Accounting

Client Information Requested Sabrina Waters ACC 541/Financial Accounting Theory and Analysis May 21, 2012 Dr. Sonja Wilson Client Information Requested As an accountant it is important to obtain all relevant information necessary to accommodate each client. In this case a client has documents to be analyzed, but is unsure why certain documents are being requested by the accountant. This document will discuss in detail the importance of information regarding adjustment lower cost of market inventory on valuation; capitalizing interest on building construction; recording gain or loss on asset disposal, and adjusting goodwill for impairment. Adjusting lower cost of market inventory on valuation Analyzing financial statements require careful attention to every detail as necessary. The adjusting lower cost of market inventory on valuation can make a difference in the financial statements. Schroeder, Clark, and Cathey states, “companies should use the lower of cost or market (LCM) method to value inventories” (Schroeder, Clark, and Cathey, 2011). In order to apply the LCM method, the accountant will have to follow the guidelines listed by the American Institute of Certified Public Accountants (AICPA). According to Schroeder, Clark, and Cathey, the rule to inventories is defined as follows: As used in the phrase lower of cost or market the term market means current replacement cost (by purchase or reproduction, as the case may be) except that: 1. Market should not exceed the net realizable value (i.e., estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal), and 2. Market should not be less than net realizable value reduced by an allowance of an approximately normal profit margin. (Schroeder, Clark, and Cathey, 2011) This information is to assist the accountant in preparing the financial statements to benefit the client in calculating the profit in inventories. The information has to be consistent according to the accounting guidelines and according to the definition of assets and losses. (Schroeder, Clark, and Cathey, 2011) Capitalizing interest on building construction Recording gain or loss on asset disposal Adjusting goodwill for impairment References Schroeder, R.G., Clark, M.W., Cathey, J.M. Financial Accounting Theory and Analysis (10th ed.) (2011). Hoboken, NJ: Wiley.