-down inventory? 2) What approach should be used for the write-down (by category, total, end category, etc.)? Does PIGS need to write-down inventory? PIGS has evidence that predicted futures prices for the months of October 2002 – January 2003 will fall below the cost of production for a hog. Where there is evidence that the utility of goods will be less than cost the difference is recognized in the current period (ASC 330-10-35-1). A write-down is generally required unless the decline is due to seasonal price fluctuations (ASC 330-10-55-2). Though, Farmer Joe believes this is just a seasonal fluctuation, there is not enough evidence in the case to support that claim. There are no examples of this happening in prior years. The one reason that is given for the price decrease is the capture of the Big Bad Wolf, which led to an increase in the supply of pork. This appears to be an unusual event that would not happen...
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...Three Little Pigs Case I. INTRODUCTION Three Little Pigs, Inc.(PIGS) provides pork products, and sells a quantity of hogs produced to a number of wholesalers, retailers, and third parties across the United States. PIGS has three inventory departments which consist of live hogs ready for sale, developing animals, and processed pork items. Management has concerns about how to evaluate their different levels of inventory, and how they should account for impairment. The issue of impairment relates only to the live hogs and developing animals sold to third parties because management believes the internal pork products will be able to satisfy the cost of live hogs and animals processed internally. II. How should the company determine whether an inventory impairment exists i. Should inventory be evaluated for impairment under the lower of cost or market method on a total inventory basis? According to the FASB Accounting Standards Codification ASC 330-10-35-8 (inventory) " Depending on the character and composition of the inventory, the rule of lower of cost or market may properly be applied either directly to each item or to the total of the inventory (or in some cases, the total of the components of each category). The method shall be that which most clearly reflects periodic income." When a firm chooses to value its inventories based on the profitability of one inventory division it makes the assumption that all of the inventory divisions are...
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...Summary of the Facts Three Little Pigs, Inc. (PIGS) is trying to determine if they should impair their inventory due to a decline in futures prices. Although prices are declining, it is believed that the futures prices will begin to recover within the year. PIGS inventories consists of the following: live hogs to be internally processed, developing animals to be internally processed, internally processed pork products, live hogs to be sold to a third party, and developing animals to be sold to a third party. The question of impairment applies only to the live hogs and developing animals to be sold to a third party because it is believed that internally processed pork products will be able to cover the costs of live hogs and developing animals to be processed internally. Question: How should the Company determine whether an inventory impairment exists at September 30, 2002? More specifically, how should management evaluate impairment? Response: ASC 330-10-35-2 states that, “in accounting for inventories, a loss shall be recognized whenever the utility of goods is impaired by damage, deterioration, obsolescence, changes in price level, or other causes.” In PIGS case they should recognize a loss because the utility of their live hogs to be sold to a third party and their developing animals to be sold to a third party have suffered from a decrease in price level. When determining whether inventory should be evaluated for impairment under the lower of cost or market method...
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...Summary of the Facts Three Little Pigs, Inc. (PIGS) is trying to determine if they should impair their inventory due to a decline in futures prices. Although prices are declining, it is believed that the futures prices will begin to recover within the year. PIGS inventories consists of the following: live hogs to be internally processed, developing animals to be internally processed, internally processed pork products, live hogs to be sold to a third party, and developing animals to be sold to a third party. The question of impairment applies only to the live hogs and developing animals to be sold to a third party because it is believed that internally processed pork products will be able to cover the costs of live hogs and developing animals to be processed internally. Question: How should the Company determine whether an inventory impairment exists at September 30, 2002? More specifically, how should management evaluate impairment? Response: ASC 330-10-35-2 states that, “in accounting for inventories, a loss shall be recognized whenever the utility of goods is impaired by damage, deterioration, obsolescence, changes in price level, or other causes.” In PIGS case they should recognize a loss because the utility of their live hogs to be sold to a third party and their developing animals to be sold to a third party have suffered from a decrease in price level. When determining whether inventory should be evaluated for impairment under the lower of cost...
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...Summary of the Facts Three Little Pigs, Inc. (PIGS) is trying to determine if they should impair their inventory due to a decline in futures prices. Although prices are declining, it is believed that the futures prices will begin to recover within the year. PIGS inventories consists of the following: live hogs to be internally processed, developing animals to be internally processed, internally processed pork products, live hogs to be sold to a third party, and developing animals to be sold to a third party. The question of impairment applies only to the live hogs and developing animals to be sold to a third party because it is believed that internally processed pork products will be able to cover the costs of live hogs and developing animals to be processed internally. Question: How should the Company determine whether an inventory impairment exists at September 30, 2002? More specifically, how should management evaluate impairment? Response: ASC 330-10-35-2 states that, “in accounting for inventories, a loss shall be recognized whenever the utility of goods is impaired by damage, deterioration, obsolescence, changes in price level, or other causes.” In PIGS case they should recognize a loss because the utility of their live hogs to be sold to a third party and their developing animals to be sold to a third party have suffered from a decrease in price level. When determining whether inventory should be evaluated for impairment under the lower of cost or market method...
