1. On October 1, 20x1, the warehouse of ABC Co. and all the inventories contained therein were damaged by flood.

Off-
site back up of data base shows the following information:
Inventory, Jan. 1 10,000
Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000
Freight-in 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%
Additional information:
Goods in transit as of October 1, 20x1, purchased FOB shipping point, amounted to ₱1,000, cost of goods out on
consignment is ₱1,200, and materials damaged by flood can be sold at a salvage value of ₱1,800. How much is
the inventory loss due to the flood?
Solution:
Accounts
payable
3,000 Beginning balance
Payments 50,000 49,000 Net purchases (squeeze)
Ending balance 2,000

Inventory
beg. 10,000
Net purchases 49,000
COGS (80K – 5K) x
Freight-in 500 52,500 70%
7,000 end. bal.
(1,000) Goods in-transit
(1,200) Consigned goods
(1,800) Salvage value
3,000 Inventory loss

2. On October 1, 20x1, the warehouse of ABC Co. and all the inventories contained therein were razed by fire. Off-site
back up of data base shows the following information:
Inventory, Jan. 1 20,000
Net purchases 190,000
Net sales from Jan. to Sept. 240,000
Gross profit rate based on cost 25%
Twenty percent of the inventory contained in the warehouse has been salvaged from the fire, while half is
partially damaged and can be sold as scrap at thirty percent of its cost. How much is the inventory loss due to the
fire?
Solution:
Inventory
Jan. 1 20,000
Net purchases 190,000 192,000 COGS (240K x 100/125)
18,000 end.

Inventory, end. 18,000

Salvaged (20% x 18,000) (3,600)
Partially damaged (50% x 18,000 x
30%) (2,700)
 Loss from fire 11,700

3. The work in process inventories of ABC Manufacturing, Inc. were completely destroyed by fire on June 1, 20x1.
Amounts for the following accounts have been established.
January 1, 20x1 June 1, 20x1
Accounts payable 117,000 135,000
Raw materials 15,000 18,000
Work in process 60,000 ?
Finished goods 69,000 87,000
The following additional information was determined:
 Payments to suppliers for purchases on account, ₱60,000.
 Freight on purchases, ₱3,000.
 Purchase returns, ₱7,500.
 Direct labor, ₱48,000.
 Production overhead, ₱18,000.
 Sales from January 1 to May 31, ₱225,000.
 Sales returns, ₱45,000.
 Sales discounts, ₱15,000.
 Gross profit rate based on sales, 25%.
How much is the work in process destroyed by fire?

Solution:
Accounts payable
117,000 Beginning balance
Payments to suppliers 60,000 78,000 Net purchases (squeeze)
Ending balance 135,000

Raw materials
Beginning
15,000
balance
Net purchases 78,000
Freight-in 3,000 78,000 Raw materials issued to prod'n. (squeeze)
18,000 Ending balance

Finished goods
Beginning balance 69,000
Cost of goods manufactured (squeeze) 153,000 135,000 Cost of goods sold *
87,000 Ending balance

*Cost of goods sold is computed as follows:

225,00
Gross sales
0
(45,00
Sales returns
0)
180,00
Net sales
0
Multiply by: Cost ratio (100% - 25% GPR based on
75%
sales)
135,00
Cost of goods sold
0

Work in process
Beginning balance 60,000
 Raw materials issued to prod'n. 78,000
Direct labor 48,000
Production overhead 18,000 153,000 Cost of goods manufactured
51,000 Ending balance (squeeze)

Use the following information for the next two questions:

4. Presented below is information pertaining to ABC Co.:
Cost Retail
Inventory, January 1 21,750 35,000
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase discounts 1,250 -
Purchase returns 13,000 21,500
Departmental Transfers-In (Debit) 2,500 3,750
Departmental Transfers-Out (Credit) 2,000 3,000
Markups 15,000
Markup cancellations 5,000
Markdowns 30,000
Markdown cancellations 7,500
Abnormal spoilage (theft and casualty loss) 12,500 17,500
Sales 109,500
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
Normal spoilage (shrinkage and breakages) 500
How much is the ending inventory under the Average cost method?

