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This Subtopic provides guidance to government contractors related to inventory reacquired in a contract termination for the convenience of the government and the costs included in contract inventory.
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This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 912-10-15.
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If inventory items whose costs are included in the termination claim are subsequently reacquired by the contractor the reacquisition value of those items shall be recorded as a purchase and applied in accordance with the guidance in paragraph 912-310-35-1.
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So called no-cost settlements—those in which the contractor waives the right to make a claim—result in no transaction that could be reflected in sales. The costs applicable to the contract shall be given their usual classification. The inventory retained shall not be treated as a purchase but shall be accounted for according to the usual methods and standards applicable to inventories.
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For a discussion of inventory retained or sold to outsiders that relates to terminated contracts for the convenience of the government, see paragraphs
912-310-25-4 through 25-5
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A contractor's accounting policies with respect to costs included in inventory shall be disclosed.
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If inventory whose costs are in the termination claim is later reacquired by the contractor, the reacquisition value is recorded as a purchase; in \"no-cost settlements,\" where the contractor waives its claim, no sale transaction arises and retained inventory is accounted for under ordinary inventory methods rather than as a purchase.","key_points":["This Subtopic addresses inventory reacquired in a contract termination for the convenience of the government and the costs included in contract inventory (330-912-05-1).","Scope follows Section 912-10-15, the Overall Subtopic for federal government contractors (330-912-15-1).","Inventory items whose costs are included in a termination claim and later reacquired by the contractor are recorded at reacquisition value as a purchase, applied per paragraph 912-310-35-1 (330-912-25-1).","In no-cost settlements, where the contractor waives its right to make a claim, there is no transaction to reflect in sales; contract costs keep their usual classification and retained inventory is accounted for under normal inventory methods and standards, not as a purchase (330-912-25-2).","Guidance on inventory retained or sold to outsiders relating to contracts terminated for the government's convenience is in paragraphs 912-310-25-4 through 25-5 (330-912-25-3).","A contractor must disclose its accounting policies with respect to costs included in inventory (330-912-50-1)."],"categories":["Industry-specific","Recognition","Disclosure","Inventory and PP&E"],"audience_level":"intermediate","student_note":"Tested point: reacquisition of inventory covered by a termination claim is a purchase, but inventory retained in a no-cost settlement is not — students often incorrectly record a sale or purchase in the no-cost case when no transaction has occurred.","related_topics":["912-10","912-310","330-10","912-20","912-405"],"key_concepts":["contract termination for convenience of the government","termination claim","reacquired 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