On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare
parts for various components of the solar power plant and procures the necessary parts.
Vendors deliver the parts to SBS along with a complete listing describing the quantity and
cost of the parts provided. SBS maintains the listing and uses it to track expected usage of
the spare parts, as well as to determine their expected useful lives.
The spare parts consist of customized and generic parts that vary in cost, procurement
time, expected usage (i.e., emergency replacement, standard replacement), and expected
useful life. The Company uses the composite depreciation method for substantially all of the
plant, and it expenses all major plant maintenance.
How should SBS classify the spare parts that it expects to use within one year: as
inventory or as a prepaid/other current asset?
Find and cite the part of the codification defining inventory (3 points). Make
as good a case as you can for why the spare parts might be appropriately
classified as inventory. (5 points)