I need tow different copies paraphrase of the case answer same answer with different words


I need tow diffrent copies paraphrase of the case answer same answer with different words

a. Cost, which has been defined generally as the price paid or consideration
given to acquire an asset, is the primary basis for accounting for inventories.
As applied to inventories, cost means, in principle, the sum of the applicable
expenditures and charges directly or indirectly incurred in bringing an article
to its existing condition and location. These applicable expenditures and
charges include all acquisition and production costs but exclude all selling
expenses and that portion of general and administrative expenses not clearly
related to production.
b. Market, as applied to the valuations of inventories, means the current bid
price prevailing at the date of the inventory for the particular merchandise
in the volume which is usually purchased by the company. The term is
applicable to inventories of purchased goods and to the basic elements of
cost (materials, labor and overhead) of goods that have been manufactured.
Therefore, market means current replacement cost except that it should not
exceed the net realizable value (estimated selling price less predicted cost of
completion and disposal) and should not be less than net realizable value
reduced by an allowance for a normal profit margin.
c. The usual basis for carrying forward the inventory to the next period is
cost. Departure from cost is required, however, when the utility of the goods
included in the inventory is less than their cost. This loss in utility should be
recognized as a loss of the current period, the period in which it occurred.
Furthermore, the subsequent period should be charged for goods at an
amount that measures their expected contribution to that period. In other
words, the subsequent period should be charged for inventory at prices no
higher than those which would have been paid if the inventory had been
obtained at the beginning of that period. (Historically, the lower of cost or
market rule arose from the accounting convention of providing for all losses
and anticipating no profits.)
In accordance with the foregoing reasoning the rule of “Cost or market,
whichever is lower” may be applied to each item in the inventory, to
the total of the components of each major category, or to the total of
the inventory, whichever most clearly interprets operations The rule is
usually applied to each item, but if individual inventory items enter
into the same category or categories of finished product alternative
procedures are suitable.
d. The arguments against the use of the lower of cost or market method of
valuing inventories
include the
1. The method requires the reporting of estimated losses (all or a
portion of the excess of actual cost over replacement cost) as definite
income charges even though the losses have not been sustained to date
and may never be sustained. Under a consistent criterion of realization
a drop in selling price below cost is no more a sustained loss than a rise
above cost is a realized gain.
2. A price shrinkage is brought into the income statement before the
loss has been sustained through sale. Furthermore, if the charge for
the inventory write-down is not 147
made to a special loss account, the cost figure for goods actually
sold is inflated by the amount of the estimated shrinkage in price
of the unsold goods. The title “Cost of Goods Sold” therefore
becomes a misnomer.
3. The method is inconsistent in application in a given year because it
recognizes the propriety of implied price reductions but gives no
recognition in the accounts or financial statements to the effect of price
4. The method is also inconsistent in application in one year as opposed
to another because the inventory of a company may be valued at cost
one year end and at market at the next year end.
5. The lower of cost or market method values the inventory on the
balance sheet conservatively. Its effect on the income statement,
however, may be the opposite. Although the income statement for the
year in which the unsustained loss is taken is stated conservatively, the
net income on the income statement of the subsequent period may be
distorted if the expected reductions in sales prices do not materialize.

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