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