Ust Jpia Inventories Reviewer Ca51010 PDF
Ust Jpia Inventories Reviewer Ca51010 PDF
Ust Jpia Inventories Reviewer Ca51010 PDF
I. Theories.
TRUE or FALSE.
1. When goods are sold with refund offers, it is still included in the inventory.
4. The profit/loss computed resulting from the use of direct method in the write down
of inventory is equal to the profit/loss computed resulting from use of allowance
method.
6. The estimated cost of the ending inventory at retail inventory method varies from
the cost allocation method used.
7. An entity can use the gross profit method in estimating its inventory for annual
external financial reporting.
9. Inventories may include raw materials, goods in process, finished goods, and
merchandise inventory.
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Multiple Choice. Write the letter of the correct answer.
2. Which of the following formulas is not an applicable cost formula in accounting for
inventories?
A. First-in, first-out
B. Weighted Average
C. Last-in, First-out
D. All are allowed under IAS 2
4. When there is a period of rising prices, which inventory cost formula would report the
highest profit?
A. First-in, first out
B. Weighted Average
C. Moving Average
D. Specific Identification
5. Civic Company, the consignee, has Php 215,000 goods held for consignment. These
goods were consigned by Corolla Company. How should these goods be reported?
A. Part of the inventory of Civic Company
B. Part of the inventory of Corolla Company
C. Part of both Civic and Corolla’s inventory
D. Part of neither Civic nor Corolla’s Inventory
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6. Best costing method applicable for inventories that cannot be ordinarily interchanged
A. First-in, first out
B. Weighted Average
C. Moving Average
D. Specific Identification
9. ANNABETH Company is using a periodic inventory system and records the purchase
of merchandise on account twice. How will this error affect inventory at year-end and
cost of goods sold for the year?
Inventory Profit
A. No effect Overstated
B. Understated Overstated
C. Overstated Understated
D Overstated No Effect
10. Which of the following statements are correct with regards to lay away plans?
I. Under lay away plans and bills and hold sales, the seller recognizes revenue
simultaneous to derecognition of inventory.
II. Seller recognizes revenue when he has control over how the product will be
used.
III. Under the said circumstances, the product is not identified separately as a
belonging to a customer.
IV. The product must be ready for transfer at all times.
A. I, II, III C. II, IV
B. I, IV D. All statements are correct.
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II. Problem Solving.
PROBLEM 1
EXCLUSIONS/INCLUSIONS IN INVENTORIES
GUITAR CO., a company based in Bulacan, conducted a physical count of inventory at December 31, 2019
and counted goods costing ₱725,000 within its premises. The following information concerning the
inventory are available:
• A P150,000 shipment of goods to a customer located in Laguna left the company’s premises on
December 29, 2019 and was received by the customer on January 03, 2019. The shipping term was
FOB Laguna, and the goods cost P105,000.
• P60,000 of the goods counted are physically segregated from the rest of the inventory and are being
displayed at the company’s storefront.
• P140,000 of the goods counted were produced for a special order made by a customer but are still
unclaimed at year-end.
• GUITAR CO. is holding goods on consignment costing P35,000 which the company included in
its physical count.
• Goods purchased goods from a supplier located in Manila, with shipping terms FOB Manila, which
were still in transit at year-end. The goods cost P300,000 and were only received by GUITAR CO.
a week after year-end.
• GUITAR CO. sold goods costing P210,000 to SOLO CO. at a price of P300,000. However,
GUITAR CO. agreed to repurchase the goods under a buyback agreement. The goods were not
included in the inventory count above.
PROBLEM 2
EXCLUSIONS/INCLUSIONS IN INVENTORIES
STRAWBERRY Co. provided the following information:
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PROBLEM 3
EXCLUSIONS/INCLUSIONS IN INVENTORIES
STABILO Company provided the following information as of December 31, 2020
PROBLEM 4
COST ALLOCATION METHOD/COST FORMULA
The beginning balance of the inventory of EPIPHANY CO. was P75,000 with 250 units in September. The
following purchases and sales were made throughout the month.
Date Type No. of Units Cost (Purchase) or Price (Sale) per Unit
September 2 Purchase 400 P310
September 6 Purchase 150 P325
September 14 Purchase 320 P315
September 25 Purchase 180 P350
September 3 Sale 300 P900
September 7 Sale 300 P850
September 15 Sale 400 P970
September 20 Sale 10 P800
5. Using the FIFO method, how much is the ending balance of the inventory?
6. How much is the cost of sales for the month under the FIFO method?
7. Using the average method, how much is the ending balance of the inventory?
8. What is the gross profit for the month under the average method?
9. Assuming the company adopted the perpetual inventory system instead, how
much is the cost of sales using the moving average method? (round off unit
cost to the nearest whole number)
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PROBLEM 5
COST ALLOCATION METHOD/COST FORMULA
LOUISE Company had the following inventory transactions during 2020:
Transactions Unit Cost Selling Price
January 1, balance (240,000 units) P 13.40
April 4, Purchase (360,000 units) 11.70
May 30, Sale (100,000 units) P 16.50
August 2, Sale (250,000 units) 14.20
October 16, Purchase (200,000 units) 12.75
December 1, Sale (150,000 units) 15.65
PROBLEM 6
MEASUREMENT OF INVENTORIES SUBSEQUENT TO INITIAL RECOGNITION
PEACE CO. had the following information at December 31, 2019.
