Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2902-Inventories OCTOBER 2020

DISCUSSION PROBLEMS
1. Inventories are b. Goods held on consignment by Fair Company at a
a. Assets held for sale in the ordinary course of sales price of P28,000, including sales commission
business, in the process of production for such of 20% of the sales price.
sale, or in the form of materials or supplies to be c. Goods sold to Garcia Company, under terms FOB
consumed in the production process or in the destination, invoiced for P18,500 which includes
rendering of services. P1,000 freight charges to deliver the goods.
b. Tangible items that are held for use in the Goods are in transit.
production or supply of goods or services, for d. Purchased goods in transit, terms FOB origin,
rental to others, or for administrative purposes; invoice price P48,000, freight cost, P3,000.
and are expected to be used during more than one e. Goods out on consignment to Manil Company,
period. sales price P36,400, shipping cost of P2,000.
c. Properties held to earn rentals or for capital
Assuming that the company's selling price is 140% of
appreciation or both.
inventory cost, the adjusted cost of Fair Company's
d. Identifiable non-monetary assets without physical
inventory at December 31 should be
substance.
a. P1,055,700 c. P1,039,300
b. P1,039,500 d. P1,037,300
2. Which of the following will not qualify as inventory?
a. Dogs that a pet shop buys from breeders that it
then sells.
5. What is the principle for recognition of inventory in
b. Cryptocurrencies for sale in the ordinary course of
accordance with PAS 2?
business.
a. Recognition of inventory is not specified in PAS 2.
c. Lubricants that are consumed by an entity’s
b. Inventory is recognized when, and only when, the
machinery in producing goods.
entity obtains the risks and rewards of ownership
d. Plant held for sale.
of inventory and has the ability to dispose of the
inventory
3. La Union Company included the following items under
c. Inventory is recognized when, and only when, the
inventories:
entity becomes a party to a purchase commitment.
Materials on hand P1,200,000 d. Inventory is recognized when, and only when, it is
Materials in transit shipped FOB probable that future economic benefits will flow to
shipping point 470,000 the entity and the cost or value of the inventory
Materials in transit shipped FOB can be measured reliably.
destination 350,000
Advances for materials ordered 200,000 6. In accordance with PAS 2, inventories are required to
Goods in process 900,000 be measured at the
Finished goods in factory 3,000,000 a. Cost
Finished goods in company-owned b. Net realizable value
retail stores, including 50% profit c. Fair value less costs to sell
on cost 750,000 d. Lower of cost and net realizable value
Finished goods in hands of consignees
including 40% profit on sales 400,000 7. Which statement is incorrect regarding costs of
Goods held on consignment, at sales inventories?
price, cost P150,000 300,000 a. The cost of inventories should comprise all costs of
Finished goods in transit to customers, purchase, costs of conversion and other costs
shipped FOB seller, at cost 250,000 incurred in bringing the inventories to their present
Finished goods in transit to customers, location and condition.
shipped FOB buyer, at cost 150,000 b. Trade discounts, rebates and other similar items
Unsalable finished goods, at cost 30,000 are deducted in determining the costs of purchase.
Office supplies 40,000 c. It may be appropriate to include non-production
Advertising catalogs and shipping overheads or the costs of designing products for
boxes 150,000 specific customers in the cost of inventories.
Compute the amount to be presented as “Inventories” d. Foreign exchange differences arising directly on
under current assets. the recent acquisition of inventories invoiced in a
a. P6,460,000 c. P6,560,000 foreign currency are included in cost of inventories.
b. P6,510,000 d. P6,610,000
8. Costs of purchase do not include
4. The inventory on hand at December 31 for Fair a. Purchase price.
Company valued at a cost of P947,800. The following b. Import duties and other non-refundable taxes.
items were not included in this inventory amount: c. Transport, handling and other costs directly
a. Purchased goods, in transit, shipped FOB attributable to the acquisition of finished goods,
destination invoice price P32,000 which included materials and services.
freight charges of P1,600. d. Fixed and variable manufacturing overheads.

