Inventory: Valuation, Adjustments, and Estimates

 

Conservatism and LCNRV—The FASB recently began requiring companies (other than those that use LIFO or
the retail inventory method) to report inventory at the lower of cost and net realizable value (LCNRV). LCNRV
provides a clear example of conservatism in accounting. When NRV falls below cost, we record the bad news.
On the other hand, when NRV is above cost, we don’t record the good news.
Conservatism and LCM—Until recently, all companies were required to report inventory at the lower of cost or
market (LCM). Now, however, only companies that use LIFO or the retail inventory method are required to use
LCM. Market (1) cannot exceed NRV or (2) be less than NRV minus a normal profit margin. An easy way to
apply this requirement is to put replacement cost, NRV, and NRV minus a normal profit margin in order from
highest to lowest dollar value. Whichever appears in the middle is the correct choice.
Discuss:
FASB has not provided a conceptual explanation for why LCNRV is more appropriate for one set of companies,
while LCM is more appropriate for another set. The FASB’s recent proposal to move all companies to LCNRV
(and near convergence with IFRS) failed? Research this failed proposal and using at least one outside source
discuss the failure (ie who was involved, what happen, why it failed)
Comprehension:
Using your 10-k complete the following:
Identify and explain the method(s) used to value inventories.
Assume that in the most recent fiscal year, the company discovered that last year’s ending inventory was
overvalued by $10 million due to a mathematical error and:
Describe the accounting treatment of the error

 

Sample Solution

Fundamentally, Active birth is a woman’s choice to move freely and adopt any position that she instinctively feels appropriate and to aid her general comfort. Despite the fact that women have adopted more up- right positions during labour for thousands of years, since the advent of modern medical practice post-renaissance, the majority of women labour and give birth lying on a bed or in the lithotomy position (Balaskas, 2001 pg.1). Evidence based practice is essential to appropriate maternity care, and during the last thirty years a resurgence of acknowledging childbirth as a normal physiological process and the woman being at the forefront of her care has been confirmed and greatly researched. The majority of women are healthy and deserve a right to make informed choices regarding the manner in which they experience the birthing pro- cess (Downe, 2004. pg.ix ). Active birth is simply a woman birthing naturally adopting any position she spontaneously moves to

Throughout centuries there is a vast quantity of relics and scriptures depicting women birthing physio- logically using birthing stools or adopting squatting positions. In the old testament of the bible Exodus even mentions that women used stools during childbirth (Exodus chapter 1, verse 16). As stated in Balaskas’ text New Active Birth, the first recorded birth noted in a recumbent position was the mistress of French King Louis XIV as he wanted to witness his child being born. The Chamberlain brothers later in- vented the forceps in the 17th century and a woman was to lay on a bed for this procedure. This inter- vention is still widely used in current medical practice. Midwifery at this time became firmly a medical situation and obstetricians were deemed the appropriate professionals to care for birthing women. During this time a renowned French obstetrician, Francois Mauriceau, discarded the birthing stool and stat- ed that birth attendants should not run around after a woman and she should stay in bed for the entire labour as it is much easier and more comfortable for the doctor (Balaskas, 1989 pg. 8). Until the late 20th century a woman birthing in a bed has been widely accepted as normal practice.

Up until the late 20th century many hospitals in England banned women adopting any other childbirth position except laying in a recumbent or lithotomy position in bed. On the 11th April 1982 over 6000 people in London rallied for women’s rights to be able to birth freely in whatever position they should choose. The Active Birth movement was born lead by leading natural birth advocate Janet Balaskas and French obstetrician Michel Odent who organised and spoke at the rally. The success of this day signified a great change for women and many hospitals lifted their ban on women having to stay in bed.

In 2009 the Royal College of Midwives further encouraged midwives to support women to become more mobile during labour and try and actively ‘Get her off the bed’ (RCM, 2009. pg. 2). Furthermore in 2012, the RCM further reiterated that a birthing mother should be supported by midwives to be mobile and adopt different upright birthing positions (RCM, 2012 pg. 4).

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