Product Line Number of Units Unit Cost Estimated Unit Selling Price
A 250 P570 P650
B 410 350 460
C 300 460 500
D 705 900 1200
E 100 750 760
F 620 700 650
The selling costs incurred by the company are estimated to be 15% of the selling prices. The Allowance for
Inventory Write Down account had a beginning balance of P23,000.
11. How much should the company report as inventory in its December 31, 2019
statement of financial position?
12. How much is taken to profit or loss from recording the inventory at lower of
cost and net realizable value?
PROBLEM 7
PURCHASE COMMITMENTS
On 2018, HERO COMPANY signed a non-cancelable contract with SPELL COMPANY to purchase
10,000 console games at Php 800 per game to be delivered on May 1, 2019. On December 31, 2018,
console games were selling at Php 750 per game. On May 1, 2019, the date of delivery, market price of
the console games was at Php 820.
13. Prepare foregoing entries for the said transaction.
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PROBLEM 8
INVENTORY ESTIMATION METHODS – GROSS PROFIT METHOD
PERCY Company has the following information for the 5 months ended October 31, 2020:
Sales P 2,140,000
Sales returns 13,000
Sales discounts 2,000
Sales allowances 1,500
Purchases 1,005,000
Purchase returns 24,800
Purchase discounts 3,700
Freight-in 6,500
Freight-out 7,200
Inventory, December 31, 2019 797,000
14. Determine the estimated cost of October 31, 2020 inventory assuming that
the company maintains a gross profit of 30% based on sales.
15. Determine the estimated cost of inventory shortage when the company has a
physical count of P57,500 inventory as of October 31, 2020 and maintains a
gross profit of 25% based on cost.
PROBLEM 9
ESTIMATED INVENTORY LOSS
COTTON COMPANY, a retailer of clothes, began operations last 2015. Business was going good since it
started. On October 12, 2020, a fire broke out on COTTON COMPANY’S warehouse. Due to the fire, all
of the inventory in the warehouse and majority of the accounting records are destroyed. The following
information are extracted from the recoverable accounting records of the company:
January 1, 2020 October 12, 2020
Inventory Php 600,000
Accounts Payable 320,700 Php 390,000
Accounts Receivable 512,700 502,200
Collections from Customers (1/1/20 – 10/12/20) 3,114,500
Payments to suppliers (1/1/20 – 10/12/20) 2,083,700
Goods out on consignment as of October 12, 2020 (at cost) 235,000
Purchased goods in transit as of October 12, 2020, terms on
72,000
FOB Shipping Point
Purchased goods in transit as of October 12, 2020, terms on
10,000
FOB Destination Point
Sold goods, FOB Shipping Point, in transit as of October 12,
20,000
2020
Sold goods, FOB Destination Point, in transit as of October 12,
50,000
2020
COTTON COMPANY maintains a 25% average gross profit ratio since 2018.
16. How much is the inventory fire loss?
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PROBLEM 10
INVENTORY ESTIMATION METHODS – RETAIL INVENTORY METHOD
The following data is given by MADAM Company:
Sales 90,000
Sales Returns 10,000
Sales Allowances 6,000
Sales Discounts 4,000
Employee Discounts 3,000
Normal Losses 5,000
Cost Retail
Beginning Inventory 75,000 100,000
Purchases 25,000 50,000
Purchase Returns 5,000 10,000
Purchase Allowances 3,000
Purchase Discounts 1,000
Freight-in 8,000
Net Mark-up 35,000
Net Markdown 15,000
Abnormal Losses 17,000 22,000
Departmental Transfer-in 9,000 14,000
Departmental Transfer-out 7,000 12,000
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PROBLEM 11
INVENTORY ESTIMATION METHODS – RETAIL INVENTORY METHOD
FRONTLINE TRADING uses the retail method in accounting for their inventories. The following
information regarding the merchandise of FRONTLINE are shown below:
Cost Retail
Beginning Inventory Php 187,200 Php 206,400
Purchases 382,900 498,700
Purchase returns 16,000
Purchase allowances 12,000
Departmental transfer-in 3,000 4,000
Departmental transfer-out 2,000 3,000
Additional markups 15,000
Markup cancellation 3,000
Markdowns 5,000
Markdown cancellation 2,500
Sales 478,400
Sales returns 10,000
Employee discounts 2,000
20. Compute the estimated ending inventory at retail assuming the company
uses the FIFO method.
21. Compute for the cost-to-retail ratio assuming the company uses FIFO
method. (Round off to the nearest two decimals)
22. Compute for the estimated ending inventory at cost assuming the company
uses FIFO method. (Round off to the nearest whole number)
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ANSWER KEY
I. Theories.
TRUE or FALSE Multiple Choice
1. FALSE 1. B
2. TRUE 2. C
3. FALSE 3. D
4. TRUE 4. A
5. TRUE 5. B
6. FALSE 6. D
7. FALSE 7. B
8. FALSE 8. C
9. TRUE 9. D
10. FALSE 10. B
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