VSA CPA REVIEW

ILOILO CITY GUIMARAS KORONADAL CITY ROXAS CITY

FINANCIAL ACCOUNTING & REPORTING INVENTORIES

THEORY

1. One of the following is not a characteristic of inventory:

A. They are in the process of production for such sale
B. They are tangible or intangible items of personal property
C. They are held for sale in the ordinary course of business operations
D. They are currently consumed in the production of goods or services to made available for sale
2. The cost of inventories include all of the following, except
A. Selling cost
B. Costs of purchase
C. Costs of conversion
D. Other costs incurred in bringing the inventories to their present condition or location.
3. How should unallocated fixed overhead costs be treated?
A. Recognized as an expense in the period in which they are incurred.
B. Allocated to finished goods and cost of goods based on the ending balances in the accounts.
C. Allocated to raw materials, work in process and finished goods, based on the ending balances in the accounts.
D. Allocated to work in process, finished goods and cost of goods sold based on the ending balances in the
accounts.
4. The cost of purchase of inventory does not include
A. Purchase price
B. Import duties and taxes
C. Trade discount, rebate and other similar item
D. Freight, handling and other cost directly attributable to acquisition
5. Which statement is correct?
I. Fixed production overheads are those indirect costs of production that have a direct relationship in connection
to the volume of production.
II. Variable production overheads are those indirect costs of production that vary directly or nearly directly with
the volume of production.
A. I only C. Both I and II
B. II only D. Neither I nor II
6. Which of the following items should be excluded from a company’s inventory at the balance sheet date?
A. Goods out on consignment
B. Goods in transit purchased FOB shipping point
C. Goods held by customers on approval or on trial
D. Goods lost while in transit, which were purchased FOB shipping point.
7. Goods on consignment are
A. Included in the consignee's inventory.
B. Recorded in a consignment in account, which is an inventory account.
C. Recorded in a consignment out account, which is an inventory account.
D. All of the above.

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 8. The cost of inventories that are not ordinarily interchangeable and goods or services produced and segregated for
specific projects should be assigned by using
A. Average method C. LIFO
B. FIFO D. Specific identification
9. In situations where there is a rapid turnover, an inventory method, which produces a balance valuation similar to
FIFO, is
A. Average cost C. Standard cost
B. Prime cost D. Specific identification
10. The gross profit method of estimating inventory would not be useful when
A. There is a significant change in the mix of products being sold.
B. Inventories have been destroyed or lost by fire, theft or other casualty.
C. The relationship between gross profit and sales remains stable over time.
D. A periodic system is in use and inventories are required for interim statements.
11. Biological assets are
A. Living plants only C. Both living animals and living plants
B. Living animal only D. None of the above
12. Biological assets are measured at
A. Cost C. Fair value less estimated point of sale cost
B. Lower of cost or NRV D. Net realizable value less normal profit margin
13. Agricultural produce is measured at
A. Fair value C. Fair value less cost to sell
B. Net realizable value D. Net realizable value less normal profit

