2. Index
• Inventory control
• Types of inventory control
• Objective of inventory control
• Inventory and intangible assets
• Copyrights
• trademarks
• Patents
• Goodwill
3. Inventory control
• The inventory control system is maintained by every firm to manage its
inventories efficiently . Inventory is the stock of product that a company
manufacturers for sales and the components or raw materials that makes
up the product .
• Hence, an inventory comprises of the buffer of raw material, work-in-
proceeds inventories and finished good.
• Inventory control is the process of maintaining a business's
stock level to meet customer demand and minimize costs. This
involves inventory tracking and maintenance of goods. It also
includes making decisions to profit from your stock and planning
purchases.
4. Inventory control system that are being used
big manufacturing and the retail units
ABC Inventory Control System
Three – Bin System
Just –In-Time System
Outsourcing Inventory System
Computerized Inventory Control System
Fixed Oder Quantity
Fixed Period Ordering
5. Objective Of Inventory Control
• As inventory is an essential part of any organization, it consists of many items running
into thousands. Systematic management and control of inventory for all the items is a
challenging job.
• To maintain the overall investment in inventory at the lowest level, consistent with
operating requirements.
• To supply the product, raw material, sub-assemblies, semi-finished goods, etc. to its
users as per their requirements at right time and at right price.
• To keep inactive, waste, surplus, scrap and obsolete items at the minimum level.
• To minimize holding; replacement and shortage costs of inventories and maximize the
efficiency in production and distribution.
6. Advantages Of inventory control
1. Eliminates wastages in use of material.
2. It reduces the risk of loss form fraud and theft.
3. It helps in keeping perpetual inventory and other records to
facilitate the preparation of accurate material reports management.
4. To reduce the capital tied up in inventories.
5. It reduces cost of storage.
7. Limitations of inventory control
(i) Efficient inventory control methods can reduce but cannot
eliminate business risk.
(ii) The objectives of better sales through improved service to
customer; reduction in inventories to reduce size of investment
and reducing cost of production by smoother production
operations are conflicting with each other.
(iii) The control of inventories is complex because of the many
functions it performs. It should be viewed as shared
responsibilities.
8. Intangible assets
• An intangible asset is an asset that is not physical in nature. Good will,
brand recognition and intellectual property, such as patents, trade
marks, and copyrights, are all intangible assets. Intangible
assets exists in opposition to tangible assets, which include land,
vehicles, equipment, and inventory.
• Additionally, financial assets such as stocks and bonds, which derive
their value from contractual claims, are considered tangible assets.
9. Patent
• To illustrate, a patent granted to a business for an invention or purchased from
a third party is an example of an intangible asset with a finite life. Generally In
most countries the life of a patent is 20 years.
• Patent Amortization Example
• For example, a patent is purchased for 40,000 and has a 10 year useful life
remaining. In this case the intangible asset journal entry to record the
purchase of the asset would be as follows:
Intangible asset purchase
Account Debit Credit
Intangible
asset
40,000
Cash 40,000
Total 40,000 40,000
10. Franchise license
• A franchise is the license to make or sell a product under certain
conditions granted by the owner of these rights. In other words, a
franchise is the right to produce a licensed product by the owner of
the license. In this contact, the franchisee pays the franchiser for the
right to use the licensed material.
• Governmental license
• Governmental license means any license, permit, franchise
certification, registration, identification number, certificate of
need, certificate of occupancy, Food and Drug Administration
registration, franchise, Consent or order of, or filing with, any
state or federal Government Entity.
11. Trade Mark
• A trade mark is a distinctive logo, word, symbol, signature or phrase usually
seen on a product, packaging, or advertisements showing that there is a trade
connection between the product and a business. The purpose of the trade
mark is to legally distinguish the products of one business from another. A
trade mark is renewable every 10 years and unless the business has decided
it has a fixed useful life, it can be considered to have an indefinite life.
• Registering a trade mark gives the business the exclusive right to use it, and
another business using the same or similar trade mark is said to have
infringed the trademark and could be sued for damages. The symbol
indicating a registered trademark is the letter “R” surrounded by a circle ®.
12. • As they do not expire, a trademark is an example of an intangible asset with
an indefinite life. For example, if a business has a trademark which is carried
in the balance sheet at 50,000, and an impairment review shows that the
recoverable amount is only 40,000, then the impairment calculation as follows.
• Impairment loss=carrying value –recoverable amount
• Impairment loss = 50000 - 40000= 10000
Impairment of intangible assets
Account Debit Credit
Loss on impairment 10,000
Accumulated
impairment loss
10,000
Total 10,000 10,000
Impairment loss = Carrying value - Recoverable
amount Impairment loss = 50,000 - 40,000 =
10,000
13. Goodwill
• Goodwill is the amount by which the price paid for a business exceeds the fair value
of the identifiable net assets acquired. Identifiable assets includes tangible as well as
intangible assets such as trade marks and customer lists.
• It is important to realize that fair value often differs from book value (the amounts
shown in the accounting records), and assets and liabilities need to be revalued at
the acquisition date as shown in the table below.
Goodwill = Purchase price - Fair value of net assets
= 37,000 - 23,000 = 14,000
Account Book Fair
Tangible assets 9,000 14,000
Intangible assets 20,000 22,000
Total assets 29,000 36,000
Total liabilities 12,000 13,000
Net assets 17,000 23,000
