Based on increased competition for one of its key products, Tutaj Company is concerned that it will not be able to sell its products at a price that would cover its costs. Since the company is already having a bad year, the sales manager proposes writing down the inventory to the lowest level possible, so that all the bad news will be in the current year. Explain to the sales manager the rationale for lower-of-cost-or-market adjustments, according to GAAP.

2. What are the provisions for subsequent measurement of inventory in the context of a hedging transaction?

3. What is the nature of the SEC guidance concerning inventory disclosures?

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