1 Identify the primary authoritative guidance for the accounting for inventories. What is the predecessor literature? FASB ASC 330 Inventory provides primary authoritative guidance for the accounting for inventory. The predecessor literature about it is Accounting Research Bulletins (ARB) No.43 Chapter 4, paragraph 4 (Issued June, 1953) and Statement of Financial Accounting Standard (FAS) NO.151 Inventory cost- an amendment of ARB No.43, Chapter 4 (Issued November, 2004).
2 List the three types of goods that are classified as inventory. What characteristic will automatically exclude an item from being classified as inventory? Answer: Glossary (FASB ASC 330-10-20)
10-20: Inventory The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies).
This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified. The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory.
3 Define “market” as used in the phrase “lower-of-cost-or-market” Answer: Glossary (FASB ASC 330-10-20)
10-20 Market: As used in the phrase lower of cost or market, the term market means current replacement cost (by purchase or by reproduction, as the case may be) provided that it meets both of the following conditions a. Market shall not exceed the net realizable value b. Market shall not be less than net realizable value reduced by an allowance for an approximately normal profit margin.
4 Explain when it is acceptable to state inventory above cost and which industries allow this practice. Answer: Stating Inventories Above Cost...