Learning Objective: $05-$C$1$ Identify the items and costs of merchandise inventory.

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Merchandise inventory refers to goods owned by a company and held for resale. Three special cases merit our attention. Goods in transit are reported in inventory of the company that holds ownership rights. Goods on consignment are reported in the consignor$$s inventory. Goods damaged or obsolete are reported in inventory at their net realizable value.

Costs of merchandise inventory include expenditures necessary to bring an item to a salable condition and location. This includes its invoice cost minus any discount plus any added or incidental costs necessary to put it in a place and condition for sale.