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Asset - Inventory - For Posting PDF
Asset - Inventory - For Posting PDF
Asset - Inventory - For Posting PDF
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs
of completion and the estimated costs necessary to make the sale.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. (See PFRS 13 Fair Value Measurement.)
Goods in Transit: If the goods are shipped f.o.b. shipping point, title passes to the buyer when
the seller delivers the goods to the common carrier. If the goods are shipped f.o.b. destination,
title passes when the buyer receives the goods.
Consigned Goods: Goods out on consignment remain the property of the consignor.
Sales with repurchase agreements. In essence, the “seller” finances the cost of the inventory
by transferring legal title to a third party and receiving “payment.” The “seller” then agrees to
“buy” the inventory back at a specified price over a specified future period. These transactions
are often referred to as “parking transactions” because the seller simply parks the inventory
on another firm’s statement of financial position and uses it as a financing device. In these
UL CPA REVIEW CENTER
FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
arrangements, the inventory and related liability from the repurchase agreement should remain
on the “seller’s” books. No sale should be recorded.
Sales with rights of return. When the amount of returns can be reasonably estimated, the goods
should be considered sold. If returns are unpredictable, the goods should not be removed from
the seller’s inventory accounts.
Cost formulas
The cost of inventories of items that are not ordinarily interchangeable and goods or services
produced and segregated for specific projects shall be assigned by using specific identification of
their individual costs.
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FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
The cost of inventories, other than those to be assigned by specific identification, shall be assigned
by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same
cost formula for all inventories having a similar nature and use to the entity. For inventories with a
different nature or use, different cost formulas may be justified.
Recognition as an expense
When inventories are sold, the carrying amount of those inventories shall be recognised as an
expense in the period in which the related revenue is recognised. The amount of any write-down of
inventories to net realisable value and all losses of inventories shall be recognised as an expense in
the period the write-down or loss occurs. The amount of any reversal of anywrite-down of inventories,
arising from an increase in net realisable value, shall be recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs.
Some inventories may be allocated to other asset accounts, for example, inventory used as a
component of self-constructed property, plant or equipment. Inventories allocated to another asset
in this way are recognised as an expense during the useful life of that asset.
3. Data relating to the computation of the inventory at July 31, 2015, are as follows:
Cost Retail
Inventory, 2/1/15 P 200,000 P 250,000
Purchases 1,000,000 1,575,000
Markups, net 175,000
Sales 1,750,000
Estimated normal shoplifting losses 20,000
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FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
4. At December 31, 2015, the following information was available from Kohl Co.’s accounting records:
Cost Retail
Inventory, 1/1/15 P147,000 P 203,000
Purchases 833,000 1,155,000
Additional markups 42,000
Available for sale P980,000 P1,400,000
Sales for the year totaled P1,050,000. Markdowns amounted to P10,000. Under the lower-of-cost-or-net
realizable value method, Kohl’s inventory at December 31, 2015 was
a. P294,000.
b. P245,000.
c. P252,000.
d. P238,000.
7. The following information was derived from the 2015 accounting records of Perez Co.:
Perez 's Goods
Perez 's Central Warehouse Held by Consignees
Beginning inventory P130,000 P 14,000
Purchases 575,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
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FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
8. Dole Corp.'s accounts payable at December 31, 2015, totaled P800,000 before any necessary year-end
adjustments relating to the following transactions:
On December 27, 2015, Dole wrote and recorded checks to creditors totaling P350,000 causing
an overdraft of P100,000 in Dole's bank account at December 31, 2015. The checks were mailed
out on January 10, 2016.
On December 28, 2015, Dole purchased and received goods for P150,000, terms 2/10, n/30.
Dole records purchases and accounts payable at net amounts. The invoice was recorded and
paid January 3, 2016.
Goods shipped f.o.b. destination on December 20, 2015 from a vendor to Dole were received
January 2, 2016. The invoice cost was P65,000.
At December 31, 2015, what amount should Dole report as total accounts payable?
a. P1,362,000.
b. P1,297,000.
c. P1,050,000.
d. P950,000.
9. The balance in Moon Co.'s accounts payable account at December 31, 2015 was P700,000 before any
necessary year-end adjustments relating to the following:
Goods were in transit to Moon from a vendor on December 31, 2015. The invoice cost was
P40,000. The goods were shipped f.o.b. shipping point on December 29, 2015 and were
received on January 4, 2016.
Goods shipped f.o.b. destination on December 21, 2015 from a vendor to Moon were received
on January 6, 2016. The invoice cost was P25,000.
On December 27, 2015, Moon wrote and recorded checks to creditors totaling P30,000 that were
mailed on January 10, 2016.
In Moon's December 31, 2015 statement of financial position, the accounts payable should be
a. P730,000.
b. P740,000.
c. P765,000.
d. P770,000.
10. Kerr Co.'s accounts payable balance at December 31, 2015 was P1,500,000 before considering the
following transactions:
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FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
Goods were in transit from a vendor to Kerr on December 31, 2015. The invoice price was
P70,000, and the goods were shipped f.o.b. shipping point on December 29, 2015. The goods
were received on January 4, 2016.
Goods shipped to Kerr, f.o.b. shipping point on December 20, 2015, from a vendor were lost in
transit. The invoice price was P50,000. On January 5, 2016, Kerr filed a P50,000 claim against
the common carrier.
In its December 31, 2015 statement of financial position, Kerr should report accounts payable of
a. P1,620,000.
b. P1,570,000.
c. P1,550,000.
d. P1,500,000.
11. Walsh Retailers purchased merchandise with a list price of P50,000, subject to trade discounts of 20%
and 10%, with no cash discounts allowable. Walsh should record the cost of this merchandise as
a. P35,000.
b. P36,000.
c. P39,000.
d. P50,000.
12. On June 1, 2015, Penny Corp. sold merchandise with a list price of P20,000 to Linn on account. Penny
allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b.
shipping point. Penny prepaid P400 of delivery costs for Linn as an accommodation. On June 12, 2015,
Penny received from Linn a remittance in full payment amounting to
a. P10,976.
b. P11,368.
c. P11,376.
d. P11,196.
13. Groh Co. recorded the following data pertaining to raw material X during January 2015:
Units
Date Received Cost Issued On Hand
1/1/15 Inventory P8.00 3,200
1/11/15 Issue 1,600 1,600
1/22/15 Purchase 4,000 P9.40 5,600
The moving-average unit cost of X inventory at January 31, 2015 is
a. P8.70.
b. P8.85.
c. P9.00.
d. P9.40.
14. During periods of rising prices, a perpetual inventory system would result in the same dollar amount of
ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
FIFO Average
a. Yes No
b. Yes Yes
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FINANCIAL ACCOUNTING & REPORTING - INVENTORIES
c. No Yes
d. No No
15. Hite Co. was formed on January 2, 2015, to sell a single product. Over a two-year period, Hite's acquisition
costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at
December 31, 2015, and zero at December 31, 2016. Assuming the periodic inventory system, the
inventory cost method which reports the highest amount of each of the following is
16. Keck Co. had 450 units of product A on hand at January 1, 2015, costing P42 each. Purchases of product
A during January were as follows:
Date Units Unit Cost
Jan. 10 600 P44
18 750 46
28 300 48
A physical count on January 31, 2015 shows 600 units of product A on hand. The cost of the inventory
at January 31, 2015 under the FIFO method is
a. P25,500.
b. P26,700.
c. P28,200.
d. P24,600.