Part 3 Inventories

Question 1

What are inventories?

Answer 1

Inventories are assets:

1. held for sale in the ordinary course of business
2. or in the process of production for such sale
3. in the form of materials or supplies to be consumed in the production process or in the rendering of such services

Question 2

How are inventories measured?

Answer 2

LOCOM -> lower of COST or MARKET

Question 3

What is included in costs?

Answer 3

it includes all cost of purchase, conversion and of bringing inventories to their present location and condition

Question 4

What is market?

Answer 4

Market = net realizable value
It’s the estimated selling price in the ordinary course of business minus the estimated costs of completion and the estimated costs necessary to make the sale

Question 5

What are the cost formulas?

Answer 5

1. Specific identification method: use with inventory that is not interchangeable or where produced and segregated for specific projects
2. First In, First Out (FIFO) or weighted average cost-> use with non-specific inventory