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December 12 2012


Acc 541

Acc541 - In order to have a clear understanding of a company’s inventory, it is important to analyze what valuation method a company uses and how they value the inventory.   It is also necessary to ensure that the guidelines set by FASB and GAAP are being followed.   According to SFAS NO. 6, “definition of assets indicates that assets have future service potential and consequently value to the reporting entity (Schroeder, 2005).”  
Acc 541 - What this means is that the asset will provide future value and service to a company and therefore cash flow.   As the assets value decreases so does the value of the asset.   In Summary of Statement No. 157 regarding Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP).   It expands the disclosures about fair value measurements (Summary.2007).  

Acc542 - Before this statement there has been many definitions of fair value and limited guidance for apply those definitions in GAAP. These differences created inconsistencies, adding to the difficulty in applying GAAP.   The Board when developing this statement considered the need for consistency and comparability regarding fair value measurements and for disclosure about the fair value measurements.  
Acc 542 - According to Toppe Shortridge, Schroeder, and   Wagoner (2006), SFAS 114, lower cost or market for inventory, FASB determined it is appropriate to use fair-value measurements to record asset impairments. Accounting Research Bulletin No. 43 (ARB No. 43) explains the lower of cost or market or LCM.   The term market indicates both the market in which the company bought its merchandise and the market in which it sells the merchandise.   This in essence means the lower of the cost or the replacement cost including certain limitations in regards to replacement costs.

Acc 541
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