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
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 on these two issues
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