BSA 1 - ACB FINANCIAL ACCOUNTING AND REPORTING

Inventory Nacaya, Oaferina,

Pailagao, Palomar,
Payot, Pitao,

Estimation
Quidlat, Quimzon
Problem 5: Gross profit

rates and ratio

1. An entity had net sales Php600,000 and cost of sales of Php400,000.

What are the (a) gross profit rate based on sales and (b) gross profit
rate based on cost?
( )
a gross

profit rate

based on
33.33%
sales
Step - by - Step :
1. Compute for the Gross profit by just
deducting Cost of Sales from the Net
Sales.

2. To compute for the Gross Profit Rate

based on sales, Gross Profit is divided
by the Net Sales.
( )
b gross

profit rate

based on
50%
cost
Step - by - Step :
1. Compute for the Gross profit by just
deducting Cost of Sales from the Net
Sales.

2. To compute for the Gross Profit Rate

based on cost, Gross Profit is divided
by the Cost of Sales.
Problem 5: Gross profit

rates and ratio

2. If the gross profit rate based on sales is 40%, what is the gross profit
rate based on cost?
Answer
66.67%
Step - by - Step :
1. Compute for the Gross profit by just
deducting Cost of Sales from the Net
Sales.

2. To compute for the Gross Profit Rate

based on cost, Gross Profit is divided
by the Cost of Sales.
Problem 5: Gross profit

rates and ratio

3. If the mark-up based on cost is 50%, what is the mark-up based on

sales?
Answer
33.33%
 Step - by - Step :
1. Compute for the Net sales by just
adding Cost of Sales and the given
Mark-up.

2. To compute for the Mark-up based

on sales, Mark-up is divided by the net
sales.
Problem 5: Gross profit

rates and ratio

4. If the gross profit rate based on cost is 42.86%, what is the cost ratio?
Answer
70%
 Step - by - Step :
1. Add the cost of sales to the given
GPR based on cost.

2. To compute for the Cost ratio, divide

the cost of sales by the sum derived in
the first step .
 Problem 5: Gross profit method - GPR based on sale

5. On Nov. 29, 20x1, a meteorite struck the warehouse of Unlucky Co. and
destroyed the inventories contained therein. The following information was
determined:
Problem 5: Gross profit method - GPR based on sale

Goods in transit, purchased FOB shipping point, from a vendor

on Nov. 29, 20x1 we P28,000, while goods held by consignees
were P32,000. The goods salvaged from the fire can be sold at
a scrap value of P2,500. How much is the inventory loss?
 P 105,000
Answer
 Solution :
Explanation:

2. Extend the Net Purchases computed

in Step 1 to the inventory T-account
and squeeze for the ending inventory.

Explanation:

1. Compute for Net Purchases using

the Accounts Payable T-Accounts.
 Solution :
Explanation:

4. To get the inventory loss, Goods in

transit, Goods held by consignees, and
salvage value are deducted from the
Ending Inventory.
Explanation:

3. To compute for the Net Sales, Sales

Returns is deducted from the Gross
Sales. The answer is then multiplied by
the cost ratio to get the Cost of Goods
Sold.
Problem 5: Gross profit method - GPR based on cost

6. On Dec. 1, 20x1, aliens invaded Earth and destroyed the warehouse of

Unlucky Too Co. The following information was determined:
Problem 5: Gross profit method - GPR based on cost

Twenty percent of the inventory contained in the warehouse

has been salvaged from the destruction, while half is partially
damaged. The aliens agreed to buy the partially damaged
goods at thirty percent of the cost as peace offering. How
much is the inventory loss?
 P 108,868
Answer
 Solution :
Explanation:

Explanation:
To compute for the Cost of Goods Sold.
Sales is deducted with sales return to get the Net Sales.
Net sales is multiplied to the Cost ratio to get the Cost
Explanation: of Goods Sold
To compute for the ending balance for inventory: debit
beginning inventory + cost of inventories - contra purchase Cost Ratio = 100% - Percentage of GPR based on cost
accounts - COGS.

Cost of inventories is debited because they increase the

balance of inventory.

Contra-purchase accounts are credited because they

decrease the balance of inventory.

COGS is credited because its an expense account, it refers the

direct costs of producing the goods sold by a company
Solution :

Explanation:
To compute the inventory loss :
Ending Inventory (As of December 1) is deducted with salvaged value to
determine the net loss due to alien invasion.
Peace offerings amounting to P25, 123 is also deducted from the inventory
as of December 1, because the aliens agreed to purchase it. Thus, these
goods are considered sold.
Problem 5: Retail method

7. The invading aliens in the preceeding problem put up a department store

to sell alien stuff to the alien settlers. The alien accountant determined the
following information:
Problem 5: Retail method

Requirements:
Compute for the (1) ending inventory and (2) cost of goods sold
under each of the following methods:
(a) Average cost method
(b) FIFO cost method
 Answer :
(a) Average cost method 1) P 360,000
(1) ending inventory
(2) cost of goods sold
2) P 990,000
Total goods

available for

sale

First we need to solve the total goods available for sale:

 Solution :
Explanation:

Based on the computation:

Net purchase at cost is 1, 056, 000
Net purchase at retail is 1, 495, 000
Net markup as retail is 18, 000
Net markdown as retail is 5, 000
Net Sales is 1, 375, 000
Solution:

After computing the total goods available for sale is to compute for
the average cost ratio:

Formula:

Based on the computation:

Average cost ratio is 72%
Solution:

Based on computation:
Ending Inventory at cost amounts to
360, 000
Cost of Good sold equals to
990, 000
 Answer:

(b) FIFO cost method

1) P 350,000
(1) ending inventory
(2) cost of goods sold 2)P 1,000,000
 Solution:

Computing for the FIFO cost ratio: Next is to compute the FIFO cost ratio using the following
formula:

First, we need to compute for the "Total goods available for sale"
for both cost and retail.
Solution:

Based on the computations:

Note: the computation is based on the solution computed in the
Average Cost Method.
TGAS at cost amounts to 1,350,000;
Beg. Inventory at cost is equal to 300,000;
TGAS at retail amounts to 1,876,000;
Beg. Inventory at retail is equal to 375,000.
 Solution:

Computing for the Ending Inventory at Cost:

Ending inventory at cost is computed as follows:
To check (Optional reconciliation):

In order to get the Ending Inventory at Cost, we must multiply the

the FIFO cost ratio to the Ending inventory at retail in which it
reports an amount of 500,000.

Computing for the Cost of Goods Sold:

COGS is computed as follows:
To get the Cost of Goods Sold, we just need subtract the Ending
Inventory from the TAGS at Cost. Allowing us to arrive with a
COGS amounting to 1,000,000.
In this computation, the Beginning Inventory at Retail is deducted
from the Net Sales. Next is the amount after deducting the
Beginning Inventory at Retail is multiplied by the FIFO cost ratio
of 70% and then the Beginning Inventory at Cost is added to the
answer multiplied by the FIFO cost ratio. This then resulted to a
1,000,000 amount of COGS.
T H A N K Y O U :)