(LCNRV) The net realizable value of Lake Corporation\'s inventory has declinedbe

Question

(LCNRV) The net realizable value of Lake Corporation's inventory has declinedbelow its cost. Allyn Conan, the controller, wants to use the loss method to write down inventorybecause it more clearly discloses the decline in the net realizable value and does not distort thecost of goods sold. His supervisor, financial vice president Bill Ortiz, prefers the cost-of-goods-sold method to write down inventory because it does not call attention to the decline in netrealizable value.

Answer the following questions.

(a) What, if any, is the ethical issue involved?

(b) Is any stakeholder harmed if Bill Ortiz's preference is used?

(c) What should Allyn Conan do?

Explanation / Answer

what if any ethical issues Involved?

cost of goods sold method goes against the concept of materials and it conceals the loss on cost of goods sold account. Because of this income statement does not disclose some amount of loss. Loss method on the other hand identifies the loss which is incurred due to written downs. if the company does not consider decline in net realizable value then there are chance Company will able to sell the stocks and bond at a price which is unfair and there are to sell more than Net realizable value.

B. Is any there any stake holder harmed if bill ortiz’s preference is used?

Stake holder will get affected by both the methods.

C. What should Allyn conan do?

Allyn conan as a accountant should maintain integrity and should explain his boss, how the idea effects the company in future and he can suggest some other method which does not affect the COGS

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