Question

Explore the FASB Codification section related to inventory (§330). Explain how inventory might be treated within a particular industry, and justify why this methodology is appropriate. Participate in follow-up discussion by challenging or defending the methods as explained by your classmates. Your initial post should be 250-500 words and should demonstrate solid academic writing skills.

Answer 1

ASC 330 lays down guidance on the accounting and reporting of inventory in the financial statements.

ASC 330-10 pays emphasis on the following points regarding inventory balances:

a. An inventory plays an inportant role in finances because revenues may be obtained from its sale, or from the sale of the goods or services used in their production. b. Usually such revenues arise from a cycle of operations in which goods are purchased/ created, and sold, and new goods are bought for additional sales or from a continuous repetitive process. c. At any particular point in time, the inventory is the balance of costs applicable to goods on hand remaining after comparing the absorbed costs with revenue arised. d. The inventory balance is accordingly carried forward to future periods, but keeping in mind that it does not supersede an amount chargeable against the revenues which are expected to arise from the final sale of the goods carried forward. The usual practice of determining the inventory balance is done by carrying out the process of pricing the articles included in the inventory. e. The principle ASC 330 is applicable to all entities. The accounting for inventories is significant for many entities since it is important for both the income statement and the statement of financial position. f. The principle covers the meaning of net realizable value, market and inventory. It provides explanation for the four factors which affect the determination of ownership: (i) Goods in transit (ii) Consignment arrangements (iii) Consignment arrangements and (iv) Sales made with the buyer having the right of return g. It also talks about the most common cost flow assumptions (i) first-in, first-out (FIFO) (ii) last-in, first-out (LIFO) and (iii) weighted-average.