QUESTIONS

1. Define inventories.
- Inventories are the assets that is held for sale in the ordinary course of business, in the
process of production for such sale or in the form of materials or supplies to be
consumed in the production process or in the rendering of services.
2. Explain the two classes of inventory.
- There are two classes of inventory which are Trading concern and Manufacturing
concern. Trading concern is the one that buys and sells goods in the same form of
purchased while manufacturing concern is the one that buys goods which are altered or
converted into another form before they are made available for sale.
3. What goods are includible in inventory?
- The general rule is that "all goods to which the entity has title shall be included in
inventory, regardless of location.” For example,
4. What is the legal test of determining inventory inclusion?
- Applying the legal test, goods owned and on hand, goods out on consignment to
consignee, goods in the hands of salesmen or agents and goods held by customers on
approval or trial are included in inventory.
5. Who is the owner of goods in transit?
- The ownership of the goods in transit depends on the terms, whether FOB destination or
FOB shipping point. Under FOB Destination, the goods in transit are still the property of
the seller while in FOB Shipping point, the goods in transit are the property of the buyer.
6. Explain FOB destination and FOB Shipping point.
- In FOB Destination, the ownership of goods purchased is transferred only upon receipt
of the goods by the buyer at the point of destination and in FOB Shipping Point, the
ownership is transferred upon shipment of the goods and therefore, the goods in transit
are the property of the buyer.
7. Explain freight prepaid and freight collect.
- Freight Collect is also a freight charge of the goods shipped but is not yet paid. The
carrier will collect the same from the buyer, thus, the freight charge is actually paid by
the buyer in freight collect. While Freight Prepaid is a freight charge that is already paid
by the seller.
8. What do you understand by the maritime terms FAS, CIF, CF, and Ex-ship?
- FAS or free alongside is a maritime shipping term that the seller must bear all expenses
and risk involved in delivering the goods to the dock next to or alongside the vessel on
which the goods are to be shipped. In CIF or cost, insurance and freight, the buyer agree
to pay in a lump sum the cost of the goods are to be shipped. In CF, the buyer agrees to
pay in a lump sum the cost of the goods and freight charge only. And in Ex-ship, the
seller who delivers the goods bears all expenses and risk of loss until the goods are
unloaded at which time title and risk of loss shall pass to the buyer.
9. What is consignment?
- It is a method of marketing goods in which the owner called the consignor transfers
physical possession of certain goods to an agent called the consignee who sells them on
the owner’s behalf.
10. Who is the owner of goods on consignment?
- The consigned goods shall be included in the consignor’s inventory and excluded from
the consignee’s inventory.
11. Explain the two systems of accounting for inventory.
- Periodic System calls for the physical counting of goods on hand at the end of the
accounting period to determine quantities. Perpetual System requires the maintenance
of records called stock cards that usually offer a running summary of the inventory
inflow and outflow.
12. Distinguish trade discounts and cash discounts.
- Trade Discount are deductions from the list or catalog price in order to arrive at the
invoice price which is the amount actually charged to the buyer. Cash Discount are
deductions from the invoice price when payment is made within the discount period.
13. Explain the two methods of accounting for purchases.
- In Gross Method, purchases, and accounts payable are recorded at gross amount of
invoice. While in Net Method, purchases, and accounts payable are recorded at net
amount of the invoice.
14. Explain cost of purchase, cost of conversion and directly attributable cost.
- Cost of Purchases comprises the purchase price, import duty irrecoverable tax, freight,
handling, and other cost directly attributable to the acquisition. Cost of Conversion
incudes cost directly related to the units of production such as direct labor. And directly
attribute cost is the cost incurred in bringing the inventory to the present location and
condition.
15. Explain the cost of inventory of a service provider.
- Cost of Inventory shall comprise cost of purchase, cost of conversion and directly
attributable cost incurred in bringing the inventory to the present location and
condition.