Discussion Question - Coursework Example

Discussion Question Question One In valuation of an inventory, the lower of the cost and the market method includes two boundaries. The two boundaries are the inventory floor and the inventory ceiling. Inventory ceiling requires when reporting the inventory it should not be less than the net realizable value minus expenses. The inventory floor requires that the inventory should be reported with value less than the realizable value with an addition of normally attainable profit. An example of the application of lower cost method is the recording or reporting of imports in an organization.

The recording is done at lower of the production costs, purchasing cost of the value of the market of the organization’s inventory. The assertion that lower cost method is a form or example of the principle of conservatism means that the method is a form or an approach of risk averse. The method uses two boundaries which enable the investors to identify the cost and profit attained in the inventory. The method enables the investors to trace the loss or the item which brings about loss in the inventory (Maynard 32).

Question Two The service life of an asset is defined as the period of time in which an asset remains in use or is able to be used for the process of production. The asset may have different owners during the service life. In estimating the service life of an asset and activity based depression an organization can use different estimates like, industry practices, judgmental estimate, engineering estimates, statistical methods and past experience. Depreciation expenses is declared and calculated each year using accounting methods.

The expenses lowers the balance sheet value, creates a tax saving and lowers the reported income of an organization. After the end of depression life, the asset is regarded to be fully expensed or fully depreciated (Maynard 43). Work CitedMaynard Jennifer. Financial Accounting, Reporting and Analysis. London. Oxford University Press, 2013. Print.