A - Definition
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