Determining the physical quantity that should be contained in inventory normally is a simple matter because that amount have of items in the possession of the company. The cost of inventory contains all essential expenditures to acquire the inventory and bring it to its desired condition and location for sale or for use in the manufacturing process.
Required:
1. Obtain the relevant authoritative literature on the lower- of- cost- or- market rule for valuing inventory using the FASB's Codification Research System. Justify the circumstances in which inventory is stated at the lower of cost or market. What are the specific citations that talk about the level of aggregation that should be used in applying the LCM rule? Summarize the discussion.
2. Explain the specific citation for each of the following items: 1. The income statement presentation of losses from the write- down of inventory. 2. The determination of market value for applying LCM to inventory. 3. The accounting treatment needed for a correction of an inventory error in previously issued financial statements. 4. The use of the retail method to value inventory.