Supply Management Operations - Comptroller

DoD Financial Management Regulation Volume 11B, Chapter 55
December 1994
business area and Defense Commissary Agency are the only Defense Business Operations Fund
business areas that should hold inventory. Except for excess, obsolete, and unserviceable
inventory, inventory shall be valued using the latest acquisition cost method. The following are
not inventory:
a. Items purchased by depot maintenance activities to be consumed in the process of
repair and by other activities to be consumed in the course of operations shall be recorded and
reported as “Operating Materials and Supplies,“ (Account Series 1510) versus “Inventory,“
(Account Series 1520) “Operating Materials and Supplies“ shall be valued and reported at
historical cost.
b. Inventory excludes some other assets held for sale, such as (1) stockpile materials
(including war reserve materiel), (2) seized and forfeited property, (3) foreclosed property, and
(4) goods held under price support and stabilization programs. These items may be sold; the
purpose, however, of acquiring them is not to provide a product or a service for a fee.
2. Recognition. Inventory shall be recognized when title passes to the purchasing entity or
when the goods are delivered to the acquiring entity, whichever occurs first. Inventory expense
shall be recognized upon a sale and the value of those goods shall be removed from inventory.
Delivery or constructive delivery shall be based on the terms of the contract or other agreement
regarding shipping and/or delivery.
3. Inventory Classifications. There are five general classifications of inventory -- Inventory
Held for Sale; Inventory Held for Future Sale; Excess, Obsolete, and Beyond Repair Inventory;
Inventory Held for Repair; and Inventory in Transit. A description of those five categories
follow:
a. Inventory Held for Sale. This category of inventory includes most supply system
materiel in issuable condition.
b. Inventory Held for Future Sale. This category will be used to report the value of
stocks not expected to be consumed until after the completion of the budget year. That is,
economic retention stocks, contingency retention stocks and potential reutilization/disposal
stocks. (War reserve materiel is reported as stockpile materials, not inventory.)
c. Excess, Obsolete, and Beyond Repair Inventory. This is a single category composed
of three elements. However, it is not necessary or expected that a separate record be kept of each
element. The elements of this inventory category are provided solely for information and not for
subaccount purposes. The elements of this category are:
(1) Excess inventory consists of items that are determined to be beyond economic
and contingency retention stock levels and, as a result, reported as potential reutilization/disposal
materiel. Until such materiel is actually declared excess and dropped from inventory, it shall be
reported as “Inventory - Excess, Obsolete, and Beyond Repair.”
(2) Obsolete inventory is inventory that is no longer needed due to changes in
technology, laws, customs, or operations.
(3) Beyond repair inventory excludes unserviceable items but, instead, consists of
items that are not expected to survive repair after technical evaluation at a maintenance activity
and damaged inventory that is not economical to repair.
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