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Accounting 23: Updates in Financial Accounting & Reporting Standard

LESSON 4 - INVENTORIES

IAS/PAS 2 par. 6. – Inventories are assets 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.

Review Problems

1. AC Company’s inventory at June 30, 2019 was P750,000 based on a physical count of goods priced at cost and before
any necessary year-end adjustment relating to the following:
o Included in the physical count were goods billed to a customer FOB shipping point on June 30, 2019. These
goods costing P15,000 were picked up by the carrier on July 9, 2019.
o Goods shipped FOB destination on June 28, 2019from a vendor to AC was received on July 1, 2019. The invoice
cost was P25,000.
What amount should AC report as inventory in its June 30, 2019 statement of financial position?
a. P735,000 b. P740,000 c. P750,000 d. P765,000

2. VL Company’s inventory at December 31, 2019 was P5,000,000 based on physical count priced at cost and before any
necessary adjustment for the following:
o Merchandise costing P200,000 shipped FOB shipping point from a vendor on December 30, 2019 was received
and recorded on January 5, 2020.
o Goods in the shipping area were excluded from inventory although shipment was not made until January 2, 2020.
The goods billed to the customer FOB shipping point on Dec. 30, 2019, had a cost of P800,000.

What amount should VL report as inventory in its Dec. 31, 2019 statement of financial position?
a. P5,000,000 b. P5,200,000 c. P5,800,000 d. P6,000,000

3, . The unadjusted physical inventory of LT Company at December 31, 2019 was P3,000,000. Other information follows:
o Goods were received and recorded on January 2, 2020 with cost of P180,000. Information revealed that the term
of the shipment is FOB shipping point and these goods were shipped on Dec. 29, 2019.
o Merchandise in the warehouse costing P240,000 was billed to the customer FOB shipping point on December 29,
2019. These were excluded from inventory but these were shippied on Jan. 3, 2020.

How much should LT report as inventory as inventory in its Dec. 31, 2019 statement of financial position?
a. P3,000,000 b. P3,180,000 c. P3,240,000 d. P3,420,000

4. . The balance in PG Company’s inventory account on Dec. 31, 2019 was P1,225,000 before the following information
was considered:
o Goods shipped FOB destination on Dec. 20, 2019 from a vendor to PG were lost in transit. The invoice cost of
P45,000 was not recorded by PG. On Dec. 28, 2019, PG notified the vendor of the lost shipment.
o Goods were in transit from a vendor to PG on Dec. 31, 2019. The invoice cost was P60,000 and the goods were
shipped FOB Shipping point on Dec. 28, 2019. PG received the goods on January 4, 2020.

What amount of inventory should be reported in the Dec. 31, 2019 statement of financial position?
a. P1,225,000 b. P1,270,000 c. P1,285,000 d. P1,330,000

5. . The inventory on hand at December 31, 2019 for CD Company is valued at a cost of P947,800. The following items
were not included in this inventory amount:
A. Purchased goods in transit, shipped FOB destination. Invoice price- P32,000, which includes freight
charges of P1,600.
B. Goods held on consignment by CD at a sales price of P28,000, including sales commission of 20% of the
sales price.
C. Goods sold to UB Company, under terms FOB destination, invoiced for P24,400 which includes P1,000
freight charges to deliver the goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price-P48,000. Freight costs, P3,000.
E. Goods out on consignment to NC Company, sales price, P36,400. Shipping cost of P2,000.
Mark-up on cost for all sales is 30%.
What is the correct cost of inventory to be reported in CD’s financial statements?
a. P1,022,400 b. P1,041,800 c. P1,046,800 d. P1,078,800.

