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.

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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.

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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.

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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

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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.

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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

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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).
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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.)

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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.
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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.

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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

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

GOVT ACCTG & ACCTG FOR NPOs by:

Z.B.Millan
 END

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