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9. Costs of conversion do not include 11. The total costs of purchase is

a. Direct labor. a. P3,747,000 c. P4,100,000
b. Fixed factory overhead. b. P4,047,000 d. P4,249,000
c. Variable factory overhead.
d. Direct materials. 12. The total costs of conversion is
a. P1,134,000 c. P1,060,000
10. The following may be included in the cost of b. P1,144,000 d. P1,070,000
inventories, except
a. Administrative overheads.
b. Storage costs. 13. The following information pertains to King
c. Wasted materials, labor and other production Corporation’s inventory in units:
costs. Inventory, beginning 100,000
d. Selling costs. Purchases 900,000
Purchase returns 10,000
Received from consignors 220,000
Use the following information for the next two questions: Transferred to consignees 160,000
Roweena Corporation began operations in the current year. Sales (excluding consignments) 750,000
During the year it incurred the following expenditures in Sales - received from consignors 80,000
purchasing materials for producing its product: Sales - consignees 42,000
• Purchase price of raw materials = P3,000,000 Sales returns – in good condition 8,000
• Import duty and other non-refundable purchase taxes Sales returns - unsalable 5,000
= P800,000 How many units should King Corporation include in its
• Refundable purchase taxes = P100,000 inventory at the end of the period?
• Freight costs for bringing the goods from the supplier a. 193,000 c. 206,000
to the factory raw material storeroom = P300,000 b. 201,000 d. 211,000
• Costs of unloading the materials into the raw material
storeroom = P2,000 14. In accordance with the objective of PAS 2, a primary
• Packaging = P200,000 issue in accounting for inventories is
The entity received P53,000 volume rebate from a supplier a. The amount of cost to be recognized as an asset
for purchasing more than P1,500,000 from the supplier and carried forward until the related revenues are
during the year. recognized.
b. The cost formulas to be used to assign costs to
The entity incurred the following additional costs in the inventories.
production run: c. The measurement of inventories held by producers
• Salary of the machine workers in the factory = of agricultural and forest products.
P500,000 d. The measurement of inventories held by
• Salary of factory supervisor = P300,000 commodity broker-traders.
• Depreciation of the factory building and equipment
used for production process = P60,000 15. Which statement is incorrect regarding cost formulas?
• Consumables used in the production process = a. An entity shall use the same cost formula for all
P20,000 inventories having a similar nature and use to the
• Depreciation of vehicle used to transport the goods entity.
from the raw materials storeroom to the machine floor b. For inventories with a different nature or use,
= P40,000 different cost formulas may be justified.
• Factory electricity usage charges = P30,000 c. Both a and b.
• Factory rental = P100,000 d. Neither a nor b.
• Depreciation and maintenance of the entity’s vehicle
used by the factory supervisor (50 per cent for official 16. Which statement is incorrect regarding cost formulas?
use and 50 per cent for personal use) = P20,000. a. Specific identification of cost means that specific
Private use of the vehicle is an employee benefit. costs are attributed to identified inventory.
b. The FIFO formula assumes that the items of
The entity incurred the following administration expenses: inventory that were purchased or produced first
• Depreciation of the administration building = P50,000 are sold first, and consequently the items
• Depreciation and maintenance of vehicles used by the remaining in inventory at the end of the period are
administrative staff = P15,000 those most recently purchased or produced.
• Salaries of the administration personnel = P305,000 c. Under the weighted average cost formula, the cost
of each item is determined from the weighted
Of the administration expenses 20 per cent are attributable average of the cost of similar items at the
to administering the factory. The rest of the beginning of a period and the cost of similar items
administration expenses are attributable, in equal purchased or produced during the period.
proportion, to the sales and other non-production d. Under the weighted average cost formula, the
operations (eg financing, tax and corporate secretarial average is calculated as each additional shipment
functions). is received, regardless of the circumstances of the
entity.
The entity incurred the following selling expenses:
• Advertising costs = P30,000 17. When can an entity use last-in, first-out (LIFO)?
• Depreciation and maintenance of vehicles used by the a. For items that are not ordinarily interchangeable.
sales staff = P10,000 b. For goods or services produced and segregated for
• Salary of the administration personnel = P600,000 specific projects.
c. For items other than those mentioned in a and b.
d. Under no circumstances.

