Running head: CLIENT UNDERSTANDING PAPER
Client Understanding Paper
Accounting Theory and Research
Client Understanding Paper
I appreciate the opportunity of working with you and your organization on this project. As I analyzed the working papers, I have submitted some additional information needed. It has been brought to my attention that there is uncertainty as to why the information has been asked for in reference to the adjusting lower cost of market inventory valuation, capitalizing interest on building construction, the recording of gain or loss on asset disposal and the adjusting goodwill for impairment. ARB No. 43 specifies that inventory should be stated at cost or market, whichever is lower (Financial Accounting Standards Board [FASB], n.d.). Statement of Financial Accounting Standards (SFAS) No. 34 requires that interest be capitalized as part of the cost of the asset. SFAS No. 144 addresses the reporting and accounting for the impairment of the disposal of long-lived assets and the Financial Accounting Standards Board (FASB) has adopted SFAS No. 142, which has established new rules in accounting for goodwill. As I move forward with the responses that will be provided, I have no doubt that this will bring a better understanding on some of the accounting practices that may help improve the organization’s knowledge and practices from this analysis.
Inventory Valuation
Lower Cost of Market
As the cost of ending inventory is valuated, Generally Accepted Accounting Principles (GAAP) requires that comparison be made with the current market value. As stated in Chapter 4,
"Inventory Pricing," of ARB No. 43 specifies that inventory should be stated at cost or market, whichever is lower (Financial Accounting Standards Board [FASB], n.d.). The term market refers to the replacement cost but limited to upper (ceiling) and lower (floor) limits in order to apply replacement cost as market value. The market or replacement cost cannot be more...