BCVillaluz
ACCOUNTING LESSONS WITH BCSV
Accounting for Inventories
Problem 1: (Initial measurement of inventory)
Pluck Co. imported goods from France and incurred the following costs:
Invoice price
Trade discounts and other rebates
Import duties
Value added tax
Insurance on goods in transit
Delivery charges on goods originating from the supplier
Other handling costs
Commission to broker
1.
2.
P200,000
10,000
20,000
26,000
5,000
8,000
2,000
4,000
How much is the cost of purchase of the imported goods if the entity is a VAT payor?
How much is the cost of purchase of the imported goods if the entity is not a VAT payor?
Problem 2:
Belgium Company has incurred the following costs during the current year:
1 Cost of purchases based on vendors’ invoices
2 Trade discounts on purchases already deducted from vendors’ invoices
3 Import duties
4 Freight and insurance on purchases
5 Other handling costs relating to imports
6 Salaries of employees in the accounting department
7 Brokerage commission paid to agents for arranging imports
8 Sales commission paid to sales agents
9 After-sales warranty costs
What is the total cost of purchases?
A.
5,700,000
C.
B.
6,100,000
D.
P5,000,000
500,000
400,000
1,000,000
100,000
600,000
200,000
300,000
250,000
6,500,000
6,700,000
Problem 3:
Netherlands Company provided the following data at year-end:
1 Items counted in the bodega (including P50,000 damaged and unsalable goods)
P4,050,000
2
3
Special order items included in the count specifically segregated per sale contract
Goods held on consignment at sales price, included in count (cost P125,000)
100,000
250,000
4
5
Items in the receiving department, returned by customer in good condition
Items ordered and in the receiving department
50,000
400,000
6
7
8
Items ordered, invoice received but goods not received. Freight is on account of seller
Items ordered, invoice received but goods not received. Freight is on account of buyer
Items shipped today, invoice mailed, FOB shipping point
300,000
240,000
250,000
9
Items shipped today, invoice mailed, FOB destination
150,000
10
11
Goods out on consignment at sales price, cost P150,000
Items currently being used for window display
200,000
200,000
12
13
Items on counter for sale
Items in receiving department, refused because of damage
800,000
180,000
14
Items in the shipping department
250,000
15
16
Items in the hands of salesmen
Goods held by customers on trial
75,000
80,000
17
18
Goods sold under installment basis, goods are in the hands of the customers
Goods purchased under installment basis, included in count
220,000
260,000
Compute for the correct amount of inventory.
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BCVillaluz
Problem 4:
Netherlands Company conducted a physical count on December 31, 2020 which revealed inventory with a cost of P4,410,000.
The following items were not included in the physical count:
Merchandise held by Netherlands on consignment
Merchandise shipped by Netherlands FOB destination to a customer on
December 31, 2020 and was received by the customer on January 5, 2021
P610,000
380,000
Merchandise shipped by Netherlands FOB shipping point to a customer on
December 31, 2020 and was received by the customer on January 5, 2021
Merchandise shipped by a vendor FOB destination on December 31, 2020
was received by Netherlands on January 5, 2021
460,000
830,000
Merchandise purchased FOB shipping point was shipped by the supplier on
December 31, 2020 and received by Netherlands on January 5, 2021
510,000
What is the correct amount of inventory on December 31, 2020?
A.
3,800,000
C.
4,920,000
B.
4,690,000
D.
5,300,000
Problem 5:
Catherine Company included the following items in inventory:
Materials
Advance for materials ordered
Goods in process
Unexpired insurance on inventory
Advertising catalogs and shipping cartons
Finished goods in factory
Finished goods in company-owned retail store, including
50% profit on cost
Finished goods in hands of consignees including
40% profit on sales
Finished goods in transit to customers, shipped
FOB destination at cost
Finished goods out on approval, at cost
Unsalable finished goods, at cost
Office supplies
Materials in transit, shipped FOB shipping point,
including freight of P30,000
Goods held on consignment, at sales price (cost, P150,000)
P1,400,000
200,000
650,000
60,000
150,000
2,000,000
750,000
400,000
250,000
100,000
50,000
40,000
360,000
200,000
What is the correct amount of inventory as per IAS 2 Inventories?
A.
5,250,000
C.
5,500,000
B.