Solution:
Cost Retail
Inventory, January 1 21,750 35,000
Net purchases (a) 129,000 179,250
Departmental transfers-in (debit) 2,500 3,750
Departmental transfers-out (credit) (2,000) (3,000)
Net markups (15,000 – 5,000) 10,000
Net markdowns (30,000 – 7,500) (22,500)
Abnormal spoilage (theft and casualty loss) (12,500) (17,500)
Total goods available for sale 138,750 185,000
(105,000
Net sales (b)
)
Ending inventory at retail 80,000

(a)
Cost Retail
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase discounts (1,250) -
Purchase returns (13,000) (21,500)
Net purchases 129,000 179,250

The Average cost ratio is computed as follows:

Cost ratio Total goods avail. for sale at cost
(Average cost = Total goods avail. for sale at sales price
method) or at retail

Average cost ratio = (138,750 ÷ 185,000) = 75%

(b) Net sales is computed as follows:
Sales 109,500
Sales returns (6,250)
Employee
1,250
discounts
Normal spoilage 500
Net sales 105,000

The ending inventory at cost is estimated under the Average cost method as follows:
Ending inventory at retail (or at selling price) 80,000
Multiply by: Average cost ratio 75%
Ending inventory at cost 60,000

5. How much is the ending inventory using the FIFO cost method?

Solution:

Cost ratio TGAS at cost less beg. inventory at cost

(FIFO cost = TGAS at retail less beg. inventory at
method) retail
FIFO cost ratio = [(138,750 – 21,750) ÷ (185,000 – 35,000)]
= 78%

Ending inventory at retail 80,000

Multiply by: FIFO cost ratio 78%
Ending inventory at cost 62,400

6. On November 15, 2023, Damaso Co. entered into a commitment to purchase 100,000 barrels of aviation fuel for P55
per barrel on March 31, 2024. The entity entered into this purchase commitment to protect itself against the volatility
in the aviation fuel market. By December 31, 2023, the purchase price of aviation fuel had fallen to P40 per barrel.
however, by March 31, 2024, when the entity took delivery of the 100,000 barrels the price of aviation fuel had risen
to P60 per barrel. What amount should be recognized as gain on purchase commitment for 2024?

Solution:
Estimated liability for purchase commitment on 12/31/2023 (10,000 x 15) = 1,500,000

Entry on March 31, 2024:

Purchases (10,000 x 55) 5,500,000
Estimated liability for purchase commitment 1,500,000
Accounst payable (10,000 x 310) 5,500,000
Gain on purchase commitment 1,500,000

The gain to be recognized is limited to the loss on purchase commitment previously recorded.

7. Oliver Co. provided the following information for the year ended December 31, 2023:
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000
On December 31, 2023, a physical inventory revealed that the ending inventory was only P420,000. The gross
profit on sales has remained constant at 30% in recent years. The entity suspects that some inventory may have
 been pilfered by one of the entity’s employees. On December 31, 2023, what is the estimated cost of missing
inventory?

Solution:
Sales 3,400,000
Sales returns (30,000)
Net sales 3,370,000

The sales discount is ignored for purposes of estimating inventory under gross profit method.
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns (80,000)
Freight in 60,000
Goods available for sale 2,930,000
Cost of sales (70% x 3,370,000) (2,359,000)
Inventory, 12/31 571,000
Physical inventory – 12/31 (420,000)
Cost of missing inventory 151,000

8. On October 31, 2023, Pomelo Co. reported that a flood caused severe damage to the entire inventory. Based on recent
history, the entity has a gross profit of 25% of sales. The following information is available from the records for ten
months ended October 1, 2023:
Inventory, January 1 520,000
Purchases 4,120,000
Purchase returns 60,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000
A physical inventory disclosed usable damaged goods which can be sold for P70,000. Using gross profit method,
what us the estimated cost of goods sold for the ten-month ended October 31, 2023?

Solution:
Sales 5,600,000
Sales returns (400,000)
Net sales 5,200,000

COGS 5,200,000 x 75% = 3,900,000

9. On September 30, 2023, Brocal Co. reported that a fire caused severe damage to the entire inventory. The entity has a
gross profit of 30% on cost. The following data are available for nine months ended September 30, 2023:
Inventory, 1/1 1,100,000
Net purchases 6,000,000
Net sales 7,280,000
A physical inventory disclosed usable damaged goods which can be sold for P100,000. What is the estimated cost
of goods sold for the nine month ended September 30, 2023?

