Theory Questions

1. Which of the following is included in the cost of inventory of the entity?

a. Abnormal amount or cost of production
b. Storage cost
c. Transportation cost incurred to transfer the inventory to the buyer’s warehouse
d. Insurance cost

2. Which of the following is not part of the inventory of the entity?

a. Goods out of consignment
b. Goods in the hands of the customer for trial
c. Goods in transit sold FOB Destination
d. Goods held by the entity as an agent

3. Which is false regarding Directly attributable cost?

a. It is not part of the cost in computing the inventory
b. Freight out is included in it
c. Freight in is not included
d. All of the choices

4. Which of the following is true regarding FIFO method

a. The ending inventory came from the newest purchased inventory
b. The cost of goods sold came from the newest purchased of inventory
c. The cost of goods sold came from the oldest inventory
d. It will result to highest inventory amount compared to other methods

5. Which of the following is true regarding Averaging method?

a. It is called moving average in Perpetual inventory system
b. It is called weighted average method in Periodic inventory system
c. The answer between the Periodic and Perpetual Method is the same under the Averaging
method
d. Both A and B

6. FIFO perpetual
a. Will have the same answer with FIFO periodic
b. Will have the biggest ending inventory valuation if the prices of the goods increases
c. Will have the lowest Cost of goods sold valuation if the prices go down
d. Will have the same answer with Averaging method regardless of the prices of the goods

7. Which of the following is true regarding cost flow of inventory

a. It is used to compute the value of the inventory of the entity
b. LIFO is allowed to be used
c. The entity can use the FIFO, Averaging or Specific Identification method
d. Both A and C
8. When there is increasing prices, which of the following is true?
a. The COGS in FIFO is higher
b. The COGS of weighted average is lower
c. The Ending inventory of FIFO is higher
 d. The ending inventory of FIFO is lower

9. Which of the following is false?

a. Gross profit is based on cost if the problem is silent
b. In computing gross profit rate, all the contra sales account are deducted
c. In computing the gross profit rate, all contra purchase account are deducted
d. In computing the net income for the year, only the sales return is deducted
e. All of the choices

10. Which is true when it comes to damaged inventory?

a. Undamaged goods are recorded at selling price
b. Partially damaged goods are recorded at cost
c. Partially damaged goods are recorded at salvage value or cost whichever is lower
d. Fully damaged goods are recorded at cost

11. Which of the following is a reason why an entity will estimate inventory?
a. For Annual financial statement purposes
b. To record inventory losses because of thief, fire or any acts of God
c. For interim financial statement purposes
d. The entity doesn’t want to spend money for inventory count at December 31

Problem 1: KOKEY Company purchased product B1, B2 and B3 at a basket price of P1,000,000. The
original sales price of the products is P700,000, P400,000 and P150,000 for B1, B2 and B3 respectively.
Compute for the cost of each product.

Problem 2: The following are the transactions of the entity during the year
Beginning inventory 1,000 units P400 each
January 5 - Purchase 1,500 units P300 each
January 7 - Sale of 1,000 units in which 400 units is from beginning inventory and the rest from
January 5 purchase
January 9 - Purchase 2,000 units P200 each
January 11 - Sale of 700 units. 200 from Beginning inventory, 200 from January 5, and the rest from
January 9
How much is the ending inventory?
How much is the cost of goods sold?
Problem 3
Legit Archetect Company has the following inventory data as of December 31, 2021:
Beginning inventory P 100,000
Net Purchases 600,000
Net Sales 500,000
Gross profit rate 40%
Before the end of the year, the warehouse was destroyed by fire.
Compute for the ending inventory and gross profit using the following assumptions:
a. Gross profit rate is based on sales.
b. Gross profit rate is based on cost.

Problem 4
Using the same given from above
Additional info: After the fire there is some salvaged inventory
a. There is some undamaged inventory with a selling price of P50,000
b. There is some partially damaged inventory with salvage value of P20,000 and cost of
P30,000
c. There is some partially damaged goods with P40,000 salvage value and P10,000 cost
d. There is fully damaged goods with previous selling price of P10, 000.
Question
1. How much is the inventory loss on fire using gross profit based on sales?
2. How much is the inventory loss on fire using gross profit based on cost?

Problem 5
For the past 3 years, the following are the data of the Sana All Hindi Magshishift regarding its sales and
inventory
2018 2019 2020
Sales 2,000,000 4,000,000 5,000,000
COGS 600,000 1,200,000 2,500,000
Profit 1,400,000 2,800,000 2,500,000
Compute the gross profit rate to be used in 2021
1. Base on sales
2. Base on cost
Problem 6
Papasa Ka Ba Company has the following data during the period:
Inventory – January 1 P 500,000
Purchases 1,000,000
Purchase return 20,000
Purchase allowance 5,000
Purchase discount 15,000
Freight in 60,000
Sales 1,260,000
Sales Return 50,000
Sales Allowance 5,000
Sales Discount 15,000
Freight out 20,000
If the entity wants to report inventory in its interim financial statements.
1. How much is the ending inventory if the gross profit rate is 30% on sales
2. How much is the net income for the year?
3. How much is the ending inventory if the gross profit rate is 30% on cost.
4. How much is the net income for the year?