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18. Generally, which inventory costing method LECTURE NOTES:

approximates most closely the current cost for each of
Computation of the cost of ending inventory
the following?
Cost of goods sold Ending inventory Specific identification:
a. LIFO FIFO
Units on hand x Specific Unit Cost
b. LIFO LIFO
c. FIFO FIFO
First-in, first-out method (FIFO)
d. FIFO LIFO
Units on hand x Unit Cost of latest purchases

Use the following information for the next three questions. Weighted Average
Units on hand x Weighted Average Unit Cost (WAUC)
Transactions for the month of June were:
WAUC = Total cost of GAS/Total units available for sale
Purchases Units Unit cost Total cost
June 1 (balance) 400 P3.20 P 1,280
3 1,100 3.10 3,410
22. Maximilian uses the perpetual inventory system.
7 600 3.30 1,980
Maximilian's inventory transactions for the month of
15 900 3.40 3,060
August were as follows:
22 250 3.50 875
Total
3,250 P10,605
No. Unit cost cost
Sales 01 Aug. Beg. inventory 20 P4.00 P80.00
June 2 300 @ P5.50 07 Aug. Purchases 10 4.20 42.00
6 800 @ 5.50 10 Aug. Purchases 20 4.30 86.00
9 500 @ 5.50 12 Aug. Sales 15 ? ?
10 200 @ 6.00 16 Aug. Purchases 20 4.60 92
18 700 @ 6.00 20 Aug. Sales 40 ? ?
25 150 @ 6.00 28 Aug. Sales returns 3 ? ?
2,650
Using the information, assume that the Maximilian
19. The ending inventory on a FIFO basis is uses the FIFO cost flow method and that the sales
a. P1,900 c. P2,041 returns relate to the 20 August sales. The sales return
b. P1,956 d. P2,065 should be costed back into inventory at what unit cost?
20. Assuming that perpetual inventory records are kept in a. P4.00 c. P4.07
units only, the ending inventory on an average-cost b. P4.30 d. P4.60
basis is
a. P1,900 c. P2,041 23. Which of the following is not affected by the inventory
b. P1,956 d. P2,065 valuation method used by an entity?
a. Cost of goods sold.
21. Assuming that perpetual inventory records are kept in b. Net income of the entity.
units and pesos, the ending inventory on an average- c. Amounts owed for income taxes.
cost basis is d. Amounts paid to acquire merchandise.
a. P1,900 c. P2,041
b. P1,956 d. P2,065 24. Which statement is correct regarding net realizable
value (NRV)?
a. NRV refers to the net amount that an entity
SOLUTION FOR QUESTION #21: expects to realize from the sale of inventory in the
ordinary course of business.
b. NRV for inventories may not equal fair value less
costs to sell.
c. Both a and b.
d. Neither a nor b.

25. The cost of inventories may not be recoverable if

I. The inventories are damaged
II. The inventories have become wholly or partially
obsolete
III. The selling prices have declined
IV. The estimated costs of completion or the estimated
costs to be incurred to make the sale have
increased.
a. I, II, III and IV c. I and II only
b. I, II and III only d. I, II and IV only

26. The closing inventory at cost of a company amounted

to P284,700. The following items were included at
cost in the total:
• 400 coats, which had cost P80 each and normally
sold for P150 each. Owing to a defect in
manufacture, they were all sold after the reporting
date at 50% of their normal price. Selling
expenses amounted to 5% of the proceeds.

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• 800 skirts, which had cost P20 each. These too The inventory at December 31 was counted at a cost
were found to be defective. Remedial work costs of P14.5 million. This includes P500,000 of slow
P5 per skirt and selling expenses for the batch moving inventory that is expected to be sold for a net
totaled P800. They were sold for P28 each. amount of P300,000.
What should the inventory value be according to PAS 2 The cost of sales for the year is
Inventories after considering the above items? a. P133,100,000 c. P132,800,000
a. P281,200 c. P282,800 b. P133,000,000 d. P132,600,000
b. P282,100 d. P329,200

