What tips do you have on valuing and combining inventories on a consolidated balance sheet and in reality?

Inventories of the acquirer are stated, as always, at the lower of cost or market (wholesale) value. If certain units in inventory become obsolete, are likely to be sold at a discount, or will require more time to sell, some downward adjustment in the value of these items in inventory may be appropriate. If significant, the inventories of the acquired entity should be audited during the due diligence process and appraised at the current fair value in exchange (wholesale).

For large inventories—even with heterogeneous units—it is possible to use sampling techniques to value the inventories with reasonable precision by comparing the market value of a set of units sampled to the current book value for those same units. For example, an acquired salvage operation reports $2,560.35 million on its balance sheet as the cost basis of its inventory of used parts.

A sample of 5,000 out of 100,000 items (representing $245,199.10 of inventory at original cost) reveals that the current cost (at wholesale auction) of these items would be $250,619.50. This yields a value-to-book ratio of 1.022106. Thus, the overall inventory can be valued based on this cost-to-book ratio at $2,616,751.50.