Question

Your audit client, a manufacturer of surgical gloves, wants to increase the value of its inventory even though it has not experienced any changes in manufacturing costs. Your client explains that it wants the value of its inventory to reflec the fact that it can now charge a higher price for these high demand items. is this permissible under U.s. GAAP? Quote the relevant language from the Codification in explaining your answer and include the relevant Codification references in XXX-XX-XX-XX.

Answer 1

The fact that client wants to value inventory at a higher price as it is now in high demand is not permissable under U.S GAAP, as under US GAAP inventory is valued at lower of cost or market value (current replacement cost of goods as limited by net realisable value). Therefore client should be advised to record inventory at cost being lower even though the market value of goods have risen. No adjustments is required.

This is not permissible under US GAAP.