31. In accordance with PAS 2, an entity should disclose

27. The following figures relate to inventory held at a. The amount of any write-down of inventories
December 31: recognized as an expense in the period.
Per Unit b. The amount of any reversal of any write-down that
Cost P10 is recognized as a reduction in the amount of
General selling price 12 inventories recognized as expense in the period.
Selling price in a binding contract to sell 14 c. The circumstances or events that led to the
Quoted price in an active market for reversal of a write-down of inventories.
similar asset 11 d. All of these.
Estimated costs to sell 3
There were 10,000 units (including 2,000 held to satisfy 32. In accordance with PIC Q&A No. 2018-10 PAS 2 –
a binding contract to sell). Scope of disclosure of inventory write-downs, an entity
should disclose
At what amount should the entity report the inventory
a. Write-downs of inventory held at the end of the
on its statement of financial position?
reporting period.
a. P100,000 c. P90,000
b. Write-downs representing sales below cost during
b. P 92,000 d. P84,000
the reporting period.
c. Both a and b.
d. Neither a nor b.
28. Which is correct regarding write-down of inventory to
net realizable value?
a. Materials and other supplies held for use in the
33. Which statement is incorrect regarding reversal of
production of inventories are not written down
inventory write-down to net realizable value?
below cost if the finished products in which they
a. If the selling price of inventory that has been
will be incorporated are expected to be sold at or
written down to net realizable value in a prior
above cost.
period, subsequently recovers, the previous
b. When a decline in the price of materials indicates
amount of the write-down can be reversed.
that the cost of the finished products exceeds net
b. The reversal is limited to the amount of the
realizable value, the materials are written down to
original write-down.
net realizable value. In such circumstances, the
c. The amount of any reversal of any write-down of
best available measure of the net realizable value
inventories, arising from an increase in net
of materials is the replacement cost.
realizable value, shall be recognized as a reduction
c. Both a and b.
in the amount of inventories recognized as an
d. Neither a nor b.
expense in the period in which the reversal occurs.
d. None, all the statements are correct.
29. The following figures relate to inventory of materials
held at December 31:
34. At the end of the reporting period, the balance of
Item X Item Y inventory account of an entity was P502,000. The
balance of the allowance for inventory write-down was
Cost P200,000 P400,000 P33,000. The inventory cost and other data are as
follows: (amounts in thousands)
Replacement cost 180,000 370,000
Replace
Estimated costs to convert ment Sales Normal
materials into finished goods 100,000 200,000 Item Cost Cost Price NRV Profit
A P 89 P 86 P 91 P 87 P 5
Estimated selling price of 320,000 610,000
finished goods B 94 92 93 85 7
C 125 135 129 111 10
Estimated costs to sell 10,000 15,000 D 194 114 205 197 20
Total P502 P427 P518 P480 P32
The entity should recognize loss on write-down of
inventory of materials of The amount to be recognized as reversal of inventory
a. P50,000 c. P5,000 write down is
b. P30,000 d. Nil a. P33,000 c. P8,000
b. P11,000 d. P 0

30. The Refenjol Corporation included the following in its 35. Caravana Development Corporation bought a 10-
unadjusted trial balance as of December 31: hectare land in Novaliches, to be improved, subdivided
Inventory, 1/1 P 19,450,000 into lots, and eventually sold. Purchase price of the
Purchases 127,850,000 land was P58,000,000. Taxes and documentation
Available for sale P147,300,000 expenses on the transfer of the property amounted to
P800,000. The lots were classified as follows:

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Lot Number Selling price Total If the entity used the gross method of recording
class of lots per lot clearing costs purchases instead of the net method, the reported cost
A 10 P1,000,000 None of goods sold would have been
B 20 800,000 P1,000,000 a. The same c. Lower by P720
C 40 700,000 3,000,000 b. Higher by P720 d. P176,400
D 50 600,000 8,000,000
The cost per lot of class B lots under the relative sales
Use the following information for the next two questions.
value method of inventory valuation is
a. P674,285 c. P602,380 On November 15, 2019, Socrates entered in to a
b. P610,000 d. P560,000 commitment to purchase 200,000 units of raw material X
for P40 per unit on March 15, 2020. Socrates entered into
this purchase commitment to protect itself against the
36. Buyer Co. regularly buys shirts from Vendor Company volatility in the price of raw material X. By December 31,
and is allowed trade discounts of 20% and 10% from 2019, the purchase price of material X had fallen to P35
the list price. Buyer purchased shirts from Vendor on per unit.
May 27 and received an invoice with a list price of
P100,000 and payment terms 2/10, n/30. If Buyer 38. How much will be recognized as loss on purchase
uses the net method of recording purchases, the commitment on March 15, 2020 if the price of the
journal entry to record the payment on June 8 will material had fallen further to P32 per unit?
include a. P1,600,000 c. P600,000
a. A debit to Accounts payable of P72,000. b. P1,000,000 d. P 0
b. A debit to Purchase Discounts Lost of P1,440.
c. A credit to Purchase Discounts of P1,440. 39. How much will be recognized as gain on purchase
d. A credit to Cash of P70,560. commitment on March 15, 2020 if the price of the
material had risen to P42 per unit?
a. P2,000,000 c. P400,000
LECTURE NOTES: b. P1,000,000 d. P 0
Trade and Cash Discounts
40. On January 1, 2020, Pastille Corp. signed a three-year
Trade Cash
noncancelable purchase contract, which allows Pastille
Objective Generate sales Encourage prompt to purchase up to 500,000 units of a computer part
payment annually from Pyramid Supply Co. at P10 per unit and
guarantees a minimum annual purchase of 100,000
Accounting Not recorded Recorded using units. During 2020, the part unexpectedly became
separately either Gross or Net obsolete. Pastille had 250,000 units of this inventory
(Purchases/Sales method at December 31, 2020, and believes these parts can
net of trade be sold as scrap for P2 per unit. What amount of
discount) probable loss from the purchase commitment should
Pastille report in its 2020 profit or loss?
Gross and Net method of recording purchases a. P2,400,000 c. P1,600,000
b. P2,000,000 d. P 800,000
Gross Net

