Lowyma Company LLP, a partnership of Ed Loeser, Peter Wylie, and Herman Martin, has operated successfully for many years, but Martin now plans to retire. In discussions of the settlement to be made with Martin, the point was made that inventories had been valued at last-in, first-out cost for many years. Martin suggested that because the partnership had begun managing inventories by the just-in-time system, the first-in, first-out cost of the inventories should be determined and the excess of this amount over the carrying amount of the inventories should be recognized as a gain to the partnership to be shared equally by the three partners. Loeser objected to this suggestion on grounds that any method of inventory valuation would give reasonably accurate results provided it were followed consistently and that a departure from the long-established last-in, first-out method of inventory valuation used by the partnership would produce an erroneous earnings record for the life of the partnership to date.

Instructions Evaluate the objections of Ed Loeser by reference to APB Opinion No. 20, “Accounting Changes.”