ALL ABOUT GOODS IN TRANSIT (GIT) OR TRANSIT INVENTORY.

The term Goods in Transit (or Transit inventory) refers to inventory items that have been shipped by the seller, but not yet received by the buyer. Transit inventory is an important component of company’s inventory valuation.

GIT is booked in books of accounts on quarterly basis to ascertain true & fair view of financial statements.

Goods in transit is presented under CURRENT ASSETS under sub heading INVENTORY in statement of accounts.

Q- How to determine whether an inventory is transit inventory or not?

A-Legal title (ownership & risk of goods) of goods defines whether the inventory to be accounted as Goods in transit or not.

The shipping arrangement will help determining the point of time when ownership & risk of goods transferred from seller to the buyer.

Let us understand few terms: –

S.No Delivery Terms Interpretation Transfer of Ownership & risk to buyer
1. Free on Board- Destination In goods shipped on FOB-Destination basis, Transportation cost is paid by seller. After goods are received by buyer.
2. Free on Board- Shipping In free on board- shipping basis – Transportation cost is paid by buyer. At point carrier/ transporter takes possession of goods.
3. Free Alongside (FAS) Seller who ships on FAS basis bears all the expenses & risk involved in delivery of goods to the dock next to (alongside) the vessel on which they are to be shipped. At point carrier/ transporter takes possession of goods.
4. Cost, Insurance & Freight (CIF) Buyer agrees to pay lump sum cost of goods, insurance & freight charges. Seller deliver the goods to carrier/ transporter & pays loading expenses. At point carrier/ transporter takes possession of goods.

Note- The cost of freight is to be included valuation of goods in transit.

Recognition of GIT only at the time when risk & rewards are transferred.

Illustration- A Ltd purchases raw material amounting Rs 1,00,000/- from B Ltd.

Invoice Date Delivery terms Material Receipt date at buyer’s (A Ltd)  place Whether GIT as on 31/03/2020 or not
28 Mar,2020 Free on Board- Destination 31 Mar,2020 Yes
28 Mar,2020 Free on Board- Destination 02 Apr,2020 No
28 Mar,2020 Free on Board- Shipping 31 Mar,2020 Yes
28 Mar,2020 Free on Board- Shipping 02 Apr,2020 Yes
28 Mar,2020 Free Alongside (FAS) Delivery to dock alongside on or before 31 Mar,2020. Yes
28 Mar,2020 Free Alongside (FAS) Delivery to dock alongside after 31 Mar,2020 No
28 Mar,2020 Cost, Insurance & Freight (CIF) Goods handed over to transporter on or before 31 Mar,2020 Yes
28 Mar,2020 Cost, Insurance & Freight (CIF) Goods handed over to transporter after 31 Mar,2020 No

For any query please feel free to ask in comments.

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Qualification: CA in Practice
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Location: Delhi, New Delhi, IN
Member Since: 27 Aug 2018 | Total Posts: 1

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One Comment

  1. Jigisha says:

    Our import purchase invoice date is 24.02.2020
    BOE date is 12.03.2020
    Goods transported by our CHA from Port to our warehouse on 24.05.2020 as per LR note.

    Is this transaction treated as Goods in Transit or not?

    Pls guide

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