Definition of 'Inventory'

The raw materials, workin-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

Investopedia explains 'Inventory'

Possessing a high amount of inventory for long periods of time is not usually good for a business because of inventory storage, obsolescence and spoilage costs. However, possessing too little inventory isn't good either, because the business runs the risk of losing out on potential sales and potential market share as well. Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

Liquidation is usually the last stage of a workout plan or bankruptcy proceeding for a company. It occurs when it has been determined that a company cannot continue on as a viable entity and it is believed that there exists more value in the assets of the company than in the company as a going concern. Occasionally a company's assets will be liquidated when the owner decides to quit, not because he has gone bankrupt but because he doesn't want to go through the effort and trouble of finding a buyer

Inventory Liquidation

Liquidating inventory is the next step in the process. Someone familiar with the market and products will go through the company's warehouse and visually inspect the inventory to see how much of it is raw materials, work in process or finished goods. She will also assess it to see what kind of shape it is

in and if any of it is obsolete. Depending on the market, the inventory can either be auctioned off to the highest bidder or the sale of the inventory can be negotiated with a private placement.

Machinery and Equipment

Often the most difficult assets to liquidate, machinery and equipment can take a long time to sell. Due to the specialized nature of the equipment, there is only a small pool of buyers who are interested and able to purchase the assets at any given time. Those buyers have to be located and time must be given so the equipment can be inspected. After it is inspected, financing will have to be lined up, either internally or through a bank. Depending on the type of equipment, months or years can pass before the fixed assets of a firm are finally liquidated.

Liquidating Real Estate

Real estate can be as difficult to liquidate as machinery. It all comes down to the type of real estate being liquidated. If it is an office building or a warehouse, there are usually several buyers who are willing to come in and purchase it because there exists a fairly large number of potential tenants. On the other hand, if it is a stone quarry or an alligator farm, there are only going to be a handful of people who might be interested and are willing to pay a reasonable price for it. The main determinant in the ease of liquidating real estate is its location and the pool of buyers who might have a use for it.

Liquidation Not for Everyone

Liquidation is the most drastic way to close a business. In most situations, a buyer can be found who is willing to purchase the company as a going concern. When the company is purchased as a going concern, the buyer believes that he can make some changes which will turn the company around and allow him to make a profit. Alternatively, the company can be bought as a going concern at a price low enough to realize a reasonable return on investment. Either way, it is usually only in the most hopeless of situations when a company is forced into liquidation.

Read more: What Is the Meaning of Liquidation? | eHow.com http://www.ehow.com/about_5086893_meaningliquidation.html#ixzz1plAsZP19

Definition of Values
Orderly Liquidation
The opinion of Orderly Liquidation value for inventory expressed in the appraisal, is that percentage of the lesser, cost or market, which should be attainable through an orderly liquidation of the defined inventory within a specified time frame. This value can only be obtained on an inventory that is whole and complete and which has not been picked over or cannibalized. This opinion assumes the orderly liquidation will be administered by a person, company, or department that is experienced and adept with such functions, and that the majority of the inventory will be disposed of, most often with the cooperation and active participation of the companys owners and management, through an arms length transaction whereby the inventory is sold, in part or in whole, to present customers, suppliers, competitors, liquidators, or other potential users in a commercially viable manner. This value represents the Net Amount from which holding and selling costs, commissions, rent, cost of funds, and other miscellaneous costs, has been netted. No value has been assigned to related assets, both tangible and intangible, which might have a value in the orderly liquidation process.

Build Out/Wind Downs

Followed by this explanation: on certain occasions with business and/or manufacturing closures, there remains large amounts or quantities of raw materials or work in process. JCM has the resources and experience to analyze the cost effectiveness of completely any production in order to use up the raw materials on hand. We can also procure additional materials to further enhance the value of the

assets. Further, we can help negotiate early lease terminations, related matters and effectively wind-down the entire operation from beginning to end.

Distressed Liquidation
The opinion of Distressed Liquidation value for inventory expressed in the appraisal, is that percentage of the lesser, cost or market, which should be attainable through a distressed and poorly organized sale of the defined inventory within a specified time frame. This value is diminished because the companys owners and managers are not involved in the liquidation process, and the inventory is not whole and complete because it has been picked over or cannibalized. This opinion assumes the liquidation will not be administered by a person, company, or department that is experienced and adept with such functions, and that the majority of the inventory will be sold, in large part or in whole, to liquidators, scrappers, or others offering quick cash for deep discounts. These values represent Net Amounts from which holding and selling costs, commissions, rent, cost of funds, and other miscellaneous costs, have been netted. No value has been assigned to related assets, both tangible and intangible, which might have a value as a going concern.

Forced Liquidation
The opinion of Forced Liquidation value for inventory expressed in the appraisal, is that percentage of the lesser, cost or market, which should be attainable through a distressed and poorly organized sale of the defined inventory within a specified time frame. This value is diminished because the companys owners and managers are not involved in the liquidation process, and the inventory is not whole and complete because it has been picked over or cannibalized. This opinion assumes the liquidation will not be administered by a person, company, or department that is experienced and adept with such functions, and that the majority of the inventory will be sold, in large part or in whole, to liquidators, scrappers, or others offering quick cash for deep discounts. These values represent Net Amounts from which holding and selling costs, commissions, rent, cost of funds, and other miscellaneous costs, have been netted. No value has been assigned to related assets, both tangible and intangible, which might have a value as a going concern.

Fair Market
The opinion of Fair Market- in place value for the appraisal expressed in the appraisal, is that the price for the companys inventory which should be attainable through an arms length sale of the inventory and assets within a specified time frame. This value can only be obtained on inventory that is fresh, saleable and which has recently been generating income. This opinion assumes the sale will be with the cooperation and active participation of the company's owners and management, through an "arms length" transaction whereby the assets are sold substantially to one: competitor, investment group, or other potential user or reseller of the inventory. These values presented herein represent the Net Amount from which holding and selling costs, commissions, rent, cost of funds, and other miscellaneous costs, have been netted. No value has been assigned to related assets, both tangible and intangible, which might have a value in the orderly liquidation process.

Auction Value
A professional opinion of the estimated most probable net amount expressed in terms of currency which could typically be realized at a properly advertised and conducted public auction sale of used personal property, held by a qualified auction services firm under forced sale conditions and under present day economic trends. The Net Auction Value includes direct auction expenses, but does not include attorney fees, rent, building repairs, maintenance, etc. that are not under the liquidators control. Conclusions taken into consideration are physical location, difficulty of removal, physical condition, adaptability, specialization, marketability, overall appearance and

psychological appeal. Further, the ability of the asset group to draw sufficient prospective buyers to insure competitive offers is considered. All assets are to be sold on a piecemeal basis as is with purchasers responsible for removal of assets at their own risk and expense. An auction sale would be conducted within 60 days from point of contract and/or court approval. Although JCM Liquidations do not provide auction services, when it makes sense to do so, JCM liquidators will corral lots of inventory which are then offered to a participating qualified Auction firm at the conclusion of the liquidation and included in the auction sale of any fixed assets on site.

FIFO and LIFO Methods are accounting techniques used in managing inventory and financial matters involving the amount of money a company has tied up within inventory of produced goods, raw materials, parts, components, or feed stocks. FIFO stands for first-in, first-out, meaning that the oldest inventory items are recorded as sold first but do not necessarily mean that the exact oldest physical object has been tracked and sold; this is just an inventory technique. LIFO stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first. Since the 1970s, U.S. companies have tended to use LIFO, which reduces their income taxes in times of inflation. LIFO is only used in Japan and the U.S.[1] The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve. This reserve is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.

LIFO Liquidation
A situation in which a company using LIFO accounting sells its oldest inventory. Under LIFO accounting, inventory purchased last is treated as if it is sold first. Thus, LIFO liquidation occurs when a company appears to sell the inventory it purchased first. This may not be the actual inventory it purchased first but is treated as such for accounting purposes. LIFO liquidation happens when the company'ssales outpace its purchases for inventory.

Definition of 'LIFO Liquidation'

When a company using the LIFO (Last In, First Out) method of inventory costing liquidates their older LIFO inventory. A LIFO liquidation would occur if current sales are higher than current

purchases, as a result, any inventory not sold in previous periods must be liquidated.

Investopedia explains 'LIFO Liquidation'

Due to inflation and general price rises, the amount a company pays for its inventory will usually increase with time. If a company decides to perform a LIFO liquidation, the old costs will be matched with the current higher sales prices. Thus, a cost to using the LIFO liquidation method is higher tax liability if prices have risen since LIFO was adopted. The expected tax advantage of LIFO tunrs into a disadvantage because older, lower costs (of older inventory) are matched with current revenues. Another cost may be lost sales.
LIFO, last-in-first-out and FIFO, first-in-first-out the two most common inventory accounting methods. The choice of the method of inventory accounting by a small business can directly impact its balance sheet, income

statement, and statement of cash flows. Not only do companies have to track the number of items sold, but they have to track the cost of items each item. These two methods are ways in which they can do that. Each will have a different effect on their financial statements. How is Inventory Determined? Inventory can be broken down into three categories: raw materials, work-in-process, and finished goods. Raw materials are inventory used to produce assets for sale. Work-in-process is assets in production for sale. Finished goods are assets intended for sale. The inventory equation is the following:

1.

Beginning Inventory + Net Purchases - Cost of Goods Sold = Ending Inventory

There are two common methods for accounting for this inventory. LIFO - Last-In, First-Out LIFO assumes that the last items put on the shelf are the first items sold. LIFO is a good system to use when your products are not perishable or become obsolete. Under LIFO, when prices rise, the higher priced items are sold first and the lower priced products are left in inventory. This increases a company's cost of goods sold and lowers their tax liability and, as a result, their net income. This inventory accounting method seldom approximates replacement costs for inventory, which is one of its drawbacks. In addition, it usually does not correspond to the actual physical flow of goods. Let's use the gasoline industry as an example. Let's say that a tanker truck delivers 2,000 gallons of gasoline to Henry's Service Station on Monday and the price at that time is $2.35/gallon. On Tuesday, the price of gasoline has gone up and the tanker truck delivers 2,000 more gallons at a price of $2.50/gallon. Under LIFO, the gasoline station would assign the $2.50 gallon gasoline to Cost of Goods Sold and the remaining $2.35 gallons of gasoline would be used to calculate the value of ending inventory at the end of the accounting period. FIFO - First-In, First-Out FIFO assumes that the first items put on the shelf are the first items sold, so your oldest goods are sold first. This system is generally used by companies whose inventory is perishable or subject to quick obsolescence. If prices go up, FIFO will give you a lower cost of goods sold because you are using your older, cheaper goods first. Your bottom line will look better to your investors, if you have any, but your tax liability will be higher because you have higher profit. A positive about the FIFO method is that it represents recent purchases and, as such, more accurately reflects replacement costs. Going back to the gasoline industry example, under FIFO, the gasoline station would assign the $2.35 gallon gasoline to Cost of Goods Sold and the remaining $2.50 gallons of gasoline would be used to calculate the value of ending inventory at the end of the accounting period.

Financial Statement Problems with LIFO A LIFO liquidation can result when your company experiences declines in your inventory quantities. In this case, a lot of your older inventory is sold or liquidated. This creates an inflated profit margin that isn't real and seriously distorts net income. This has across the board impacts. You should add the LIFO liquidation profits to the current ratio numerator and adjust the denominator to reflect FIFO inventory instead of LIFO inventory in order to properly state your liquidity position. You should make exactly the same adjustments to the inventory turnover ratio. Inventory accounting is only one part of a company's management of their inventory investment, but an important one.

Types of Liquidation
By Leigh Richards, eHow Contributor | updated April 20, 2011

When a company goes out of business, the story does not end with ceasing operations. The assets of the company must be liquidated, or converted into cash, and that cash must be used to pay off creditors. If there is any money left over after the creditors have been paid, the remainder is distributed amongst the shareholders or owners of the company.

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1. Liquidation
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Liquidation refers to the total dissolution of a business and the conversion of its assets into cash. For example, an automobile manufacturer going through liquidation would sell its current inventory, raw materials, plants, equipment and land. Depending on the type of company and inventory involved, there may or may not be sophisticated markets for the assets of the company, meaning that assets have to be sold at less than their true value.

Members' Voluntary Liquidation

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In some instances, a company may voluntarily dissolve and liquidate. This might happen, for example, if a key member of a small, closely held corporation dies or moves on to other endeavors or if the members simply feel the business has run its course. In one of these events, the company must pay off all of its debts and will then divide the remaining proceeds of the asset sale.
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Creditors' Voluntary Liquidation

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When a firm is insolvent, meaning it can no longer afford to repay its debts and a complete sale of its assets is insufficient to repay its outstanding debts, the shareholders can vote to liquidate the company. This is similar to the members' voluntary liquidation, other than the fact that in a creditors' voluntary liquidation, it is the creditors who have the right to select the liquidator who administers the liquidation process.

Compulsory Liquidation
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In a compulsory liquidation, an interested party with some stake in the company may petition a court to order the mandatory dissolution of the company. Parties able to undertake such a petition include shareholders, creditors and certain government officials. In the event of a compulsory liquidation, the court will appoint a liquidator to oversee the process of winding down the business and liquidating its assets.