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...Case Analysis—Jim Southern Case Summary: It was June 28, 1984, Jim Southern, cofounder of Nova Capital Corp, was within 48 hours of signing a Purchase and Sale Agreement to buy American Printing, Inc.’s business forms division. This division was profitable, it had a big market share, and the market was mature and stable. Although this company was very attractive for Jim, this transaction still had some shortcomings such as it is highly leveraged; Jim seemed to buy a “pig in a poke”; and he have to personally guaranteeing $4 million of accounts payable while his net worth was less than $100,000. With both debt and equity financing conditionally in place, Jim Southern had to make up his mind at once. Case Analysis: 1. What factors create the opportunity for Jim Southern? First of all, Jim Southern was an MBA from Harvard Business School which brought him substantial business knowledge and broad networking opportunities. Jim first heard this opportunity from his professor Tom, who finally introduced Jim to the CEO of American Printing, Inc. Without Tom’s help Jim won’t get this opportunity so easily. Secondly, Jim knew clearly about what kind of business they are seeking. He decided the formal criteria, such as high current assets and Sales $5 to $40 million, for screening the target business, which save Nova a lot of time and money and increased the likelihood of a third-party referral. Finally, Jim was good at seizing the opportunities. Although young and lack of experience...
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...Introduction Founded in 1993, Chipotle Mexican Grill, Inc. has expanded from a local favorite consisting of a single location in Colorado to an international chain with over 1500 locations today. There are countless example of various corporations that experience growth trends similar to that of Chipotle’s, however, as a result of the rapid expansion and gains in sales, most of these corporations tend to neglect their corporate social responsibilities (CSR). Chipotle, on the other hand, does not fall susceptible to this trend. Through a complete examination of Chipotle’s CSR initiatives and activities, as well as detailed explanations of Chipotle’s contributions to the three “pillars” of sustainable development, one is able to see that Chipotle is a leader and an innovator in its industry regarding the corporate management of ethical dilemmas and moral responsibilities. A thorough comparison with a similar corporation in the same industry, Moe’s Southwest Grill, Inc., provides further evidence that Chipotle places immense value corporate transparency and quality morals in addition to being a genuinely ethical and responsible corporation. Following the major comparison are explanations of possible underlying motives and “market nudges” leading Chipotle to participate in particular CSR activities. Lastly, a discussion of government initiatives and potential upcoming regulations has been included to indicate the possible future direction of every firm’s corporate social responsibilities...
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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...
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...Learning English through children's literature Submitted by admin on 18 December, 2002 - 12:00 This article is about the British Council's Young Learners Centre in Paris and how they use children's literature in their teaching of English * The role of stories and storytelling in language teaching * Selecting story books * Pupil responses * Personal and professional development of teachers * Other support materials * Books referred to in this article The role of stories and storytelling in language teaching Once upon a time and not so very long ago in the capital city of France, a teaching centre for little children and not so little children was opened. One little child and then two and then three and then many, many more came along. And so our story unfolds ….. There was a little red hen, a meerkat in trouble, a brown bear, a black elephant and a white elephant, a very hungry caterpillar, Spot the dog, a clever tortoise, a big, roaring, yellow, whiskery lion, a kangaroo from Woolloomooloo and many more. These are just some of the colourful characters from children's literature who have helped children aged 5 - 10 attending holiday classes at the British Council's Young Learners Centre in Paris learn English. These weekly courses take place each afternoon for two hours. The educational value of using stories and the technique of storytelling has always been undisputed throughout the world. Now more and more English as a foreign language (EFL) teachers of...
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...produce food and renew its resources, veganism is becoming more and more popular because it is considered to be a conscientious way of life. For some it is for religious and personal reasons, for others it has to do with the fair treatment of animals. In any case, those whose diet has been traditionally meat-based, the vegan lifestyle is a responsible, choice for very legitimate reasons. Think about where the animal products you consume come from? You are probably picturing grassy farmlands with cows leisurely walking around, pigs happily rolling around in the mud, and coops filled with chickens cozily laying eggs, right? Wrong. These farms rarely exist today. Instead, cows are kept pregnant to continuously produce milk, pigs are kept in windowless concrete cages, and 250,000 hens are piled in one building to lay their eggs. This is what is known as a factory farm. Factory farms are overcrowded filled with terrified, suffering animals. These conditions are unacceptable. By eating meat and dairy products, or purchasing leather or fur, you are supporting these factory farms and their poor conditions. In order to stand up to the industry, we must choose a better, more ethical way of living. As mentioned earlier the three main reasons a person may become a vegan are, personal health, environmental, and for the animals. Let’s start by taking a look at the health benefits of a vegan diet. According to Dr. Joel Fuhrman, an American board-certified physician who specializes in nutrition...
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