Inventory Accounting Policy
Inventory Valuation and Obsolescence
Inventories are stated at the lower of cost or market, and an inventory reserve would permanently reduce the cost basis of inventory. Inventories are valued as follows:
- Seeds and Genomics: Actual cost is used to value raw materials such as treatment chemicals and packaging, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at weighted-average actual cost. Weighted-average actual cost includes field growing and harvesting costs, plant conditioning and packaging costs, and manufacturing overhead costs.
- Agricultural Productivity: Actual cost is used to value raw materials and supplies. Standard cost, which approximates actual cost, is used to value finished goods and goods in process. Variances, exclusive of abnormally low volume and operating performance, are capitalized into inventory. Standard cost includes direct labor and raw materials, and manufacturing overhead based on normal capacity. The cost of the Agricultural Productivity segment inventories in the United States (approximately 10 percent as of Aug. 31, 2011 and 14 percent as of Aug. 31, 2010) is determined by using the last-in, first-out (LIFO) method, which generally reflects the effects of inflation or deflation on cost of goods sold sooner than other inventory cost methods. The cost of inventories outside of the United States, as well as supplies inventories in the United States, is determined by using the first-in, first-out (FIFO) method; FIFO is used outside of the United States because the requirements in the countries where Monsanto maintains inventories generally do not allow the use of the LIFO method. Inventories at FIFO approximate current cost.
In accordance with the Inventory topic of the ASC, Monsanto records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of conversion based on the normal capacity of the production facilities.
Monsanto establishes allowances for obsolescence of inventory equal to the difference between the higher of cost of inventory and the estimated market value, based on assumptions about future demand and market conditions. Monsanto regularly evaluates the adequacy of inventory obsolescence reserves. If economic and market conditions are different from those anticipated, inventory obsolescence could be materially different from the amounts provided for in Monsanto's consolidated financial statements. If inventory obsolescence is higher than expected, cost of goods sold will be increased, and inventory, net income, and shareowners' equity will be reduced.
Source: Monsanto Co., Annual Report
Inventory Disclosure
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Monsanto Co., Statement of Financial Position, Inventory
Source: Based on data from Monsanto Co. Annual Reports
| Item |
Description |
The company |
| Finished goods |
Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. |
Monsanto Co.'s finished goods declined from 2009 to 2010 and from 2010 to 2011.
|
| Goods in process |
Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing. |
Monsanto Co.'s goods in process declined from 2009 to 2010 but then increased from 2010 to 2011 exceeding 2009 level.
|
| Raw materials and supplies |
Aggregated amount of unprocessed materials to be used in manufacturing or production process and supplies that will be consumed. |
Monsanto Co.'s raw materials and supplies declined from 2009 to 2010 but then increased from 2010 to 2011 not reaching 2009 level.
|
| Inventory, net |
Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer). |
Monsanto Co.'s inventory, net declined from 2009 to 2010 and from 2010 to 2011.
|
Adjustment to Inventory: from LIFO to FIFO
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Adjusting LIFO Inventory to FIFO (Current) Cost
Monsanto Co.'s inventory value on Aug 31, 2011 would be $2,777 (in millions) if the FIFO inventory method was used instead of LIFO. Monsanto Co.'s inventories, valued on a LIFO basis, on Aug 31, 2011 were $2,591 . Monsanto Co.'s inventories would have been $186 higher than reported on Aug 31, 2011 if the FIFO method had been used instead.
Adjusted Ratios: LIFO vs. FIFO (Summary)
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Monsanto Co., adjusted ratios
| Ratio |
Description |
The company |
| Adjusted current ratio |
A liquidity ratio calculated as adjusted current assets divided by current liabilities. |
Monsanto Co.'s adjusted current ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
|
| Adjusted net profit margin |
An indicator of profitability, calculated as adjusted net income divided by revenue. |
Monsanto Co.'s adjusted net profit margin deteriorated from 2009 to 2010 but then improved from 2010 to 2011 not reaching 2009 level.
|
| Adjusted total asset turnover |
An activity ratio calculated as total revenue divided by adjusted total assets. |
Monsanto Co.'s adjusted total asset turnover deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
| Adjusted financial leverage |
A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Monsanto Co.'s adjusted financial leverage increased from 2009 to 2010 but then declined significantly from 2010 to 2011.
|
| Adjusted ROE |
A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. |
Monsanto Co.'s adjusted ROE deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
| Adjusted ROA |
A profitability ratio calculated as adjusted net income divided by adjusted total assets. |
Monsanto Co.'s adjusted ROA deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
Adjusted Current Ratio
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted current ratio |
A liquidity ratio calculated as adjusted current assets divided by current liabilities. |
Monsanto Co.'s adjusted current ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
|
Adjusted Net Profit Margin
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted net profit margin |
An indicator of profitability, calculated as adjusted net income divided by revenue. |
Monsanto Co.'s adjusted net profit margin deteriorated from 2009 to 2010 but then improved from 2010 to 2011 not reaching 2009 level.
|
Adjusted Total Asset Turnover
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted total asset turnover |
An activity ratio calculated as total revenue divided by adjusted total assets. |
Monsanto Co.'s adjusted total asset turnover deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
Adjusted Financial Leverage
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted financial leverage |
A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Monsanto Co.'s adjusted financial leverage increased from 2009 to 2010 but then declined significantly from 2010 to 2011.
|
Adjusted Return On Equity (ROE)
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted ROE |
A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. |
Monsanto Co.'s adjusted ROE deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
Adjusted Return On Assets (ROA)
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2011 Calculations
| Ratio |
Description |
The company |
| Adjusted ROA |
A profitability ratio calculated as adjusted net income divided by adjusted total assets. |
Monsanto Co.'s adjusted ROA deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
|
