INVENTORY RESERVES; WHY AND WHEN.
The phase of inventory reserves consideration should be given to the application of inventory reserves to two other areas namely, the valuation reserves, and reserves for replacement of inventories involuntarily liquidated applicable to inventories priced on the basis of last-in, first-out. Valuation reserves are provided to cover the adjustment of inventory pricing to the lower of cost or market, adjustments that be necessitated by physical deterioration, obsolescence, or price change. Generally, however, the use of such reserves for pricing purposes is not widespread in as much as valuation adjustments. Inventory reserves are provided for estimated future losses, losses measured not in their entirety by strict adherence to a rigidly fixed base price of the past but by objectively applying the experience of the past with reasoned judgment as to the future. It is better objectively to approach such a situation through the means of an inventory reserve than to be compelled to follow either a technical "fifo" or "lifo" form in the face of a compelling conviction that something else is right.
- DOI
- 10.2308/tar-7054942
- Volume
- 23 (4)
- Pages
- 391-396
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref