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CH(1): Journal entries %u2013Perpetual Inventory system15Goods in Transit:Does a purchaser%u2019s inventory include goods in transit from a supplier? The answer is that if ownership has passed to the purchaser, the goods are included in the purchaser%u2019s inventory. We determine this by reviewing the shipping terms: FOB destination or FOB shipping point. If the purchaser is responsible for paying freight, ownershippasses when goods are loaded on the transport vehicle. If the seller is responsible for paying freight, ownership passes when goods arrive at their destination.Goods on Consignment:Goods on consignment are goods shipped by the owner, called the consignor, to another party, the consignee. A consignee sells goods for the owner. The consignor continues to own the consigned goods and reports them in its inventory. Damaged or ObsoleteGoods:Damaged and obsolete goods are not counted in inventory if they cannot be sold. If these goods can be sold at a reduced price, they are included in inventory if they cannot be sold. If these goods can be sold at a reduced price, they are included in inventory at a conservative estimate of their net realizable value. Net realizable value isthesales price minus the cost of making the sale. The period when damage or obsolescence occurs is the period when the loss in value is reported.Determining Inventory Costs:Cost includes all expenditures necessary to acquire goods and place them in a condition ready for sale. This means that the cost of an inventory item includes its invoice cost minus any discount, and plus any incidental costs necessary to put in a place and condition for sale. Incidental costs can include import duties, freight, storage, insurance and costs incurred in an aging process.Accounting principles prescribe that incidental costsshouldbe added to inventory. Also, the matching (expense recognition) principle states that inventory costs should be recorded against revenue in the period when inventory is sold. However, some companies use the materiality constraint to avoid assigning some incidental costs of acquiring merchandise to inventory. Instead, they expense them when incurred. These companies argue either that those incidental costs are immaterial or that the effort in assigning them outweighs the benefit.4-Identify the costs of merchandise inventory.