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    Chapter 7 - Inventories

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    Vanessa Velasco
    This document discusses inventory accounting for government entities. It describes the different types of inventory held, including inventory for sale, distribution, manufacturing, and consumption. Inventories are initially measured at cost and subsequently at the lower of cost or net realizable value for items held for sale, and the lower of cost or current replacement cost for items held for distribution. The document outlines the journal entries for recognizing inventory and the expense recognition when inventory is sold, distributed, exchanged, consumed or written down. It also details the procedures for receiving and issuing inventory, including the key documents involved.

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    © All Rights Reserved
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    Chapter 7 - Inventories

    Uploaded by

    Vanessa Velasco
    282 views16 pages
    This document discusses inventory accounting for government entities. It describes the different types of inventory held, including inventory for sale, distribution, manufacturing, and consumption. Inventories are initially measured at cost and subsequently at the lower of cost or net realizable value for items held for sale, and the lower of cost or current replacement cost for items held for distribution. The document outlines the journal entries for recognizing inventory and the expense recognition when inventory is sold, distributed, exchanged, consumed or written down. It also details the procedures for receiving and issuing inventory, including the key documents involved.

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    Chapter 7_inventories (1)

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    This document discusses inventory accounting for government entities. It describes the different types of inventory held, including inventory for sale, distribution, manufacturing, and consumption. Inventories are initially measured at cost and subsequently at the lower of cost or net realizable value for items held for sale, and the lower of cost or current replacement cost for items held for distribution. The document outlines the journal entries for recognizing inventory and the expense recognition when inventory is sold, distributed, exchanged, consumed or written down. It also details the procedures for receiving and issuing inventory, including the key documents involved.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    282 views16 pages

    Chapter 7 - Inventories

    Uploaded by

    Vanessa Velasco
    This document discusses inventory accounting for government entities. It describes the different types of inventory held, including inventory for sale, distribution, manufacturing, and consumption. Inventories are initially measured at cost and subsequently at the lower of cost or net realizable value for items held for sale, and the lower of cost or current replacement cost for items held for distribution. The document outlines the journal entries for recognizing inventory and the expense recognition when inventory is sold, distributed, exchanged, consumed or written down. It also details the procedures for receiving and issuing inventory, including the key documents involved.

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    You are on page 1of 16

    Government Accounting

    &
    Accounting for non-profit organizations

    by: ZEUS VERNON B. MILLAN


    Chapter 7
    Inventories

    Learning Objectives
    1. Account for inventories by a
    government entity.
    2. Describe the procedures in the receipt
    and disposition of inventories by a
    government entity.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Inventories of a government entity
    a. Inventory Held for Sale (e.g., medicines for
    sale in government pharmacies)
    b. Inventory Held for Distribution (e.g., rice and
    other welfare goods held for distribution)
    c. Inventory Held for Manufacturing (e.g., raw
    materials, work-in-process)
    d. Inventory Held for Consumption (e.g., office
    supplies inventory)
    e. Semi-Expendable Property – consists of
    machinery, equipment, furniture and fixtures
    and similar items that are not capitalized as
    PPE because their costs are below the
    ₱15,000 capitalization threshold for PPE.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Measurement
    • Inventories are initially measured at cost
    and subsequently measured at the:
    a. Lower of Cost and Net realizable value
    – for goods held for sale; and
    b. Lower of Cost and Current replacement
    cost – for goods held for distribution.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Measurement of Cost
    • Cost comprises the following:
    a. Purchase cost, excluding trade discounts.
    b. Direct costs incurred in bringing the asset
    to its intended location and condition.
    • Cost excludes the following:
    a. Abnormal amounts of wasted materials,
    labor, and production overhead;
    b. Selling costs; and
    c. Administrative overheads

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Measurement of NRV and CRP
    • Net Realizable Value (NRV) is estimated
    selling price less estimated costs of
    completion and estimated selling/disposal
    costs.

    • Current replacement cost is the cost the


    entity would incur to acquire the asset on
    the reporting date.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Cost Formulas
    • Specific identification – used for items that
    are not ordinarily interchangeable and
    those that are segregated for specific
    projects.
    • Weighted average cost – used for large
    numbers of items of inventory that are
    ordinarily interchangeable. This shall be
    applied under a perpetual inventory
    system.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Journal entries – Initial recognition
    Inventory Held for Sale Inventory Held for Distribution

    Merchandise Inventory xxx Welfare Goods for Distribution xxx


    Accounts Payable xxx Accounts Payable xxx

    Inventory Held for Inventory Held for


    Manufacturing Consumption
    Raw Materials Inventory xxx Office Supplies Inventory xxx
    Accounts Payable xxx Accounts Payable xxx

    Semi-Expandable Property
    Semi-Expendable Machinery xxx
    Accounts Payable xxx

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Recognition as an Expense
    The carrying amount of an inventory is
    recognized as expense in the period it is:
    a. Sold;
    b. Distributed;
    c. Exchanged;
    d. Consumed; or
    e. Written down to its NRV or Current
    replacement cost (only the portion of the
    carrying amount in excess of the NRV or CRC
    is recognized as expense).
    GOVT ACCTG & ACCTG FOR NPOs by:
    Z.B.Millan
    Receipt and Disposition of Inventories
    • Requisition
    1. End users prepare the Purchase Request
    (PR) form.

    2. Purchasing Unit prepares the Purchase


    Order (PO).

    (Note: A canvass from at least 3 suppliers is


    required for purchases amounting to ₱1,000
    and above.)

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Receipt and Disposition of Inventories
    • Receipt
    3. Property/Supply Division prepares the Inspection
    and Acceptance Report (IAR) and forwards it to
    the Property Inspector.
    4. Property Inspector inspects the delivered items
    and fills up the IAR.
    5. The Property/Supply Division records accepted
    deliveries in the Stock Card (SC).
    6. The Accounting Division records accepted
    deliveries in the books of accounts and in the
    Supplies Ledger Card (SLC).
    7. The Property/Supply Division prepares the
    Disbursement Voucher (DV) then forwards it,
    together with the supporting documents, to the
    Accounting Division for processing of payment.
    GOVT ACCTG & ACCTG FOR NPOs by:
    Z.B.Millan
    Receipt and Disposition of Inventories
    • Disposition
    8. End users prepare the Requisition and
    Issue Slip (RIS) to request for the issuance
    of inventory.
    9. The Property/Supply Division prepares the
    Report of Supplies and Materials Issued
    (RSMI). The Stock Card is updated using
    the RSMI.
    10. The Accounting Division uses the RSMI for
    recording in the books of accounts and
    updating of the Stock Ledger Card.

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    Receipt and Disposition of Inventories
    • Other documents
    • Waste Materials Report – used to report
    wasted materials, such as destroyed spare
    parts and other spoilages.
    • Report on the Physical Count of Inventories –
    used in reporting the results of physical counts.
    • Report of Accountability for Accountable Forms
    – used to report the movement and status of
    accountable forms.
    • Inventory Custodian Slip – prepared when
    issuing semi-expendable property.
    GOVT ACCTG & ACCTG FOR NPOs by:
    Z.B.Millan
    APPLICATION OF
    CONCEPTS
    PROBLEM 7-4: FOR CLASSROOM DISCUSSION

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
     QUESTIONS????
     REACTIONS!!!!!

    GOVT ACCTG & ACCTG FOR NPOs by:


    Z.B.Millan
    END

    GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Millan

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