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6. PR Company reviewed its year-end inventory and found the following items:

A. A package containing a product costing P81,600 was standing in the shipping area when the physical
inventory was conducted. This was not included in the inventory because it was marked “Hold for
shipping instructions”. The purchase order was dated December 19, but the package was shipped and
the customer was billed January 2, 2020.
B. A special machine, fabricated to order for a particular customer was finished and in the shipping room
on Dec. 30, 2019. The customer was billed on that date and the machine was excluded in the inventory.
The machine costing P230,000 was shipped January 2, 2020
C. Merchandise costing P23,500 was received on January 3, 2020 and the related purchase invoice was
recorded January 5, 2020. The invoice showed the shipment was made Dec. 29, 2019, FOB
destination.
D. Goods costing P150,000 were sold and delivered on December 20, 2019. The sale was accompanied
by a repurchase agreement that Power will “buyback” the inventory in Feb. 2020.
How much is the inventory adjustment on Dec. 31, 2019?
a. P81,600 increase b. P231,600 increase c. P461,600 increase d. P485,999 increase

7. . MK Company has the following information pertaining to its merchandise inventory as of December 31, 2019:
Inventory on hand (including merchandise received on consignment of P20,000)… P200,000
Inventory purchased with buyback agreement 100,000
Merchandise in transit, FOB shipping point, including P5,000 freight cost 155,000
Merchandise in transit, Free alongside, including delivery cost alongside the vessel
of P6,000 but excluding the cost of shipment of P3,000 250,000
Merchandise in transit, CIF (including insurance costs and freight of P8,000) 175,000
What amount should MK Company report as value of its inventory in its 2019 statement of financial position?
a. P749,000 b. P757,000 c. P763,000 d. P857,000

8. . PP Company had the following consignment transactions during the year 2019:
Inventory shipped on consignment to OC, consignee P600,000
Freight paid by PP 40,000
Inventory received on consignment from BS, consignor 1,000,000
Freight paid by BS 100,000

No sales of consigned goods were made through Dec. 31, 2019:

How much should PP include as consigned inventory in its December 31, 2019 statement of financial
position?
a. P600,000 b. P640,000 c. P1,600,000 d. P1,900,000

9. On October 1, 2019, SN Company consigned 50 machines to MW Company for sale at P20,000 each and paid
P40,000 in transportation cost. On December 31, 2019, MW reported the sale of 30 machines and remitted
P510,000. The remittance was net of agreed 15% commission.
What amount should SN Company recognize as consignment sales revenue for 2019?
a. P350,000 b. P470,000 c. P510,000 d. P600,000

10. On December 1, 2019, SR Company received 1,000 units of selected merchandise on consignment from RT
Company. RT’s cost for the merchandise was P1,600 each, and they were priced to sell at P2,000. Commission rate
was 10%. 200 units remained.
What amount should SR Company report as payable for consigned goods in its December 31, 2019 statement
of financial position?
a. P360,000 b. P1,440,000 c. P1,600,000 d. P1,800,000

11. B Company had the following consignment transactions during December 2019:
Inventory shipped on consignment to C Company P36,000
Freight paid by B 1,800
Inventory received on consignment from D 24,000
Freight paid by D 1,000

No sales of consigned goods were made through December 31, 2019.

What amount of consigned inventory should be included in B’s December 31, 2019 statement of financial
position?
a. P24,000 b. P25,000 c. P36,000 d. P37,800

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12. FF Company sold selected merchandise on a consignment basis during 2019. FF company’s accounting records
show the following information:
Inventory, January 1 P244,000
Inventory on hand, December 31 290,000
Inventory on consignment, Dec. 31 40,000
Purchases 1,080,000
Freight-in 20,000
Freight-out to customers 70,000
Freight-out to consignees 10,000
What amount should FF Company report as cost of goods sold in its 2019 statement of comprehensive
income?
a. P1,014,000 b. P1,024,000 c. P1,094,000 d. P1,354,000

13. On December 28, 2019, LC Company purchased goods costing P1,000,000. The terms were FOB destination.
The following costs were incurred in connection with the sale and delivery of the goods:
Packaging for shipment P20,000
Shipping 30,000
Special handling charges 40,000

These goods were received on December 31, 2019.