5,375,000
D.
5,540,000
Problem 6: (Periodic vs. Perpetual) [WITH ANSWERS]
The following transactions occurred during the year:
•
Purchased goods worth P10,000 on account under credit terms of 20%, 10%, 2/10. n/30.
•
Paid shipping costs of P1,000 on the purchases above.
•
Returned damaged goods worth P2,000 to the supplier.
•
Sold goods costing P5,000 for P20,000 on account.
•
A customer returned goods with sale price of P800 and cost of P200.
Required: Prepare the journal entries to record the foregoing under the:
(a) Periodic inventory system
(b) Perpetual inventory system
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BCVillaluz
Purch
AP
PERIODIC
10,000.00
F. In
Cash
1,000.00
AP
PRA
2,000.00
AR
Sales
SRA
AR
PERPETUAL
10,000.00
10,000.00
Invty.
AP
Invty.
Cash
1,000.00
1,000.00
AP
Invty.
2,000.00
2,000.00
20,000.00
20,000.00
800.00
800.00
AR
S
10,000.00
1,000.00
2,000.00
20,000.00
20,000.00
CGS
MI
5,000.00
SRA
AR
800.00
MI
CGS
200.00
5,000.00
800.00
200.00
Problem 7: (Accounting for Discounts; Periodic vs. Perpetual) [WITH ANSWERS]
An entity purchased inventory with a list price of P10,000 on account under credit terms of 20%, 10%, 2/10, 1/15, n/45.
1.
2.
3.
4.
Prepare the journal entries to record the foregoing using the gross method under periodic inventory
assuming:
(a) The account was settled on Day 10.
(b) The account was settled on Day 15.
(c) The account was settled on Day 45.
Prepare the journal entries to record the foregoing using the gross method under perpetual inventory
assuming:
(a) The account was settled on Day 10.
(b) The account was settled on Day 15.
(c) The account was settled on Day 45.
Prepare the journal entries to record the foregoing using the net method under periodic inventory
assuming:
(a) The account was settled on Day 10.
(b) The account was settled on Day 15.
(c) The account was settled on Day 45.
Prepare the journal entries to record the foregoing using the net method under perpetual inventory
assuming:
(a) The account was settled on Day 10.
(b) The account was settled on Day 15.
(c) The account was settled on Day 45.
system
system
system
system
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BCVillaluz
GROSS METHOD
PERIODIC
7,200.00
Upon Purch.
P
Case A
AP
PD (7,200 x 2%)
Cash (7,200 x 98%)
7,200.00
AP
PD (7,200 x 1%)
Cash (7,200 x 99%)
7,200.00
AP
Cash
7,200.00
AP
Case B
Case C
PERPETUAL
7,200.00
7,200.00
Invty.
AP
7,200.00
144.00
7,056.00
AP
Invty.
Cash
AP
Invty.
Cash
7,200.00
72.00
7,128.00
AP
Cash
7,200.00
7,200.00
7,056.00
Invty.
AP
AP
Cash
7,056.00
7,056.00
7,056.00
72.00
7,128.00
AP
PDL
Cash
AP
PDL
Cash
7,056.00
144.00
7,200.00
7,200.00
144.00
7,056.00
72.00
7,128.00
7,200.00
NET METHOD
Upon Purch.
Case A
Case B
Case C
P (7,200 x 98%)
AP
PERIODIC
7,056.00
AP
Cash
7,056.00
AP
PDL (7,200 x 1%)
Cash
7,056.00
72.00
AP
PDL (7,200 x 2%)
Cash
7,056.00
144.00
PERPETUAL
7,056.00
7,056.00
7,056.00
7,128.00
7,200.00
Problem 8:
Marine Company regularly buys goods from a supplier and is allowed trade discounts of 20% and 10% from the list price. The company
made a purchase during the year and received an invoice with a list price of P600,000, a freight charge of P15,000 and payment terms
of 2/10, n/30.
What is the cost of the purchase?
A.
432,000
B.
435,000
C.
D.
438,360
447,000
Problem 9:
On April 1, 2020, Jiro Company recorded purchases of inventory of P800,000 and P1,000,000 under credit terms of 2/15, net 30.
The payment due on the P800,000 purchase was remitted on April 16. The payment due on the P1,000,000 purchase was remitted on
May 1.
