Purchase of Inventory

Items
 DEFINITION
Inventories are assets:
 Held for sale or distribution in the ordinary course of
operations;
 In the process of production for sale or distribution
 In the form of materials or supplies for production
process;
 In the form of materials or supplies to be consumed or
distributed in the rendering of services;

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 Classification of
Inventories
• Inventory Held for Sale
• Inventory Held for Distribution
• Inventory Held for Manufacturing
• Inventory Held for Consumption
 MEASUREMENT OF
INVENTORIES
lower of cost and net realizable value

FV at the date of acquisition

lower of cost and current replacement cost

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Net Realizable Value is the estimated selling price
in the ordinary course of operations, less the
estimated costs of completion and the estimated
costs necessary to make the sale, exchange, or
distribution.

Current replacement cost is the cost the entity would

incur to acquire the asset on the reporting date.
 MEASUREMENT OF INVENTORIES
Cost of Inventories

a. Costs of Purchase
 Purchase price
 Import duties and other taxes
 Transport, handling and other attributable cost

b. Costs of Conversion
 Costs directly related to the units of production
 Allocation of fixed and variable production overheads
c. Other Cost
 Cost in bringing the inventories to the present location
and condition.
 MEASUREMENT OF
INVENTORIES
COST FORMULAS

Moving Average Method. The moving average method of

costing shall be used for costing inventories. This calls for the
recalculation of the average cost of all items in stock every
purchase. It is total cost of all the units subsequent to the
latest purchase divided by the total number of units available.
The Accounting Unit shall be responsible in computing the
cost of inventory on a regular basis. (Sec. 6, Chapter 8, GAM)
 MEASUREMENT OF INVENTORIES
IMPAIRMENT

If the net realizable value is lower than cost, the inventories
are usually written down on an item by item basis.

In some circumstances, however it may be appropriate to

group similar or related items.
 Recognition of Inventory
as Expense

 When sold, exchanged, or distributed;

 Writedown of inventories; and

 All losses of inventories

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 Procurement
• refers to the acquisition of Goods, Consulting Services and the
contracting for Infrastructure Projects by the Procuring Entity
 GENERAL PROCEDURES IN PROCUREMENT

1. Procurement Planning and the Preparation of the Annual

Procurement Plan (APP);
2. Preparation and Approval of Purchase Requisition (PR), Appendix
60, GAM
3. Implement appropriate Mode of Procurement
 GENERAL PROCEDURES IN PROCUREMENT

4. Preparation of Obligation Request and Status (ORS)/Budget

Utilization Request and Status (BURS)
5. Preparation and Approval of Purchase Order (PO), Appendix 61,
GAM
6. Delivery, inspection and acceptance of the items (IAR), Appendix
62, GAM
7. Payment of the items delivered