Accounting for inventory

No - they are not the same. The reorder quantity is the number of units that you order each time that you place an order. The reorder level is the number of units still in inventory at the time you place the order. For the exam it is the reorder quantity that is the most important. The relevance of the reorder level is that if there is going to be a delay between placing an order and actually receiving the units. then you need to order when you still have units left in inventory (otherwise you will run out before the new order arrives). In EOQ calculations we always ignore this problem - the reorder level is not relevant for EOQ calculations.

Thank you so much

You are welcome :-)

Spare parts are treated like repairs - they are revenue expenditure and are not capitalised as assets. It is because fitting a replacement part is simply getting the machine back to its original state. We only capitalise if it is improving on what the machine originally was - like turning it into a bigger machine.

They are inventory until they are used - just as purchases are held as inventory until used.

hi john, on 19 March, 2015, I passed F2 with 82%. thank you. u have been helpful.

That is great - many congratulations :-)

If they were bought at the same time as the machine, then I think that would be fair enough. If they were bought later, then there would still be a good argument for capitalising them. (Although there is no way this would be mentioned in Paper F3 :-) )