Inventory recalculation and inventory closing do not affect fixed assets, which means that no adjustment of the value of the fixed assets will be done when the inventory has been recalculated or closed.
Fixed assets typically require an exact historical cost price, and inventory items typically require a weighted average, which is the basis for the daily inventory transactions.
Lack of understanding of the costing differences between fixed assets and inventory can cause wrong inventory values and problems with reconciliation of the inventory fixed asset issue to the fixed asset receipt and with reconciliation of the value of the inventory to general ledger.
There is no problem if special inventory items are set up to be purchased as fixed assets. If there is never on-hand inventory for this item, the inventory model group is set up for (first in, first out), and no negative inventory is allowed. In this case, the issue of the inventory will be posted at the same value as the value of the acquisition updated for the fixed asset, and there will not be any adjustments to the issue value when inventory recalculation or closing processes are completed.
Note
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In addition to the examples in this topic, see the scenario in About assets created from Accounts payableand the Inventory management integration information in Fixed assets integration. The scenario and integration information discuss fixed asset purchases for internal use, whereas the following examples discuss the purchase of fixed assets for resale purposes. |
Examples
Example 1
Prerequisites
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Inventory item is used for fixed asset purchase only
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No on-hand inventory
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The inventory model group set up for does not allow negative financial or physical inventory, and dimension groups are set up without any inventory dimension
Purchase 1
15.01.01
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100.00 |
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Vendor summary account |
100.00 |
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Acquisition account |
100.00 |
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100.00 |
Purchase 2
20.01.01
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50.00 |
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Vendor summary account |
50.00 |
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Acquisition account |
50.00 |
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50.00 |
Purchase 3
30.01.01
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200.00 |
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Vendor summary account |
200.00 |
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Acquisition account |
200.00 |
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200.00 |
Because a fixed asset is updated at each purchase, there is never on-hand inventory for this item. Because the inventory model group is set up for , recalculation of inventory, or inventory closing will not change anything in the transactions.
If the inventory model group is set to , for example, the recalculation of the inventory will show receipts to the inventory of 100.00, 50.00, and 200.00, but issues of 116.66, 116.67, and 116.67. As the value of the fixed asset receipt does not change, you will update the fixed asset number 1 by 100.00, but your inventory issue would be 116.66.
Example 2
The inventory item is used for purchase of inventory on hand, as well.
Purchase 1
31.01.01
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100.00 |
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Vendor summary account |
100.00 |
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Acquisition account |
100.00 |
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100.00 |
Purchase 2
20.01.01
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50.00 |
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Vendor summary account |
50.00 |
Purchase 3
30.01.01
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200.00 |
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Vendor summary account |
200.00 |
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Acquisition account |
125.00 |
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125.00 |
As no fixed asset is updated at purchase 2, there is on-hand inventory for this item prior to the acquisition of fixed asset number 3. Because no inventory dimension is activated, the inventory issue is based on weighted average, that is (50.00+200.00)/2 = 125.00, and the remaining item on-hand of course has the same cost price of 125.00. If the inventory model for this item is set up as , recalculation of inventory or inventory closing will change the issue values to 100.00 and 50.00, for setup, the issues will be 50.00, and 200.00, which all cause discrepancies between the inventory issue and fixed assets acquisitions.
If the inventory model is set up to, for example, , the recalculation or closing of the inventory will show receipts to the inventory of 100.00, 50.00, and 200.00, but issues of 116.66, 116.67, and 116.67. As the value of the fixed asset receipt does not change (and must not change), the fixed asset number 1 will be updated by 100.00, but the inventory issue will be 116.66.
Therefore, it is important to pay attention to proper setup of inventory items used for fixed asset acquisitions.
There are, of course, many scenarios and many options, but in most cases, one of following setups would be suitable.
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If no on-hand inventory will ever exist for the inventory item used for fixed assets purchase, usually a simple setup of the inventory model group for and no financial negative inventory would be suitable. It will not be necessary to use any inventory dimensions.
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If on-hand inventory exists (or might exist in the future) for the item used for fixed assets purchase, or if other options are used for this item; for example, setup for negative inventory or update of cost prices including physical value, the suitable solution would be to set up the inventory item for the individually for each acquisition.
This setup is activated on the inventory dimension group using, for example, the dimension or . The inventory dimension must be a component of financial inventory, which means that each batch number or serial number will have its individual . Because the purpose of inventory recalculation or closing is to evaluate the inventory and inventory issues to an approximated historical cost price using one of the inventory models or , these prices will not be affected.
