Question 1- Many companies use the lower-of-cost-or-market method to value inventory. They compare the current value of their inventory with its historical cost and adjust the value, if necessary, to ensure the inventory is booked at the lower of the two values. Why do you think inventories are valued using the lower-of-cost-or-market method? What are at least two arguments for using this method to value inventory? What are at least two arguments against using this method?
Question 2- You are in a job interview, and your potential future employer wants to make sure that you understand accounting principles as they relate to property, plant, and equipment. What are the initial costs that will go into the balance for property, plant, and equipment? What types of additional costs would be added to this account after acquisition? What types of additional costs would be expensed directly? Do you think that there should be more exceptions for deviating from the historical cost principle as it relates to the valuation of property, plant, and equipment? Why?