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09 - Chai Na Ta Example.docx

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Department
Accounting
Course
ACCTG414
Professor
Jocelyn King
Semester
Fall

Description
Disclosure Example, Lower of Cost and Market– Chai-Na-Ta Corp. Inventory can be a very material component of the balance sheet for some firms. For example, consider Chai-Na-Ta, a Canadian producer and marketer of North American ginseng. Selections from the company’s annual report for 2005 are presented below. In 2005, the company reports inventory of $7.2 million, plus ginseng crops, which are a form of raw materials inventory, of $6.5 million plus $12.8 million. These inventory categories constitute in excess of 72% of the company’s asset base of $36.8 million. Chai-Na-Ta’s description of its accounting policies for both inventory and ginseng crops are reproduced below. We see that the company uses full absorption costing, and carries inventory at the lower of cost and market, defined as net r
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