Topi Inc. had the following inventory items at 12/31/xx Inventory items purchase
ID: 2413165 • Letter: T
Question
Topi Inc. had the following inventory items at 12/31/xx Inventory items purchased from another company that cost $3,000 and were in transit on December 31 with shipping terms of FOB Shipping Point. Inventory items purchased from another company that cost $2,700 and were in transit orn December 31 with shipping terms of FOB Destination. Inventory items sold to another company that had cost $4,100 and were in transit on December 31 with shipping terms FOB Shipping Point. Inventory items sold to another company that had cost $2,800 and were in transit on December 31 with shipping terms FOB Destination. How much of the above items should be included in the company's inventory on the December 31 Balance Sheet?Explanation / Answer
The terms FOB destination and FOB shipping point indicate a specific location at which title to the ownership of goods is transferred.If goods are shipped FOB shipping point, these goods are part of the buyer’s inventory while in transit. If goods are shipped FOB destination,these goods are part of the seller’s inventory while in transit.
From the above discussion, we will determine the the value of inventory to be included in the balance sheet as on December 31:
1) Inventory has been purchased with terms of FOB shipping point, these goods are part of the buyer’s inventory while in transit. So, value of inventory includes $3000
2) Inventory has been purchased with terms of FOB destination, these goods are not part of the buyer’s inventory while in transit. These goods are part of the seller’s inventory while in transit.
3) Inventory has been purchased with terms of FOB shipping point, these goods are part of the buyer’s inventory while in transit. So, value of inventory includes $4100
4) Inventory has been purchased with terms of FOB destination, these goods are not part of the buyer’s inventory while in transit. These goods are part of the seller’s inventory while in transit.
Total value of inventory to be included = $3000 + $4100 = $7100