Solution: 7,280,000/130% = 5,600,000

10. Tom Co. provided the following information for the current year:
Net sales 3,600,000
Freight-in 90,000
Purchase discounts 50,000
Ending inventory 240,000
The gross margin is 40% of sales. What is the cost of goods available for sale?

Solution:
 Cost of goods sold (60% x 3,600,000) 2,160,000
Ending inventory 240,000
COGAS 2,400,000

Use the following information for the next 2 questions:

11. Mosquera Co. provided the following information:
June July August
Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each month is 30%
of that month’s cost of goods sold. What is the cost of goods sold for June?

Solution: 7,200,000 + 720,000 = 7,920,000/120% = 6,600,000

12. What is the purchases for July?

Solution:
COGS for July: 7,360,000 + 800,000 = 8,160,000/120% = 6,800,000
COGS for August: 7,600,000 + 1,040,000 = 8,640,000/120% = 7,200,000

Inventory, 7/1 (30% x 6,800,000) 2,040,000

Purchases for July (SQUEEZE) 6,920,000
Goods available for sale 8,960,000
Inventory, July 31 (30% x 7,200,000) (2,160,000)
COGS for July 6,800,000

Use the following information for the next 4 questions:

13. On March 31, 2020, San Fabian Co. had a fire which completely destroyed the factory building and inventory of
goods in process; some of the equipment was saved. After the fire, a physical inventory was taken. The material was
valued at P750,000 and the finished goods at P620,000. The inventories on January 1, 2020 consisted of:
Materials P310,000
Goods in process 1,215,000
Finished goods 1,700,000
A review of the accounting records disclosed that the sales and gross profit for the last three years were:
Sales Gross profit
2017 8,000,000 2,400,000
2018 7,600,000 2,215,000
2019 5,000,000 1,776,000
The sales for the first three months of 2020 were P3,000,000. Material purchase were P1,250,000, transportation
on purchases was P100,000 and direct labor cost for the first three month was P1,000,000. For the past two years,
factory overhead cost has been 80% direct labor cost. The most likely gross profit rate to be used in estimating the
inventory of goods in process destroyed by fire is: (Use 2 decimal places)

Solution:
2017 2018 2019
Gross profit 2,400,000 2,215,000 1,776,000
÷Sales 8,000,000 7,600,000 5,000,000
Gross profit rate 30% 29.14% 35.52%
Average gross profit rate (30% + 29.14% + 35.52%)/3 31.55%

14. Compute the total cost of goods placed in process. 3,925,000

15. Compute the total cost of goods manufactured. 973,500
16. Compute the inventory of goods in process lost. 2,951,500

Raw materials, 1/1/2020 310,000

Purchases 1,250,000
 Freight in 100,000
Raw materials available for use 1,660,000
Raw materials, 3/1/2020 (750,000)
Raw materials used 910,000
Direct labor 1,000,000
Factory overhead (1,000,000 x 80%) 800,000
Total manufacturing costs 2,710,000
Work in process, 1/1/2020 1,215,000
Total cost placed in process 3,925,000
Work in process, 3/1/2020 (SQUEEZE) (2,951,500)
Cost of goods manufactured 973,500
Finished goods, 1/1/2020 1,700,000
Total goods available for sale 2,673,000
Finished goods, 3/31/2020 (620,000)
Cost of goods sold (3,000,000 x 68.45%) 2,053,500

Use the following information for the next 4 questions:

17. You obtained the following information in connection with your audit of Villasis Co.:
Cost Retail
Beginning inventory 1,987,200 2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight-in 94,560
Mark-ups 720,000
Mark-up cancellation 120,000
Markdown 240,000
Markdown cancellations 40,000
It uses the retail inventory method in estimating the values of its inventories and cost of goods sold.
Compute the cost ratio to be used considering the provisions of IAS 2.

