[JTS254]

Hi, I was a follower of this forum a few years ago while studying for the exam, and now am in need of some help with an inventory accounting question…figured someone may be able to provide a different perspective. I apologize if I placed this in the wrong forum, the number of options has grown substantially since my last visit!

I’m struggling with how to properly record periodic adjustments for a materials (pipe) inventory account. Pipe is purchased in bulk for line repairs and maintenance and in stored in various field locations, until needed. Pipe is also ordered for specific capital projects, accounted for in a CIP account until completed, and then capitalized. We record periodic (quarterly) inventory adjustments, expensing any losses. Problem is project specific pipe, coded to CIP, may be delivered to storage yard and mixed in with inventory pipe until delivered to construction site. Therefor, it’s not uncommon to have substantial inventory count gains. My initial thought is that for any volumetric gains, increase the volume but leave historic cost, resulting in a lower average cost per unit. This at least ensures all pipe, whether in inventory or CIP, is recorded at historic cost. The problem I see with this is if you do have CIP pipe included in the counts, lowering the average cost of inventory, when pipe is moved out for project you will take a hit to to OPEX and understate remaining inventory. At least this method is conservative. Please note we do not have the resources available for a perpetual inventory system, and the number of locations and daily pulls/ deliveries are very high. Overall amounts are immaterial on corporate level, but would like to get as close as possible. Appreciate in advance any suggestions.

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