For interim financial reporting, an inventory loss from a temporary market decline in the first quarter which can reasonably be expected to be restored in the fourth quarter
A) Should be recognized as a loss proportionately in each of the first, second, third, and fourth quarters
B) Should be recognized as a loss proportionately in each of the first, second, and third quarters
C) Need not be recognized as a loss in the first quarter
D) Should be recognized as a loss in the first quarter

Question

Quizplus · Accepted Answer

An inventory loss from a temporary market decline that can reasonably be expected to be restored in the fourth quarter should not be recognized as a loss in the first quarter. This is because it is expected to be restored and hence does not meet the definition of a loss. As per the accrual accounting principle, losses should be recognized in the period in which they occur, and restoring the loss in a subsequent quarter indicates that the loss was not permanent. Therefore, the loss need not be recognized in the first quarter of interim financial reporting.

For Interim Financial Reporting, an Inventory Loss from a Temporary