An interesting factor of our business is that we collect scrap gold over a specific time until we send it off to then get melted down which creates an income for us. This adds special circumstances and decisions we must make on how we account for this scrap jewelry we hold on to temporarily. I recently ran across a question that addresses this issue.
So the question is can we claim that scrap we hold as inventory even when it is held for a short period of time. Or even should it be? The question comes as a debate between the owners of a scrap gold buying business. The company has a dilemma of whether they should claim their scrap gold as inventory or not. And is answered from a debate perspective.
Q: I have a company that buys gold from people (jewelry, coins, etc). They then send this gold to a company out of state who in turn sends them a check for the value of the gold in the item. My company does not want to recognize the value of any items that they have on hand at the end of the year as inventory. They say they only hold onto these items for a max of 30 days before they send to the out-of-state purchaser. I think they should. What is your opinion?
You can also pipe in on the discussion if you want here.
A: The length of time that a business holds or carries items does not matter. It doesn’t matter that they’re held for 30 days. They could be held for much longer and still qualify as inventory. What matters is that the items are held for the purpose of resale. See this inventory lesson for a clear definition and explanation of what counts as inventory.
In this case the items’ “sales values” are determined by the purchaser after evaluating the quantity of gold existing in each of the items.
Also, these (possible) inventory are not sold as-is. Instead, they are changed (albeit by the purchaser) – the items are dismantled and the gold extracted.
In my opinion it would be difficult to count these items (coins, jewelry, etc.) as inventory. Not because scrap gold could not be counted as inventory. But because the gold is essentially valued only after it is sold. Think of it this way: how do you determine what the carrying amount of the inventory is when the purchaser (not you) determines their value, and only after they are shipped out of your warehouse?
So I would agree and recognize them as a purchasing expense.
Either way, I would recommend consulting a professionally qualified accountant for expert advice.
Do you think the coins and jewelry could qualify as inventory? Send us your comments.
