Chapter 8 notes.docx

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Accounting & Financial Management
AFM 291
Robert Ducharme

Chapter 8 A - Definition  Assets  In the process of production for sale or materials to be consumed in production  Sometimes hard to differ between PPE and inventory  Minor spare parts and servicing equipment -> inventory  Major spare parts and servicing equipment are capital assets B - Inventory Categories  Three types: raw, work in process and finished goods  Cost of goods manufactured during the year is similar to the cost of goods purchased in a merchandising company C - Accounting Guidance  Inventories of financial instruments, construction in progress, biological assets, agriculture products, and commodity by trade brokers may have special requirements D - Inventory under the Lower of Cost and Net Realizable Value Model  Calculating the cost of ending inventory, need to know: 1. What physical goods should be included as part of inventory? 2. What costs should be included as part of inventory cost? 3. What cost formula should be used? 4. Has there been an impairment in value of any of the inventory items? 8.2 Recognition and Measurement A - Physical Goods Included in Inventory Inventory is the buyer's when it is received, except: Fob Shipping Point Buyer's at time of delivery to common carrier Consignment Goods Seller's, not buyer's Sales with Buybacks Seller's, not buyer's Sales with High Rates of Return Buyer's, if returns can be estimated Sales with Delayed Credit Terms Buyer's, if collectability can be estimated Goods in Transit  Depends on who owns them -> fob destination -> ownership do not pass until the goods reach the
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