Question
Topic: Inventory Tires R Us is a wholesaling and retailing company that deals in automotive tires for foreign cars. During the yearend audit, heated discussion
Topic: Inventory Tires R Us is a wholesaling and retailing company that deals in automotive tires for foreign cars. During the yearend audit, heated discussion occurs between management and the independent auditors. Managements accounting policy for valuing the inventory of imported tires reads as follows: Inventory is valued at actual cost plus any freightin. At yearend, the warehousing costs related to the tires are prorated to cost of goods sold and inventory on hand. The auditors for Tires R Us believe that any warehousing costs should not be considered as inventory, but should be expensed as period costs. Management disagrees by stating that the warehousing costs would not have been incurred if the tires did not exist and therefore should be part of the value of inventory on hand. The CFO of the company has requested the auditors to justify their conclusion by providing specific authoritative support for their decision. Required: Utilize the FASBs Codification to provide a recommendation to the auditors to support their decision. Provide specific Codification references.
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