Cash Deducted from Deducted from 41. Which is not a required disclosure for inventories in
discounts purchases/cost of purchases/cost of accordance with PAS 2?
inventory when inventory whether a. The accounting policies adopted in measuring
taken taken or not inventories.
b. The carrying amount of inventories carried at fair
Cash Deducted from Not accounted for value less costs to sell
discounts purchases/cost of separately since c. The amount of inventories recognized as an
taken inventory (purchase already deducted expense during the period
discounts) from purchases d. The fair value of inventories
Cash Included in Reported as other
discounts purchases/cost of expense
not taken inventory (purchase 42. Which is not a required disclosure for inventories in
discounts lost) accordance with PAS 2?
a. Inventory costing methods employed.
b. Inventory composition.
37. Catapult Corp. purchased merchandise during the year c. Inventory financing arrangements.
on credit for P200,000; terms 2/10, n/30. All of the d. Inventory location.
gross liability except P40,000 was paid within the
discount period. The remainder was paid within the
30-day term. At the end of the annual accounting
period, 90% of the merchandise had been sold and
10% remained in inventory. The entity has no
beginning inventory. The entity uses net method of
recording purchases. - now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. PAS 2 (Inventories) applies to all inventories, except 5. Skyfall Co. records purchases at net amounts. On May
a. Financial instruments 5 Skyfall purchased merchandise on account, P32,000,
b. Biological assets related to agricultural activity and terms 2/10, n/30. Skyfall returned P2,000 of the May
agricultural produce at the point of harvest 5 purchase and received credit on account. At May 31
c. Both a and b the balance had not been paid.
d. Neither a nor b
By how much should the account payable be adjusted
on May 31?
a. P600 c. P680
2. PAS 2 does not apply to the measurement of
b. P640 d. P 0
inventories held by
a. Producers of agricultural and forest products,
Use the following information for the next two questions.
agricultural produce after harvest, and minerals
and mineral products, to the extent that they are Miller Inc. is a wholesaler of office supplies. The activity
measured at net realizable value in accordance for Model III calculators during August is shown below:
with well-established practices in those industries.
Balance/
b. Commodity broker-traders who measure their
Date Transaction Units Cost
inventories at fair value less costs to sell.
Aug. 1 Inventory 2,000 P36.00
c. Both a and b.
7 Purchase 3,000 37.20
d. Neither a nor b.
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
3. The Alcala Company counted its ending inventory on
29 Purchase 1,600 38.60
December 31. None of the following items were
included when the total amount of the company’s 6. If Miller Inc. uses a FIFO perpetual inventory system,
ending inventory was computed: the ending inventory of Model III calculators at August
• P150,000 in goods located in Alcala’s warehouse 31 is reported as
that are on consignment from another company. a. P152,288 c. P150,080
• P200,000 in goods that were sold by Alcala and b. P152,960 d. P150,160
shipped on December 30 and were in transit on
December 31; the goods were received by the 7. If Miller Inc. uses a weighted average cost periodic
customer on January 2. Terms were FOB inventory system, the ending inventory of Model III
Destination. calculators at August 31 is reported as
• P300,000 in goods were purchased by Alcala and a. P150,080 c. P150,160
shipped on December 30 and were in transit on b. P152,960 d. P146,400
December 31; the goods were received by Alcala
on January 2. Terms were FOB shipping point. 8. The following information was available from the
• P400,000 in goods were sold by Alcala and shipped inventory records of Breakaway Company for January:
on December 30 and were in transit on December Units Unit Cost
31; the goods were received by the customer on Balance at January 1 3,000 P9.77
January 2. Terms were FOB shipping point. Purchases:
The company’s reported inventory (before any January 6 2,000 10.30
corrections) was P2,000,000. What is the correct January 26 2,700 10.71
amount of the company’s inventory on December 31? Sales:
a. P2,550,000 c. P2,500,000 January 7 2,500
b. P1,950,000 d. P2,700,000 January 31 3,200
Assuming that Breakaway maintains perpetual
inventory records, what should be the inventory at
4. In its statement of financial position, Mary I Mfg. Co. January 31, using the moving-average inventory
has an inventory in the amount of P176,000 which method, rounded to the nearest peso?
consists of: a. P20,474 c. P20,720
Direct materials P55,000 b. P20,520 d. P21,010
Direct materials purchases in transit,
FOB destination 12,000
Direct materials purchases in transit, 9. Yontabal Company started operations in 2018. The
FOB shipping point 9,000 following data are abstracted from the company’s
Prepaid insurance on inventory 2,000 production and sales records:
Work-in-process 38,000 2018 2019 2020
Finished goods 45,000 Number of units
Goods shipped on consignment, at selling produced 240,000 232,500 202,500
price with 20% profit on sales 15,000 Number of units
Mary I Mfg. Co. should report inventory in its sold 150,000 217,500 195,000
statement of financial position at Unit production
a. P162,500 c. P159,000 cost 4.50 5.20 5.80
b. P150,000 d. P159,500 Sales revenue 1,200,000 1,800,000 1,950,000
Using the FIFO cost flow assumption, the gross profit
for the year ended December 31, 2020 is
a. P819,000 c. P1,068,000
b. P882,000 d. P1,072,500

