INVENTORIES

1.
What is an Asset in accounting?
 3

“
- Is a resource with economic value that an individual,
corporation, or country owns or controls
- is expected to provide a future benefit for the owners
Categories of Assets 4

A. Current Assets
B. Non-current Assets
C. Financial Assets
D. Intangible Assets
Examples of Assets 5

» Cash and cash equivalents » Vehicles

» Inventory » Furniture
» Investments » Patents (intangible asset)
» PPE (Property, Plant, and » Stock
Equipment)
 6

INVENTORIES
Definition 7

» is a very significant current asset for retailers, distributors, and

manufacturers
» asset for merchandising and manufacturing business
» assets held for sale
Examples of Inventory 8

» Raw materials
» Work-in-process
» Finished goods
» Manufacturing and
packaging supplies
 LEGAL TEST 9

Is the entity the owner of the goods to be inventoried?

If the answer is affirmative, the goods shall be included in

the inventory.

If the answer is in the negative, the goods shall be

excluded from the inventory.
What is considered as part of Inventory? 10

» Goods owned and on hand

» Goods in transit and sold FOB destination
» Goods in transit and purchased FOB shipping point
What is considered as part of Inventory? 11

» Goods out on consignment

» Goods in the hands of salesman or agents
» Goods held by customers on approval or on trial
IAS 2 - Inventories 12

Measured at FIFO (First In,

LCNRV (Lower First Out Method
Inventories
of Cost and Net or Weighted
Realizable Value) Average Cost
SHIPPING TERMS 13

» FOB destination
» -ownership of goods purchased is transferred
only upon receipt of the goods by the buyer at
the point of destination
SHIPPING TERMS 14

» FOB shipping point

» - ownership is transferred upon shipment of
goods
Freight terms 15

» Freight collect
» - freight charge on the goods is paid by the buyer

» Freight prepaid
» - freight charge on the goods is paid by the seller
Consigned goods 16

» are goods that a an owner called the “consignor”

transfers physical possession to an agent called the
“consignee” who sells them on the owner’s behalf
 Accounting for inventories 17

• Periodic System
- the physical counting of goods on hand at the end of the
accounting period to determine quantities.

• Perpetual system
- requires the maintenance of records called stock cards
that usually offer a running summary of the inventory inflow
and outflow.
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Inventory shortage or overage

An adjustment is necessary to recognize any inventory shortage or
overage. The inventory shortage or overage is usually closed to cost of
good sold because this is often result of normal shrinkage and breakage
in inventory.
DISCOUNTS 19

Trade discount Cash discount

- Deductions from the
list price or catalog - Deductions from the
price in order to arrive invoice price when
at the invoice price payment is made within
which is the amount discount period. This is
actually charged to the to encourage prompt
buyer payment.
Cost of inventories 20

Cost of purchase Cost of conversion Other cost

- comprises the purchase -includes cost directly -isonly included in cost
price, import duties and related to the units if of inventories only to the
irrecoverable taxes, production such as direct extent that it is incurred
freight , handling, and labor and direct in bringing the
other cost directly materials. inventories to their
attributable to the present location and
acquisition of finished condition.
goods, materials, and
services.
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� Thank you!
�
 References:

https://www.investopedia.com/terms/a/asset.asp
https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-assets/
https://www.accountingcoach.com/blog/what-is-inventory
https://www.iasplus.com/en/standards/ias/ias2
https://www.xero.com/us/resources/small-business-guides/accounting/what-is-inventory-accounting/
Intermediate Accounting textbook, Volume 1, 2020 edition by Conrado T. Valix, Jose F. Peralta, Christian Aris M. Valix