Dear Hasan,

As far as I know inventory items can be catagorized as below (correct me if I'm wrong)

Expense Items - Referred to as Item A
Inventory Expense Items - Referred to as Item B
Inventory Asset Items - Referred to Item C

1) Expense Items - Referred to as Item A.

These items normally have the following attributes.
INVENTORY_ASSET_FLAG = N
PURCHASING_ITEM_FLAG = Y
INVENTORY_ITEM_FLAG = N

2) Inventory Expense Items - Referred to as Item B

These items normally have the following attributes.
INVENTORY_ASSET_FLAG = N
PURCHASING_ITEM_FLAG = Y
INVENTORY_ITEM_FLAG = Y

3) Inventory Asset Items - Referred to Item C

These items have the following attributes.
INVENTORY_ASSET_FLAG = Y
PURCHASING_ITEM_FLAG = Y
INVENTORY_ITEM_FLAG = Y
COSTING_ENABLED_FLAG = Y

And also accounting treatement will vary depending on the itmes.

Kindly give me some examples for the above type of items from financials perspective.

If I want to track an item as an Asset throught FA module (Invenotry --> PO --> AP --> FA), how should I model the item ? (should it be expense item or Inventory asset item)

Can I implement financials without doing any configurations for Inventory module?

Thanks in advance,
Shanmuga

Those flags settings seem to be correct.
Conceptually speaking, you can create three types of items in Oracle Inventory:
Inventory Items: These are the items that you buy to resell. These items hit asset GL account. These items do not depreciate therefore Oracle Assets is not involved. Cost of Goods Sold account will be hit down the line.
Expense Items: These are the expense items that you buy for internal expenditures. Setting up these items in Inventory are optional. In highly control environments, companies prefer to set these items in Inventory as well.
Asset Items: These are the asset items that you buy for internal use. These items will depreciate and hence will be transferred to FA (INVENTORY->PO->AP->FA).
Please keep in mind that Oracle Assets and Oracle Asset Tracking are two different modules. Oracle Asset Tracking is tightly integrated with Oracle Inventory.
Oracle Asset Tracking Integration with Oracle Inventory: http://download-uk.oracle.com/docs/cd/B34956_01/current/acrobat/120cseug.pdf
Oracle Assets: http://download-uk.oracle.com/docs/cd/B34956_01/current/acrobat/120faug.pdf
I hope that helps.

Thanks Dear Hasan for your knowledge and time spent for sharing it.