MODULE 3: INVENTORIES PROBLEM SET

Instructions: Print a copy of this problem set. The first question per topic will be answered by the instructor in class. The second question will be
answered by a volunteer or assigned member of the class. The answer sheet shall include answers and solutions to both questions per topic.

I. Inventory – Recognition and Identification

A. ABC Co. has the following data for 2025:
Items counted in the warehouses P10,000.00
Items counted but damages and unsellable
Items included in the count specifically segregated per sales contract 5,000.00
Items in the receiving department, returned by the customer in good condition 10,000.00
Items in the receiving department, refused by ABC because of damage
Items in the receiving department, invoice not yet received 10,000.00
Items ordered. The invoice has been received but the goods are not yet received. 10,000.00
Items shipped by ABC, invoice has been mailed, FOB shipping point 10,000.00
Items shipped by ABC, invoice has been mailed, FOB destination 10,000.00
Items shipped by supplier, invoice has been received, FOB shipping point 10,000.00
Items shipped by supplier, invoice has been received, FOB destination 10,000.00
Items on the counter for sale 10,000.00
Items used as window display 10,000.00
Items in the Shipping department 10,000.00
Items consigned to Company A
Items consigned from Company B
Raw Materials 10,000.00
Work in progress 10,000.00
Finished Goods 10,000.00

1. How much should be included as “inventories” as of year end?

B. DEF Co. reported in its “Inventories” account a debit balance of P2,575,000.00 at year-end based on a physical count conducted at December
29, 2025. An analysis of the records showed the following:
• Goods costing P120,000.00 purchased FOB shipping point were sent by the seller on December 30, 2025 and were received by the company
on January 05, 2026.
• Goods costing P150,000.00 purchased FOB destination were sent by the seller on December 27, 2025 and were received by the company
on January 02, 2026.
• Goods costing P125,000.00 were received from Company C on consignment. DEF was to sell the goods at a mark-up of 25% of the cost.
80% of the goods remained unsold on December 31, 2025.
• Goods costing P150,000.00 sent out on consignment to Company D.
• Goods held by travelling agents amounting to P200,000.00.
• Goods held by customers on approval or on trial amounting to P50,000.00.

1. How much should be presented as “Inventories” in the Statement of Financial Position?

II. Inventory – Initial measurement
A. GHI Co. bought raw materials with the following related costs/details:
• The list price of the raw materials is P250,000.00. GHI was given a 5% trade discount. The purchase was made at 2/10, n/30 terms. GHI
took advantage of the discount.
• Import duties and taxes paid for the release of the raw materials from customs authority amount to P25,000.00. A courier delivered the raw
materials from customs authority to GHI Co. at FOB shipping point, Freight Collect terms amounting to P10,000.00. Handling and costs
required to put the raw material in the control of the company amount to P5,000.00.
• Direct labor required to process the raw materials into finished goods amount to P100,000.00. Depreciation expense of equipment directly
used in manufacturing amount to P20,000.00. Indirect labor and indirect materials allocated to manufacturing amount to P50,000.00.
• Storage costs necessary for production amount to P10,000.00. Normal wastage amount to P2,000.00 while abnormal wastage amount to
P2,000.00. Selling costs amount to P10,000.00.
III. Inventory – Subsequent Measurement
A. JKL Co. has the following data:
Items Item Category Units Cost Estimated Sales Costs of Costs to Sell
Price Completion
A 1 1,000 P120.00 P180.00 P10.00 P20.00
B 1 1,000 P110.00 P140.00 P20.00 P20.00
C 2 1,000 P150.00 P170.00 P20.00 P10.00
D 2 1,000 P120.00 P180.00 P10.00 P20.00
E 3 1,000 P110.00 P140.00 P20.00 P20.00
F 3 1,000 P150.00 P170.00 P20.00 P10.00

1. How much is the correct measurement of inventories at year end (total, by category, by individual items)?
2. Show the journal entries for direct method and allowance method.

B. MNO Co. has the following data:

A B C
Historical Cost 800,000.00 1,000,000.00 700,000.00
Replacement Cost 900,000.00 1,200,000.00 1,000,000.00
Selling Price 1,200,000.00 1,300,000.00 1,250,000.00
Net Realizable Value 550,000.00 1,100,000.00 950,000.00
Normal Profit 250,000.00 150,000.00 300,000.00

1. How much loss on inventory writedown should be recognized?

IV. Inventory – Derecognition Cost Flow
A. PQR Co. began the year with 10,000.00 units of inventory costing P80.00 each. Purchases for 2026 is as follows:
Date Units Purchased Cost of Purchase
01/05/2026 2,000 P100
01/10/2026 8,000 P110
01/15/2026 6,000 P120
01/20/2026 9,500 P100
01/25/2026 14,500 P90

Date Units Sold

01/03/2026 4,000
01/08/2026 6,000
01/16/2026 3,000
01/24/2026 11,000
01/31/2026 4,000

1. Compute the inventory, ending AND cost of goods sold for the year in the following methods:
• FIFO – Periodic
• FIFO – Perpetual
• Weighted Average – Periodic
• Weighted Average – Perpetual
• LIFO – Periodic
• LIFO – Perpetual
• Specific Identification (Not included for submission purposes)

B. STU Co. began the year with 5,000.00 units of inventory costing P80.00 each. Purchases for 2026 is as follows:
Date Units Purchased Cost of Purchase
01/05/2026 1,000 P100
01/10/2026 5,000 P110
01/15/2026 3,000 P120
01/20/2026 4,000 P100
01/25/2026 1,000 P90

Date Units Sold

01/03/2026 3,000
01/08/2026 2,000
01/16/2026 5,000
01/24/2026 2,000
01/31/2026 3,000

1. Compute the inventory, ending AND cost of goods sold for the year in the following methods:
• FIFO – Periodic
• FIFO – Perpetual
• Weighted Average – Periodic
• Weighted Average – Perpetual
• LIFO – Periodic
• LIFO – Perpetual
V. Inventory Estimation
A. Gross Profit Method
XYZ Co. has the following data:
Beginning Inventory P650,000.00
Purchases 2,300,000.00
Purchase Returns 80,000.00
Freight In 60,000.00
Sales 3,400,000.00
Sales Discounts 20,000.00
Sales Returns 30,000.00
Ending Inventory 420,000.00
Gross Profit 30%

The entity suspects there are some missing inventory. How much should the cost of such missing inventory be using the gross profit method?

B. Retail Method
123 Co. has the following data:
Sales P7,100,000.00
Sales Allowances 100,000.00
Sales Returns 500,000.00
Employee Discounts 200,000.00
Theft and Other Losses 100,000.00
Initial Markup on purchases 2,900,000.00
Additional Markup 250,000.00
Markup Cancellation 100,000.00
Mark down 600,000.00
Mark down Cancellation 100,000.00
Freight on Purchases 100,000.00
Purchase at Cost 4,500,000.00
Purchase Returns 240,000.00
Purchase Returns at Sales Price 350,000.00
Beginning Inventory at Cost 440,000.00
Beginning Inventory at Sales Price 800,000.00

Estimate the ending inventory based on:

1. Conservative Retail Method
2. Average Retail Method
3. FIFO Retail Method