ACCTG414 Study Guide - Final Guide: Write-Off, Income Statement, American Ginseng
8 Apr 2014
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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 . 2 million, plus ginseng crops, which are a form of raw materials inventory, of . 5 million plus . 8 million. These inventory categories constitute in excess of 72% of the company"s asset base of . 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 realizable value. There is nothing wrong with this policy as long as the lower of cost and market rule is appropriately applied.