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10. A company decided to change its inventory valuation 13. The amount of inventories recognized as an expense
method from FIFO to LIFO in a period of rising prices. during the period, which is often referred to as cost of
What was the result of the change on ending inventory sales, consists of
and net income in the year of the change? a. Those costs previously included in the
Ending inventory Net income measurement of inventory that has now been sold.
a. Increase Increase b. Unallocated production overheads.
b. Increase Decrease c. Abnormal amounts of production costs of
c. Decrease Decrease inventories.
d. Decrease Increase d. All of the above.

11. When an inventory costing formula is changed, the 14. Which statement is incorrect regarding recognition of
change is required to be applied: inventories as expense?
a. Prospectively and the adjustment taken through a. When inventories are sold, the carrying amount of
the current profit or loss. those inventories shall be recognized as an
b. Retrospectively and the adjustment taken through expense in the period in which the related revenue
the opening balance of accumulated profits. is recognized.
c. Prospectively and the current period adjustment b. The amount of any write-down of inventories to
recognized directly in equity. net realizable value and all losses of inventories
d. Retrospectively and the adjustment recognized as shall be recognized as an expense in the period the
an extraordinary gain or loss. write-down or loss occurs.
c. The amount of any reversal of any write-down of
12. At the beginning of the year, Anda Realty embarked on inventories, arising from an increase in net
a real estate development project involving single realizable value, shall be recognized as a reduction
family dwellings. Anda realty purchased a track of in the amount of inventories recognized as an
land for P60,000,000. Anda incurred additional cost of expense in the period in which the reversal occurs.
P10,000,000 in preparing the land for sale. Details of d. Inventories allocated to another asset (example,
the project follow: self-constructed PPE) are recognized as an
expense at the end of the useful life of that asset.
Subdivision Sales price
Phase Number of lots per lot
15. If a material amount of inventory has been ordered
1 100 400,000
through a formal purchase contract at the statement of
2 200 300,000
financial position date for future delivery at firm prices,
3 400 250,000
a. This fact must be disclosed.
What amount of cost should be allocated Phase 1 lots? b. Disclosure is required only if prices have declined
a. P12,000,000 c. P14,000,000 since the date of the order.
b. P40,000,000 d. P21,000,000 c. Disclosure is required only if prices have since
risen substantially.
d. An appropriation of retained earnings is necessary.

