Acc 541

MEMORANDUM

TO: Mr. John Client

FROM: Mrs. Student, CPA

DATE: April 1, 2010

SUBJECT: Memo

Per your request, the firm has prepared a detailed response to your inquiry regarding the call for additional documentation on the four following areas: 1.) Adjusting lower cost market inventory on valuation. 2.) Capitalizing interest on building construction. 3.) Recording gain or loss on asset disposal. 4.) Adjusting goodwill for impairment. We have included the justification for our requests, why information must be provided and disclosed and what will be reviewed. If further clarification is needed please let us know.

The methods of inventory valuation can vary from company to company, but regardless of their differences all methods are important and must follow the rules set forth in the Generally Accepted Accounting Principles (GAAP). Codification 330 states, “A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the difference shall be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly designated as market.” The valuation method selected is extremely significant as it has a great affect on several different areas including balance sheets, reported net incomes and taxes paid.

The first in-first out (FIFO) method and the last in-first out (LIFO) method are the two most commonly used for inventory valuation. In FIFO, the inventory that needs to be sold first are the items that were received first. In LIFO the desire is to have the oldest items sold first. When the FIFO method is applied balance...