Solution:
Cost Retail
Beginning inventory 1,987,200 2,760,000
Purchases 4,688,640 6,512,000
Freight-in 94,560
Net markup (720,000 – 120,000) 600,000
Net markdown (240,000 – 40,000) (200,000)
Goods available for sale 6,770,400 9,672,000

Cost ratio (6,770,400/9,672,000) 70%

18. Compute the estimated ending inventory at retail.

Solution:
Total goods available for sale at retail 9,672,000
Sales (7,812,000)
Ending inventory at retail 1,860,000

19. Compute the estimated ending inventory at cost.

Solution: Ending inventory, at cost (1,860,000 x 70%) = 1,302,000

20. Compute the estimated cost of goods sold.

Solution:
Total goods available for sale at cost 6,770,400
 Ending inventory at cost (1,302,000)
Estimated cost of sales 5,468,400

Use the following information for the next 5 questions:

21. On December 31, 2023, Espresso Co. had a fire which completely destroyed the goods in process inventory. After the
fire a physical inventory was taken. The raw materials were valued at P600,000, the finished goods at P1,000,000 and
supplies at P100,000 on December 31, 2023. The inventories on January 1, 2023 consisted the following:
Finished goods 1,400,000
Goods in process 1,000,000
Raw materials 300,000
Supplies 400,000
Data for 2023 were:
Sales 3,000,000
Purchases 1,000,000
Freight in 100,000
Direct labor 800,000
Manufacturing overhead – 50% of direct labor ?
Average gross profit rate 30%
What is the estimated cost of the goods in process on December 31, 2023 that were completely destroyed by fire?

Solution:
Raw materials 1/1 300,000
Purchases 1,000,000
Freight in 100,000
Raw materials available for use 1,400,000
Raw materials 12/31 (600,000)
Raw materials used 800,000
Direct labor 800,000
Manufacturing overhead (50% x 800,000) 400,000
Total manufacturing cost 2,000,000
Goods in process, 1/1 1,000,000
Total goods in process 3,000,000
Goods in process, 12/31 (SQUEEZE) (1,300,000)
Cost of goods manufactured 1,700,000
Finished goods 1/1 1,400,000
Goods available for sale 3,100,000
Finished goods 12/31 (1,000,000)
Cost of sales (70% x 3,000,000) 2,100,000

22. Compute the cost of sales.

Solution: Cost of sales (70% x 3,000,000) = 2,100,000

23. Compute the total manufacturing costs.

Solution: 2,000,000

24. Compute the prime costs.

Solution:
Raw materials used 800,000
Direct labor 800,000
Prime costs 1,600,000

25. Compute the conversion costs.

Solution:
Direct labor 800,000
Manufacturing overhead (50% x 800,000) 400,000
Conversion costs 1,200,000

Use the following information for the next 4 questions:

26. Lingayen Co. uses average retail inventory method. The following information is available for the current year:
Cost Retail
Beginning inventory 1,100,000 2,200,000
Purchases 15,800,000 26,300,000
Freight in 400,000
Purchases returns 600,000 1,000,000
Purchase allowances 300,000
Departmental transfer in 400,000 800,000
Net markups 600,000
Net markdowns 900,000
Sales 24,700,000
Sales returns 350,000
Sales discounts 200,000
Employee discounts 600,000
Loss from breakage 50,000
Based on the above and the result of your audit, answer the following questions:
The cost ratio using average retail inventory method is:

Solution:
Cost Retail
Beginning inventory 1,100,000 2,200,000
Purchases 15,800,000 26,300,000
Freight in 400,000
Purchases returns (600,000) (1,000,000)
Purchase allowances (300,000)
Departmental transfer in 400,000 800,000
Net markups 600,000
Net markdowns (900,000)
Goods available for sale 16,800,000 28,000,000
Cost ratio (16.8M/28M) 60%

27. The estimated ending inventory at retail is:

Solution:
Cost Retail
Beginning inventory 1,100,000 2,200,000
Purchases 15,800,000 26,300,000
Freight in 400,000
Purchases returns (600,000) (1,000,000)
Purchase allowances (300,000)
Departmental transfer in 400,000 800,000
Net markups 600,000
Net markdowns (900,000)
Goods available for sale 16,800,000 28,000,000

Sales 24,700,000
Sales returns (350,000)
Employee discounts 600,000
Loss from breakage 50,000 25,000,000
Ending inventory, retail 3,000,000
28. The estimated ending inventory at cost is:

Solution: 3,000,000 x 60% = 1,800,000

29. The estimated cost of goods sold is:

Solution:
Goods available for sale at cost 16,800,000
Ending inventory at cost (1,800,000)
Estimated cost of sales 15,000,000

30. If the inventory at retail based on physical count at December 31, 2022 is P1,700,000, the estimated inventory
shortage is:

Solution:
Ending inventory at cost 1,800,000
Physical inventory at cost (1,700,000 x 60%) (1,020,000)
Estimated inventory shortage 780,000