As a newly hired staff accountant for Jordan Designs, you have been asked to conduct the year-end physical inventory count. During the process, you observe that much of the inventory is outdated and therefore could not be sold for the recorded cost. You recommend to your manager that the inventory be written down, based upon the lower-of cost-or-market principle. However, the manager informs you that you should leave the inventory value at the cost value. She insists that the company frequently experiences inventory value changes and that the inventory will be marketable again in the future. Until that time, the company plans to leave the merchandise in its warehouse.
Required
a. Why would the manager want to keep the inventory at its current cost?
b. Who is affected by the decision to, or not to, write the inventory down to its market value?
c. What things should you consider when evaluating whether you should recommend an inventory write-down to your manager's boss?