Ormiston Ltd. (Ormiston) is a Canadian manufacturer of wooden shingles. Ormiston purchases lumber from sawmills and manufactures the shingles in one of its two factories. The shingles are used in house construction, mainly in the southern and western United States. Ormiston is planning to go public in the next year or two. Currently, it's owned by a group of invest ors, including a venture capital firm. Most of the owners aren't involved in the management of the company though some are on the board of directors. Ormiston is managed by a professional management team, which receives salary plus bonuses based on company performance as compensation. Ormiston has a large loan outstanding from the bank.
The amount of the loan is based on accounts receivable and inventory outstanding on the last day of each calendar month. Ormiston has usually borrowed the maximum amount allowable under the borrowing agreement. Ormiston pays surplus cash (cash that isn't required for operations and is available after paying of debts) out to its share holders. Note that lumber prices tend to be quite volatile.

Prepare a report to Ormiston's management recommending accounting policies for inventory. Management is determining appropriate policies for when it goes public as well as to satisfy its other requirements. Your report should fully explain your recommendations.

  • CreatedFebruary 26, 2015
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