In LC Company’s December 31, 2019 statement of financial position, how much of these goods should be
included in inventory?
a. P1,000,000 b. P1,040,000 c. P1,070,000 d. P1,090,000

14. The following information applies to AG Company for 2019:

Merchandise purchased for resale P400,000
Freight-in 10,000
Freight-out 5,000
Purchase returns 2,000
How much is AG’s 2019 inventoriable cost?
a. P400,000 b. P403,000 c. P408,000 d. P413,000

15. The following information is available for CL Company for year 2019:
Net Sales 3,600,000
Freight-in 90,000
Purchase discounts 50,000
Ending inventory 240,000
The gross margin is 40% of net sales
What is the cost of goods available for sale?
a. P1,680,000 b. P1,920,000 c. P2,400,000 d. P2,440,000

16. The accounting records of TK Company show the following information for 2019:
In store
Inventory, December 31 P290,000
Inventory, January 1 220,000
Purchases 960,000
Freight in 20,000
Freight out 60,000
Out on consignment
Inventory, December 31 P40,000
Inventory, January 1 24,000
Shipment from consignor 120,000
Freight-out to consignees 10,000
Freight out 16,000
What would be the cost of sales of TK Company for 2019?
a. P904,000 b. P970,000 c. P1,014,000 d. P1,024,000

17. CDR, a computer store, specializes in the sale of IBM compatibles and software packages and had the following
transactions with one of its suppliers:
Purchases of IBM compatibles P328,000
Purchases of commercial software package 90,000
Returns and allowances 8,000
Purchases discounts taken 2,700
Purchases were made throughout the year on terms 3/10. n/60. All returns and allowances took place within 5 days
of purchase and prior to payment of account.
How much is the discount lost? 1 1
a. P6,900 b. P7,140 c. P9,600 d. P9,840
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18. On March 1, 2019, GD Company purchased a tract of land for P18,000,000. GD incurred additional cost of
P4,500,000 during the remainder of year 2019. The land was subdivided into residential lots as follows:
Lot Class Number of lots Sales price per lot
A 100 P240,000
B 100 P160,000
C 200 P100,000
Using the relative sales price method, how much should be allocated to Class A lot?
a. P7,200,000 b. P8,640,000 c. P9,000,000 d. P10,800,000

19. On November 2, CT Company recorded purchases of inventory of P80,000 and P100,000 under credit terms of 2/15,
n/30. The payment due on the P100,000 purchase was remitted on November 14. The payment due on the
P100,000 purchase was remitted on November 29.
Under the net method and the gross method, these purchases should be included at what respective net amounts in
the determination of cost of goods available for sale?
Net Method Gross method
a. P176,400 P176,400
b. P176,400 P178,400
c. P178,400 P176,400
d. P180,000 P176,400

20. CY Company regularly buys shirts from BU Company and is allowed trade discounts of 20% and 10% from the list
price. CY Company purchased shirts on May 9, 2019 and received an invoice with a list price amount of P50,000 and
payment terms of 2/10, n/30. CN uses the net method of recording purchases.
At what amount should CN record the purchase?
a. P34,300 b. P35,000 c. P35,280 d. P36,000

21. IT Company offers both trade and quantity discounts. Quantity discounts are shown below:
Quantity purchased Discount rate
1 – 9 units 0%
10 – 19 units 5%
More than 20 units 8%
Dealers also receive a 5% discount on list price per units before any quantity discount is given. Cash buyers received
an additional 2% of the total retail price. The retail price of each unit is P140.

How much should be debited to Accounts receivable account if 35 units are sold on account?
a. P4,196.90 b. P4,263.00 c. P4,282.60 d. P4,322.50

22. On June 1, 2019, PT Corp sold merchandise with a list price of P50,000 to BL on account. PT allowed trade
discounts of 30%, 20% and 10%. Credit terms were 2/15, n/40 and the sale was made FOB destination. BL paid
P2,000 of delivery costs.

