Circle Q ranchers, Inc. has had enough of U.S. regulations, and has moved its operations across the border into Mexico, where it is now incorporated and follows accounting regulations for publicly traded Mexican companies. Among other issues, it is not sure how to account for the following:

Circle Q has a large inventory of branding irons. They are on the books at $1.2M but could be replaced for only $1M. The selling price, less disposal costs, is $1.6M, with a gross profit margin of $0.5M. The company uses a retail method to account for inventory.

Circle Q has a large inventory of saddles. They are on the books at $500k, after a write-down last year of $200k. The replacement cost of these saddles is currently $800k.

Circle Q of course has a lot of cattle. The herd has an average historical cost of $1000/head, but current market values are $1200/head. Circle Q has 1M head in its herd.

Issues

1. Document the proper accounting treatment for these inventory items, and clarify how this treatment would differ, if at all, under US GAAP.