Question on Inventory write down and how it will effect the income state

[Baycap]

Hi I've got a question for inventory impairment on a company filing based on US GAAP.
Cost per unit is $199
Suppose a company sold 500 units at $500 in the first Q
200 Units in the second Q at $500
and 3rd Q rolls around and the company suddenly decides to reduce its price and liquidate its channel inventory at $199 per unit which is about the production price?
Will the company need to take any write down on its balance sheet for the rest of its inventory in, also will there be a charge on the income statement in Q3?
Also, will the company need to restate its earnings for the prior 2Qs
Tks!

 

[dazz089]

according to ifrs write down is allowed as well as reversal but in the case of us gaap only writedown is allowed and be mindful of the fact tht ifrs records inventory on the basis of NRV where as ug gaap consider replacement cost and replacement cost have a celing of NRV and a floor of NRV - profit margin..
i hope this helps

 

[ross]

I think a write down is only necessary when the value of an inventory unit falls below €199. Since this is not mentioned in your problem, I don’t think you need to write down anything. You also do not have to adjust the previous two Qs for the new sales prices per unit. From your statement, the company has sold the units @ €500 each. If the company bought the units for €500 and the market value of a unit today is €199, then you would have to write down.

 

[Baycap]

Thanks!
The sanerio actually derived from research in motion,maker of the blackberry.
Im doing a little work on this company and was wondering what kind of impact the 199 fire sale will have on its next q earnings.
feel free to chip in any input
Thanks again…! Good luck writing in Dec all.. See u all at the finish line..