How to enter raw material supplies in T2 (Expense and/or Inventory)

[GreenLlama]

Hi Community!  I have a question regarding tracking of raw materials as an expense vs inventory within a corporate tax return. 

Do I track the raw materials I purchased (to be made into a finished good) as an Expense in my T2 (Selling Expense, Supplies, etc) as well as including its cost as inventory (finished and raw) or is it one or the other?

Where my confusion is (I think), is by tracking the raew material as an expense and as part of a finished good in inventory (or as a raw material) it feels like its double-dipping (recording the same items more than once).

Not sure if my ramblings make any sense at all but hoping someone can assist.

[Moussi2]

As per CRA, you can enter your opening inventory amount at line 8300 and your closing inventory amount at line 8500 of your T2125. These amounts must include raw materials, goods in process and finished goods. The way you value your inventory is important in determining your income. For income tax purposes, choose one of the following two methods:

• value your entire inventory at its fair market value (FMV). Use the price you would pay to replace the item or the amount you would get if you sold the item

• value individual items in your inventory at either their FMV or their cost, whichever is less. Cost is the price you incur for an item. Cost also includes any expenses you incur to bring the item to the business location and put it in a condition so that you can use it in the business. When you cannot easily tell one item from another, you can value the items as a group.

For further information you can refer to the Self-employed Business page on the CRA website, Line 8300 – Opening inventory and Line 8500 – Closing inventory.

Thank you for choosing TurboTax. 

[GreenLlama]

Thanks very much for your response.  However it didnt answer my question specifically.  Do I still include my purchases raw materials as an expense outside of inventory or just as inventory?  Also for the two methods, am I free to choose as fair market value would be higher than the cost.

[Moussi2 · Accepted solution]

As mentioned by the CRA, your raw materials have to be entered as just Inventory. 

Regarding the method to use, you have to use the lesser of the cost or the fair market value of your raw materials.