- done -

ILLUSTRATIVE PROBLEM
Cost flow assumptions
The following information has been extracted from the records of Praktis Corporation about one of its products.
Date No. of Units Unit Cost Total Cost
January 1 Beginning balance 1,600 P14.00 P22,400
January 6 Purchased 600 14.10 8,460
February 5 Sold @ P24.00 per unit 2,000
March 19 Purchased 2,200 14.70 32,340
March 24 Purchase returns 160 14.70 2,352
April 10 Sold @ P24.20 per unit 1,400
June 22 Purchased 16,800 15.00 252,000
July 31 Sold @ P26.50 per unit 3,600
August 4 Sales returns @ P26.50 per unit 40
September 4 Sold @ P27.00 per unit 7,000
November 15 Purchased 1,000 16.00 16,000
December 28 Sold @ P30.00 per unit 6,200

REQUIRED:
Compute for the closing inventory under each of the following pricing methods? (Round unit costs to two decimal places.)
1. FIFO – Periodic 3. Weighted average - Periodic
2. FIFO – Perpetual 4. Weighted average – Perpetual (Moving average)

SOLUTION:

FIFO – Periodic
From November 15 purchases (1,000 units x P16.00) - P16,000
From June 22 purchases (880 units x P15.00) - 13,200
Total P29,200

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EXCEL PROFESSIONAL SERVICES, INC.

FIFO – Perpetual
Purchased Sold Balance
Unit Unit Unit
Units Cost Total Cost Units Cost Total Cost Units Cost Total Cost
Jan. 1 1,600 14.00 22,400
Jan. 6 600 14.10 8,460 1,600 14.00 22,400
600 14.10 8,460
2,200 30,860
Feb. 5 1,600 14.00 22,400
400 14.10 5,640 200 14.10 2,820
Mar. 19 2,200 14.70 32,340 200 14.10 2,820
2,200 14.70 32,340
2,400 35,160
Mar. 24 (160) 14.70 (2,352) 200 14.10 2,820
2,040 14.70 29,988
2,240 32,808
Apr. 10 200 14.10 2,820
1,200 14.70 17,640 840 14.70 12,348
Jun. 22 16,800 15.00 252,000 840 14.70 12,348
16,800 15.00 252,000
17,640 264,348
Jul. 31 840 14.70 12,348
2,760 15.00 41,400 14,040 15.00 210,600
Aug. 4 (40) 15.00 (600) 14,080 15.00 211,200
Sep. 4 7,000 15.00 105,000 7,080 15.00 106,200
Nov. 15 1,000 16.00 16,000 7,080 15.00 106,200
1,000 16.00 16,000
8,080 122,200
Dec. 28 6,200 15.00 93,000 880 15.00 13,200
1,000 16.00 16,000
1,880 29,200

Average – Periodic
Total cost (1,880 units x P14.92) - P28,050

Weighted average unit cost (P328,848/22,040 units) - P14.92

Average – Perpetual (Moving average)

Purchased Sold Balance
Unit Unit Unit
Units Cost Total Cost Units Cost Total Cost Units Cost Total Cost
Jan. 1 1,600 14.00 22,400
Jan. 6 600 14.10 8,460 1,600 14.00 22,400
600 14.10 8,460
2,200 14.03 30,860
Feb. 5 2,000 14.03 28,060 200 14.03 2,800
Mar. 19 2,200 14.70 32,340 200 14.03 2,800
2,200 14.70 32,340
2,400 14.64 35,140
Mar. 24 (160) 14.70 (2,352) 200 14.03 2,800
2,040 14.70 29,988
2,240 14.64 32,788
Apr. 10 1,400 14.64 20,496 840 14.64 12,292
Jun. 22 16,800 15.00 252,000 840 14.64 12,292
16,800 15.00 252,000
17,640 14.98 264,292
Jul. 31 3,600 14.98 53,928 14,040 14.98 210,364
Aug. 4 (40) 14.98 (599) 14,080 14.98 210,963
Sep. 4 7,000 14.98 104,860 7,080 14.98 106,103
Nov. 16 1,000 16.00 16,000 7,080 14.98 106,103
1,000 16.00 16,000
8,080 15.11 122,103
Dec. 28 6,200 15.11 93,682 1,880 15.11 28,421

J - end of FAR.2902 - J

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