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Have recent economic conditions had effects on inventory?

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Have the recent turbulent economic conditions had an effect on inventory valuation? How are companies handling, or should handle, these issues?

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Solution Summary

The solution explains the accounting concepts of valuation of inventory, and then demonstrates the concepts with five examples of inventory valuation issues in different sectors of the economy.

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First, the rule about valuing inventory: the LCM method is used (lower of cost or market) to value inventory on a balance sheet. The big trick is to figure out what is market. It is relatively easy to determine the cost of inventory, but the market value can be harder. Market is determined by what a buyer will pay.

Following are some examples:

1. If your inventory is lettuce and no one is buying, the shelf live is pretty short. The inventory will devalue quickly and you would write it down to a value ...

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