Russo S Grocery Inc
Report to Tony Russo
Impact of Tony’s new initiatives on accounting: Any significant adjustment required, etc.
Organic Product Line-
There appears to be an impairment loss which occurs in the organic Product Line. As per the case, approximately $5000 worth of perishable product has been discarded as it had reached the expiry date before being sold. Moreover, customers have indicated that they would be willing to purchase more of these products if there would be a reduction in price by 30%. According to ASPE Section 3031, inventory must be measured at Lower of Cost and Net Realizable Value. Selling Price = $110,000 (100K*1.1 markup on cost)
NRV= 77,000 (110-5K spoilage)
Impairment= 33,000
Therefore the following Journal Entry should be recorded-
Dr. Loss on Write-Down of Inventory 33,000- Cr. Organic Inventory 33,000-
If RGI will have no intention of reducing the prices as requested by its customers, then it is essential to examine the expiry dates. As such, in order to determine which products will expire before being sold, we should compare the expiry dates to the number of days the inventory is on hand. After the amount has been determined, this amount should be recorded as a write down showing the number of unsold units.
Accounting Issues:
APL Website Development Fees:
There is currently no specific guidance under ASPE, however, since RGI owns the website the future benefit (resulting from future sales) is wholly controlled by RGI. This future benefit is to an extent considered very uncertain to be incurred. The website is a separable component as it can be separated from RGI.
Recommendation: I would recommend capitalizing the development costs and recording an amortization expense which would serve to account for the uncertainty of the future benefit.
Non-Monetary Transaction:
As per ASPE Section 3831: an asset exchanged or transferred in a non-monetary transaction is measured at the fair value of the asset given up or the fair value of
Impact of Tony’s new initiatives on accounting: Any significant adjustment required, etc.
Organic Product Line-
There appears to be an impairment loss which occurs in the organic Product Line. As per the case, approximately $5000 worth of perishable product has been discarded as it had reached the expiry date before being sold. Moreover, customers have indicated that they would be willing to purchase more of these products if there would be a reduction in price by 30%. According to ASPE Section 3031, inventory must be measured at Lower of Cost and Net Realizable Value. Selling Price = $110,000 (100K*1.1 markup on cost)
NRV= 77,000 (110-5K spoilage)
Impairment= 33,000
Therefore the following Journal Entry should be recorded-
Dr. Loss on Write-Down of Inventory 33,000- Cr. Organic Inventory 33,000-
If RGI will have no intention of reducing the prices as requested by its customers, then it is essential to examine the expiry dates. As such, in order to determine which products will expire before being sold, we should compare the expiry dates to the number of days the inventory is on hand. After the amount has been determined, this amount should be recorded as a write down showing the number of unsold units.
Accounting Issues:
APL Website Development Fees:
There is currently no specific guidance under ASPE, however, since RGI owns the website the future benefit (resulting from future sales) is wholly controlled by RGI. This future benefit is to an extent considered very uncertain to be incurred. The website is a separable component as it can be separated from RGI.
Recommendation: I would recommend capitalizing the development costs and recording an amortization expense which would serve to account for the uncertainty of the future benefit.
Non-Monetary Transaction:
As per ASPE Section 3831: an asset exchanged or transferred in a non-monetary transaction is measured at the fair value of the asset given up or the fair value of