3 Little Pigs Essay
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 …show more content…
330-10-35-10 states that, “When no loss of income is expected to take place as a result of a reduction of cost prices of certain goods because other forming components of the same general categories of finished products have a market equally in excess of cost... in such cases, the rule of lower of cost or market, maybe applied directly to the totals of the entire inventory.” PIGS states that they believe, “total revenues for the pork products and total revenues from the sale of the live hogs to third parties, based on current spot prices, will exceed the sum of the current capitalized cost of producing and processing those hogs and the expected “cost to complete” for hogs in development,” Therefore they are allowed by ASC 330-10-35-10 to apply the lower of cost or market method to
their entire inventory and need not apply it to each inventory category separately.
Question: If the Company determines that an impairment of inventory is necessary, should the impairment be recognized in an interim period if prices are expected to recover before year