Reference no: EM132379100

Question

Issue 1: The marketing director on our board of directors, is also on a number of other company boards. He heard the other companies refer to a new standard on fair values and was very anxious to work out whether we had accounted for all their assets based on "fair value". This had all the other directors quite confused. Is there such a standard? Does it apply to our company or only to the public listed ones? Should we be making a change to fair values for all our assets?

I thought we had to show them at cost? In fact, I think we had to lower the value of inventory last year as the net realisable value of a number of items were less than the original cost. We would love to get your opinion on this so that everyone on the board is clear as to what needs to be done.

Issue 2: The engineer designed and then manufactured an item of machinery which enables us to dry the fresh produce used in our pickling plant much more effectively. As this item of the plant was manufactured in-house the only costs associated with it was the additional materials we needed to purchase for the machine, which was $250,000. It works so effectively and efficiently that it cut our manufacturing time by about 2 hours per batch.

He has been asked by two other businesses if he would be interested in manufacturing a similar machine for them and is presently in the process of doing so. One of these customers is willing to pay more than a million dollars if we make this machine for them. He says that this increases the goodwill of the company too, and wants us to show this asset in the financial statements at this value. Can we do that? How should we treat this? We haven't had a transaction like this before.

Please give me some advice.