5 Inventory Valuation AgroCo operates several farms that pro

5. Inventory Valuation AgroCo operates several farms that produce a variety of agricultural products, including corn. At any given time, AgroCo has a signicant amount of corn in its warehouses ready for sale to third party food product manufacturers. AgroCo currently values its agricultural inventory using an average cost system. The president of AgroCo asks, ‘‘Since the price of corn has risen recently, is it possible for us to reect our corn stocks at market prices, rather than at historical cost?’’ Research the relevant GAAP and prepare a memo advising the president of his options.

Solution

Answer: No, it is not possible for us to reect our corn stocks at market prices, rather than at historical cost.

Because inventory is valued at cost or market price whichever is lower.