On June 12, 2019, how much did PT receive from BL as full payment?
a. P22,696 b. P24,696 c. P26,656 d. P26,696

23. CS Company maintains a markup of 60% based on cost. The company’s selling and administrative expenses
average 30% of sales. Annual sales were P1,440,000.
How much should the company record as its cost of sales and operating profit for the year?
Cost of sales Operating profit
a. P864,000 P144,000
b. P864,000 P432,000
c. P900,000 P108,000
d. P900,000 P432,000

24. GL Corporation bought a machine from the manufacturer in November 2019 for P200,000. On December 30, 2019,
GL Corp. sold this machine to AC Company for P300,000 under the following terms: 2% discount if paid within 30
days; 1% discount if paid after 30 days but within 60 days, or payable in full within 90 days if not paid within the
discount period. However, AC Company had the right to return this machine to GL if AC’s obligation to GL would be
cancelled.

In GL’s net sales for the year ended December 31, 2019, how much should be included for the sale of this
machine?
a. none b. P294,000 c. P297,000 d. P300,000

25. On October 1, 2019, EC Company sold 20,000 gallons of heating oil to SA Company at P500 per gallon. Ten

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thousand gallons were delivered on December 20, 2019 and the remaining 10,000 gallons were delivered on January
10, 2020. Payment terms were: 50% due on October 10, 2019; 25% due on the 1st delivery and the remainder on the
second delivery
What amount of revenue should EC recognize from this sale for 2019?
a. P3,500,000 b. P5,000,000 c. P7,500,000 d. P10,000,000
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26. Farms Corporation produces 45,000 kilos of tobacco during 2019 season. Farms sells all of its tobacco to EG
Company, which has agreed to purchase Farm’s entire production at the prevailing market price. Recent legislation
assures that the market price will not fall below P70 per kilo during the next two (2) years. Farm’s cost of selling and
distributing the tobacco are immaterial and can be reasonable estimated. Farms reports its inventory at expected exit
value. During 2019, Farms sold and delivered to EG 30,000 kilos at the market price of P70. Farms sold the
remaining kilos in 2020 at the market price of P72.
What amount of revenue should Farms recognize in 2019?
a. P2,100,000 b. P2,160,000 c. P3,150,000 d. P3,240,000

27. TP Company reported the following balances at December 31, 2019 and 2018:
Dec. 31, 2019 Dec. 31, 2018
Inventory P2,600,000 P2,900,000
Accounts payable 750,000 500,000
The company paid its suppliers P4,900,000 during the year ended December 31, 2019.
How much should TP Company report as cost of goods sold in its Dec. 31, 2019 statement of comprehensive
income?
a) P4,350,000 b. P4,850,000 c. P4,950,000 d. P5,450,000

COST FLOW AND OTHER BASIS

Part 2

1. LG Company is a wholesaler of selected merchandise items. The activity for item number 1234 during June is
presented below:
Date Transaction Units Cost
June 01 Inventory balance 6,000 P20.00
04 Purchases 9,000 24.00
12 Sales 10,800
19 Purchases 14,400 26.00
22 Sales 11,400
29 Purchases 4,800 27.00
Q#1: Under the FIFO periodic inventory system, how much is the ending inventory of item # 1234 at June 30?
a. P280,800 b. P278,400 c. P302,400 d. P316,800
Q#2: Under the weighted average cost periodic inventory system, how much is the ending inventory of item
# 1234 at June 30?
a. P278,400 b. P294,720 c. P302,400 d. P316,800

2. During January 2019, MR Company, which maintains a perpetual inventory system, recorded the following information
pertaining to its inventory:
Units Unit Cost Total Cost Units on hand
Balance on 01/01/19 1,000 P40 P40,000 1,000
Purchased on 01/04/19 600 P120 P72,000 1,600
Sold on 01/20/19 900 700
Purchased on 01/25/19 400 P200 P80,000 1,100
Under the moving-average method, what amount should MR Company report as inventory at January 31,
2019?
a. P105,800 b. P129,000 c. P132,000 d. P156,000

3. GR Company, organized in 2017 has used the Average method of inventory valuation. Net income reported under this
method is shown below:
2017 2018 2019
Net income P180,000 P250,000 P350,000
Inventory, end:
Average 600,000 750,000 1,000,000
FIFO 620,000 1,000,000 1,200,000
If the FIFO method of inventory valuation was used, how much would be the total net income for the three years?
a. P980,000 b. P1,000,000 c. P1,230,000 d. P1,250,000

