Question

Inventory can be on hand in your store, somewhere in transit in a truck or plane or placed on consignment. What is the single most important factor that determines if you should include the inventory on your company’s balance sheet?

A) physical possession. B) legal title. C) management's judgment. D) whether or not you’ve paid for the inventory

Answer 1

Correct Option B) legal title

To check whether or not inventory to be included in balance sheet, one should check the legal title only. Legal title means actual ownership of the inventory irrespective of the possession.

If inventory is held on consignment by consignee, its in its possession but legal title is with the consignor and its included in the balance sheer of consignor.

further, if goods are sent FOB Destination and goods are in transit, legal title is still with the seller because goods are yet to reach destination however in case of FOB shipping, legal title lies with seller because goods has left the shipping point.