Question

Jones Co. is in a technology-intensive industry. Recently, one of its competitors introduced a new product with technology that might render obsolete some of Jones's inventory. The accounting staff wants to follow the appropriate authoritative literature in determining the accounting for this significant market event.

Instructions

(a) Identify the primary authoritative guidance for the accounting for inventories.

(b) List three types of goods that are classified as inventory. What characteristic will automatically exclude an item from being classified as inventory?

(c) Define “market” as used in the phrase “lower-of-cost-or-market.”

(d) Explain when it is acceptable to state inventory above cost and which industries allow this practice.

Answer 1

a) The primary authoritative guidance for accounting for inventories are FASB ASC 330, Subtopic 10 sub section 05. This guidance notes tells about accounting principles for reporting for inventory. Financial significance of inventory.

b) The following type of goods would classify as inventory

Held for sale in the ordinary course of business

To process of production of such sale

To be currently consumed in the productionof goods or services to be available for sale.

Assets of the company which are not sold or held in the ordinary course of business, would be excluded from an item being classified as inventory

c) Market refers where goods or services are sold or purchase that is current replacement cost

d) For following industries inventory can be stated at above cost:

Inventory of gold and silver where the price is controlled by the government

Inventory representing agricultural, mineral and othe products which fulfil any of the following criteria

Units of which are interchangeable

Units of which have an immediate marketability at quoted prices.

Units for which appropriate costs may be difficult to obtain.

d)