CAT Inventory & Asset Management Flashcards

What does an 'asset impairment' charge indicate?

Answer: The asset's carrying value exceeds its recoverable amount and must be written down

Impairment is recognized when an asset's book value can no longer be recovered through its use or sale, requiring a write-down to fair value.

Which of the following costs should be capitalized as part of the cost of a new piece of equipment?

Answer: Freight charges and installation costs required to put the equipment in service

Costs necessary to bring an asset to its intended location and condition for use—like freight and installation—are capitalized as part of the asset's cost.

What is the salvage value of an asset used in calculating depreciation?

Answer: The estimated residual value at the end of the asset's useful life

Salvage (residual) value is the expected proceeds from disposing of the asset at the end of its useful life and is excluded from the depreciable base.

Under a periodic inventory system, when is the Cost of Goods Sold (COGS) calculated?

Answer: At the end of each accounting period using a physical count

In a periodic system, COGS is determined at period-end by counting physical inventory and working backward from beginning inventory and purchases.

Which ratio measures how efficiently a company converts its fixed assets into revenue?

Answer: Fixed Asset Turnover Ratio

Fixed asset turnover (Net Sales ÷ Average Net Fixed Assets) shows how much revenue is generated for each dollar invested in long-term assets.

What is 'goods in transit' and who typically records it as inventory under FOB shipping point terms?

Answer: The buyer records it because ownership transfers when goods leave the seller's location

Under FOB shipping point, title passes to the buyer at the point of shipment, so the buyer owns and must record in-transit inventory.