Inventory & Depreciation

Question 1

Inventory

Answer 1

an asset owned by the company that includes all the items (goods) an organization has for sale in the normal course of its business.
- it is considered a current asset as items/inventory are expected to be sold within a 12-month period

Question 2

Inventory Turnover

Answer 2

a ratio that shows how fast inventory is sold.
cost of goods sold / average inventory = inventory turnover

Question 3

Types of Inventory in Healthcare Organizations

Answer 3

• Raw materials: hospital cafeteria purchases (flour, eggs, butter)
• Work in progress: (mixes the ingredients)
• Finished goods: produces the cake

Question 4

Inventory Valuation Methods

Answer 4

First-In, First-Out (FIFO)
Last-In, First-Out (LIFO)

Question 5

Inventory Tracking Systems

Answer 5

1. Perpetual Inventory System: the healthcare organization keeps a continuous record of every individual inventory item.
2. Periodic Inventory System: at the end of the period the organization physically counts the inventory items on hand.

Question 6

Computing Book Depreciation Methods

Answer 6

1. Straight-Line Depreciation Method assigns an equal amount of depreciation expense over each period of the asset’s useful life.
2. Accelerated Book Depreciation Method writes off more depreciation in the first part of the asset’s useful life.
3. Sum of the Year’s Digits Method (SYD) computes depreciation by multiplying the depreciable cost of the asset by a fraction.
4. Double-Declining Balance Method (DDB) computes depreciation by multiplying the asset’s net book value at the beginning of each year by a constant percentage, or factor.
5. Units of Production Depreciation Method (UOP) computes depreciation by assigning a fixed amount of depreciation to each unit of service or output that is produced by equipment.

Question 7

Net Book Value of a Fixed Asset

Answer 7

a balance sheet figure that represents the remaining
undepreciated portion of the fixed asset cost

Question 8

Computing the Net Book Value of a Fixed Asset

Answer 8

1. Determine the original cost of the fixed asset on the balance sheet.
2. Subtract the reserve for depreciation, which has accumulated depreciation expense as it
   has been recognized.
3. The result equals net book value at that point in time