4. The SV Corporation uses the lower of cost or net realizable value inventory. Data regarding the items in work-in-
process inventory are presented below:
Markers Pens
Historical cost P24,000 P18,800
Selling price 36,000 21,800
Estimated cost to complete 4,800 4,800
Replacement cost 20,800 16,800
Normal profit margin as a percentage of selling price 25% 25%
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Q#1: What is the amount of markers inventory to be reported in SV Corp.’s statement of financial position?
a. P20,800 b. P23,400 c. P24,000 d. P31,200
Q#2: What is the amount of pens inventory to be reported in SV’s statement of financial position?
a. P17,000 b. P18,880 c. P21,800 d. P26,000
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5. The ML Corporation applies the lower of cost or net realizable value (NRV) inventory. Data regarding the items in
work-in-process inventory are presented below:
Shorts Pants
Historical cost P56,640 P90,000
Selling price 108,800 108,000
Estimated cost to complete 14,400 20,400
Replacement cost 50,400 95,400
Normal profit margin as a percentage of selling price 25% 25%
Under the lower of cost or NRV rule, the pants should be valued at
a. P76,800 b. P87,600 c. P90,000 d. P95,400

6. The closing raw materials inventory of WB Manufacturing Company amounted to P345,000 at December 31, 2019.
This total includes an item of raw material Z with a cost of P100,000 with an estimated net realizable value of
P80,000. Immediately after the balance sheet date, material Z was applied to production and the cost of the finished
product where material Z was applied revealed that its net selling price exceeds the cost of producing the finished
goods.
As of Dec. 31, 2019, what amount of raw materials inventory should WB Company report?
a. P245,000 b. P265,000 c. P325,000 d. P345,000

7. The closing raw materials inventory of CS Company amounted to P450,000 at Dec. 31, 2019. This total includes an
item of raw material Z with a cost of P150,000 with a replacement cost of P120,000. Immediately after the balance
sheet date, material Z was applied to production and the cost of the finished product where material Z was applied
revealed that its net selling price is lower than the cost of producing the finished goods.

As of Dec. 31, 2019, what amount of raw materials inventory should CS Company report?
a. P300,000 b. P330,000 c. P420,000 d. P450,000

8. A chain of candy stores purchases its candy in bulk from its suppliers. For a recent shipment, the company paid
P3,000 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces
that are expected to sell for P0.25 each. Group 2 consists of 5,500 pieces that are expected to sell for P0.60 each.
Group 3 consists of 500 pieces that are expected to sell for P1.20 each.
Using the relative sales value method, what is the cost per item in group 1?
a. P0.166 b. P0.200 c. P0.250 d. P0.375

9. During 2019, MT Company signed a non-cancellable contract to purchase 1,000 sacks of rice at P900 per sack with
delivery to be made in 2020. On December 31, 2019, the price of rice had fallen to P850 per sack. On May 9, 2020,
the company accepts delivery of rice when the price is P880 per sack.
In the Dec. 31, 2019 statement of comprehensive income, what amount of loss on purchase commitment
should be included?
a. none b. P20,000 c. P30,000 d. P50,000

10. The KJ Company Sells Product A. During the year, the company moved to a new location, the inventory records for
Product A were misplaced. The bookkeeper has been able to gather some information from the sales records and
gives you the data shown below:

July sales : 57,200 units at P100

July purchases:
Date Quantity Unit Cost
July 5 10,000 P65.00
9 12,500 62.50
12 15,000 60.00
23 14,000 62.00

On July 31, 16,000 units were on hand with a total value of P988,000. KJ has always used a periodic FIFO inventory
costing system. Gross profit on sales for July was P2,058,750.

What is the total cost and unit cost, respectively, of the beginning inventory?
a. P1,345,400 and P62.00 c. P1,367,100 and P63.00
b. P1,353,535 and P62.38 d. P1,450,000 and P66.82

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