Under the net method and gross method, these purchases should be included at what respective amounts in the
determination of cost of goods available for sale?
Net method
Gross method
A.
1,784,000
1,764,000
B.
1,764,000
1,800,000
C.
1,764,000
1,784,000
D.
1,800,000
1,764,000
Problem 10: (Cost Formulas; Inventory items are not interchangeable)
ABC Co. made the following transactions during the month of January 2020:
January
January
January
January
1
12
17
30
Purchased 1,000 units @ P2.00
Purchased 3,000 units @ P2.20
Sold 2,000 units
Purchased 1,000 units @ P2.40
The 3,000 units in the inventory on January 30 is composed of 500 units from purchases made on January 1, 1,500 units from purchases
made on January 12 and 1,000 units from purchases made on January 30.
Required: Calculate the (a) cost of ending inventory and the (b) cost of goods sold using specific identification method of inventory
valuation.
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BCVillaluz
Problem 11: (Comprehensive: Cost Formulas; Inventory items are interchangeable)
The following information has been extracted from the records about one product:
Date
8/1
8/7
8/12
8/13
8/21
8/22
8/29
8/30
Transaction
Beginning inventory
Purchase
Sales
Sales return
Purchase
Sales
Purchase
Purchase return
Units
2,000
3,000
4,200
600
4,800
3,800
1,900
300
Unit cost
36.00
37.20
Total cost
P72,000
111,600
38.00
182,400
38.60
38.60
73,340
11,580
Required: Compute for the (a) ending inventory and (b) cost of sales under the following cost formulas:
1. FIFO – periodic
2. FIFO – perpetual
3. Weighted average
4. Moving average
Problem 12: (LCNRV)
Thessa Company provided the following inventory data at year-end:
Cost
NRV
Product A
2,200,000
2,500,000
Product B
1,700,000
1,500,000
Product C
700,000
800,000
Product D
400,000
500,000
What amount should be reported as inventory at year-end?
A.
4,800,000
C.
5,200,000
B.
5,000,000
D.
5,300,000
Problem 13:
At year-end, Carlisle Company reported ending inventory at P3,000,000, and the allowance for inventory writedown before any
adjustment at P150,000.
Historical cost
Replacement cost
Estimated sales price
Estimated cost of disposal
Normal profit
Product
A
800,000
900,000
1,200,000
650,000
250,000
Product
B
1,000,000
1,200,000
1,300,000
200,000
150,000
Product
C
700,000
1,000,000
1,250,000
300,000
300,000
Product
D
500,000
600,000
1,000,000
650,000
300,000
1.
What amount of loss on inventory writedown should be included in cost of goods sold?
A.
100,000
C.
250,000
B.
200,000
D.
400,000
2.
Assuming the allowance for inventory writedown before any adjustment is P500,000, what amount of gain on
reversal of writedown should be recognized?
A.
0
C.
250,000
B.
100,000
D.
400,000
Problem 14:
Information on ABC Co.’s inventories is as follows:
Raw materials
Finished goods
1.
Cost
60,000
100,000
Replacement cost/NRV
50,000
120,000
What amount should be reported as inventory at year-end?
A.
150,000
C.
170,000
B.
160,000
D.
180,000
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2.
Assuming the NRV of the finished goods is P90,000, what amount should be reported as inventory at year-end?
A.
140,000
C.
160,000
B.
150,000
D.
170,000
Problem 15: (Purchase Commitment)
On November 25, 2019, Lester Richie Company entered into a commitment to purchase 10,000 units of product X on February 15, 2020
at a price of P310 per unit.
On December 31, 2019, the market price of product X is P270 per unit. On February 15, 2020, the market price of product X is P300 per
unit.
CASE 1: The purchase commitment is noncancelable.
1. What is the loss on purchase commitment to be recognized on December 31, 2019?
A.
0
C.
300,000
B.
100,000
D.
400,000
2.
What is the gain on purchase commitment to be recognized on February 15, 2020?
A.
0
C.
300,000
B.
100,000
D.
400,000
3.
What amount should be debited to purchases on February 15, 2020?
A.
2,700,000
C.
3,100,000
B.
3,000,000
D.
3,500,000
4.
What amount should be recognized as accounts payable on February 15, 2020?
