KPMG Three Little Pigs Inc. Solution :: Business, Finance, case study, solution

KPMG Three Little Pigs Inc. Solution several(prenominal) factors including increased supply have caused declining prices for live hogs on the spot commercialise. too as shown below, futuritys prices will remain below the carrying exist for live hogs until closely the end of the fiscal year. However, processed pork products such as bacon, loins, and overact remain above the current cost of production. Three Little Pigs Inc. is equal to(p) of processing hogs into these products intern altogethery at some locations. Unfortunately, not all hogs washbowl be transported and processed at the main processing plants and must be sold as live hogs to third parties at spot merchandise prices. There argon four potential alternatives for dealing with the possible exigency to impair the value of Three Little Pigs Inc.s inventories.Alternative 1 rest to carry all inventories at cost basis.ARB28, Par.14c ?Such temporary market declines need not be recognized at the interim bodyguard since no sacking is expected.?EITF, 86-13 Discussion option 28 requires inventory be written to lower of cost or market unless (1) substantial try exists that market prices will recover before the inventory is sold? bring out down is generally inevitable unless the decline is due to seasonal set fluctuation.?ARB43, Ch.4, Par.9 ?Where evidence indicates that cost will be recovered with an approximately habitual profit upon sale in the ordinary course of business, no loss should be recognized...? If it can be determined that the depressed prices for lean hogs are only temporary, inventories could and should be kept at cost basis. In this case, adjusting prices to counterbalance current market prices would not be necessary. Future prices indicate a recovery before the end of the fiscal year. Futures prices will surpass cost in February and remain above cost for the remainder of the fiscal year. The future prices support claims that the price fluctuations are only temporary in nature, and do not resound a permanent downward shift in hog prices. Since inventories once impaired cannot be marked up to reflect changes in market conditions, this strategy could be beneficial to the company later on on. In this case inventory would not be shown on the books at an unfairly low value. Alternative 2 Mark down all live hog inventoriesAICPA Audit Procedures for Agricultural Producers Pt.1 Ch5.02 ?Growing crops and developing animals to be held for sale should be valued at the lower of cost or market.? ARB43, Ch.4 Par.8 ?A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its cost.