INVENTORY

RECOGNITION
RECOGNITION
 GOODS
in transit

FOB shipping point =

ownership is transferred upon shipment

FOB Destination =

ownership is transferred when the goods are received by the

buyer
 consigned
goods
Included in consignor’s inventory and are
excluded from the consignee’s inventory.

Freight and other incidental costs of

transferring consigned goods to the consignee
form part of the cost of the consigned goods.
Inventories sold under financing agreements

• Inventory financing “ obligation to

repurchase” - Ownership is not transferred
• Pledge of inventory “collateral” - Ownership is
not transferred

* The ownership still remains with the seller and

does not transfer to the buyer
 Sale with right to return
• General rule: Recognized as inventory by the
buyer
Exceptions:
• The buyer assesses that no economic benefits
will be derived from the goods purchased such as
when they are defective/unsalable
• The buyer intends to return the goods to the
seller within the time limit allowed under sale
agreement,
 Sale under instalment basis
• Possession of the goods is transferred to the
buyer but the seller retains legal title to the
goods solely to protect the collectability of the
amount due.
• Treated as regular sale
 Bill and hold agreement
• Entity bills a customer for a product but the
entity retain s physical possession of the
product until it is transferred to the customer
at a point in time in the future.
• Treated as regular sale.
 Lay away sale
• Sale in which goods are delivered only when
the buyer makes the payment in the series of
instalments.
INVENTORY SYSTEM
• PERPETUAL
Inventory account is updated for each purchase
and sale of inventory.

• PERIODIC
You determine the amount of inventory at the
end of each accounting period or in specified
periods.