A.
2,700,000
C.
3,100,000
B.
3,000,000
D.
3,500,000
CASE 2: The purchase commitment is cancelable.
1. What is the loss on purchase commitment to be recognized on December 31, 2019?
A.
0
C.
300,000
B.
100,000
D.
400,000
2.
What is the gain on purchase commitment to be recognized on February 15, 2020?
A.
0
C.
300,000
B.
100,000
D.
400,000
3.
What amount should be debited to purchases on February 15, 2020?
A.
2,700,000
C.
3,100,000
B.
3,000,000
D.
3,500,000
4.
What amount should be recognized as accounts payable on February 15, 2020?
A.
2,700,000
C.
3,100,000
B.
3,000,000
D.
3,500,000
Problem 16:
On November 25, 2019, Lester Richie Company entered into a non-cancellable commitment to purchase 10,000 units of product X on
February 15, 2020 at a price of P310 per unit.
On December 31, 2019, the market price of product X is P270 per unit. On February 15, 2020, the market price of product X is P320 per
unit.
1.
What is the loss on purchase commitment to be recognized on December 31, 2019?
A.
0
C.
300,000
B.
100,000
D.
400,000
2.
What is the gain on purchase commitment to be recognized on February 15, 2020?
A.
0
C.
400,000
B.
100,000
D.
500,000
3.
What amount should be debited to purchases on February 15, 2020?
A.
2,700,000
C.
3,100,000
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B.
3,000,000
D.
3,200,000
4.
What amount should be recognized as accounts payable on February 15, 2020?
A.
2,700,000
C.
3,100,000
B.
3,000,000
D.
3,500,000
5.
Assuming the market price of product X on December 31, 2019 is P330 per unit, how much shall be recognized
as gain on purchase commitment on December 31, 2019?
A.
0
C.
400,000
B.
100,000
D.
500,000
Problem 17: (Gross profit method)
Great Comrade Company reported the following information for the current year:
Beginning inventory
Purchases
Freight in
Purchase returns and allowances
Purchase discounts
Sales
Sales returns
Sales allowances
Sales discounts
P5,000,000
26,000,000
2,000,000
3,500,000
1,500,000
40,000,000
3,000,000
500,000
1,000,000
A physical inventory taken at year-end resulted in an ending inventory of P4,000,000. At year-end, unsold goods out on consignment
with selling price of P1,000,000 are in the hands of a consignee. The gross profit was 40% of sales. What is the estimated cost of
inventory shortage?
A.
1,200,000
C.
2,100,000
B.
1,800,000
D.
2,700,000
Problem 18:
On the night of September 30, 2020, a fire destroyed most of the merchandise inventory of AA Company.
All goods were completely destroyed except for partially damaged goods that normally sell for P100,000 and that had an estimated net
realizable value of P25,000 and undamaged goods that normally sell for P60,000.
Inventory, January 1
Net purchases, January through September 30
Net sales, January 1 through September 30
Net sales
Cost of sales
Gross profit
Total
9,000,000
6,750,000
2,250,000
2019
5,000,000
3,840,000
1,160,000
P
660,000
4,240,000
5,600,000
2018
3,000,000
2,200,000
800,000
2017
1,000,000
710,000
290,000
What is the estimated amount of fire loss on September 30, 2020?
A.
580,000
C.
630,000
B.
615,000
D.
700,000
Problem 19: (Retail Inventory Method)
The following information has been provided by Denver Corporation for the year 2020:
Inventory, January 1
Purchases
Purchase returns
Purchase discounts
Purchase allowance
Freight-in
Markups
Markup cancellations
Departmental transfer-in
Departmental transfer-out
Abnormal loss
Cost
P179,600
475,400
50,000
23,000
10,000
5,000
70,000
60,000
20,000
Retail
P200,000
800,000
80,000
200,000
40,000
100,000
90,000
40,000
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Markdown
Markdown cancellations
115,000
10,000
Sales
775,000
Sales returns
80,000
Sales allowances
50,000
Sales discounts
70,000
Employee discounts
25,000
Normal loss
100,000
The company reported inventories per physical count conducted at the close of business on December 31 at P40,000.
Compute for the cost of inventory shortage under:
1. Average approach
2. First-in, first-out approach
3. Conservative approach
--END--
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