PROBLEMS- STRAIGHT PROBLEMS

1. Company XYZ purchased inventory for P100,000 cash. P10,000 was spent for freight in. Company XYZ
purchased inventory for P150,000 on account. P75,000 worth of inventory was sold for P140,000 on accounts.
P12,000 was spent for freight out. P80,000 was collected out of the accounts receivable. How much is the
ending inventory?
ANSWER: P100,000 + P150,000 + P10,000 – P75,000 = P185,000
• Freight in is an inventoriable cost. It is either part of ending inventory or cost of sales.
• Freight out is a selling expense.
2. Per inventory count, P100,000 is the amount of ending inventory. Cost of sales under the periodic system of
recording amounted to P400,000. Included in the ending inventory count, however, are P20,000 of goods that
are consigned in. How much should be the correct cost of sales?
ANSWER: P400,000 + P20,000 = P420,000
• Under period system of recording, cost of sales is only determined at the end of the period upon closing of
the accounts related to inventory such as beginning inventory, purchases, and freight in and establishing or
debigng of the ending inventory.
• The correcgng entry to reduce the ending inventory is a debit to Cost of Sales and a credit to ending
inventory. This will increase cost of sales.
3. Purchases amounted to P600,000 during the period. Cost of sales under the periodic system of recording
amounted to P400,000. Excluded in the purchases is goods purchased for P70,000 FOB desgnagon that were
already shipped but have not yet arrived the company premises. Since they have not yet arrived the company
premises, they were not included in ending inventory count. How much is the correct cost of sales?
ANSWER: P400,000
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 • The P70,000 was not including in inventory count. This is correct since gtle has not yet passed because the
goods have not yet arrived.
4. Purchases amounted to P600,000 during the period. Cost of sales amounted to P400,000. Accounts payable
amounted to P240,000. Included in the purchases is goods purchased FOB desgnagon that were already
shipped but has not yet arrived the company premises. Since it has not yet arrived the company premises, it
was not included in ending inventory count. The amount of the related purchase is P70,000. How much is the
correct amount of accounts payable?
ANSWER: P240,000 – P70,000 = P170,000
• The P70,000 was recorded by debigng purchases and credigng accounts payable. It turned out that this is
inappropriate because there should have been no purchase yet since the gtle has not yet passed.
• The correcgng entry is a debit to accounts payable and a credit to purchases if the purchases account has
not yet been closed. If the purchases account has already been closed to cost of sales, the correcgng entry
is a debit to accounts payable and a credit to cost of sales. This will reduce cost of sales.
• The P70,000 was not including in inventory count. This is correct since gtle has not yet passed because the
goods have not yet arrived.
5. Purchase price is P800,000. Under the net method, how much should be the inventory if there is a P10,000
discount?
ANSWER: P800,000 – P10,000 = P790,000
6. Purchase price is P800,000. Under the gross method, how much should be the inventory if there is a P10,000
discount?
ANSWER: P800,000
7. The engty had the following informagon related to inventories:
Purchases Unit cost
January 10 10,000 P22
January 18 10,000 23
January 28 10,000 24
Using FIFO and if the entity sold 20,000 units, how much is the cost of goods sold?
ANSWER: [10,000 x P22/ unit] + [10,000 x P23/ unit] = P450,000
8. The engty had the following informagon related to inventories:
Purchases Unit cost
January 10 10,000 P22
January 18 10,000 23
January 28 10,000 24
Using FIFO and if the entity sold 20,000 units, how much is the ending inventory?
ANSWER: [10,000 x P24/ unit] = P240,000
• Total cost of goods available for sale is computed as follows:
[10,000 x P22/ unit] + [10,000 x P23/ unit] + [10,000 x P24/ unit] = P690,000
• Ending inventory may also be computed by deducting cost of sales computed in number 7 from the cost of
goods available for sale:
P690,000 – P450,000 = P240,000
9. The engty had the following informagon related to inventories:
Purchases Unit cost
January 10 10,000 P22
January 18 10,000 23
January 28 10,000 24
Using weighted average and if the entity sold 20,000 units, how much is the cost of goods sold?
ANSWER: 20,000 units x P23/ unit = P460,000
• Total cost of goods available for sale is computed as follows:
[10,000 x P22/ unit] + [10,000 x P23/ unit] + [10,000 x P24/ unit] = P690,000
• Total number of units available for sale is:
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 10,000 + 10,000 + 10,000 = 30,000
• Weighted average cost per unit is:
P690,000/ 30,000 units = P23/ unit
10. The sales value for Lots A, B and C are P24M, P16M and P20M, respecgvely. Lump sum cost of lots A, B and C
totaled P15M. How much should be allocated to lot A?
ANSWER: [P24/ P60M] x P15M = P6M
• Total sales value of the three lots is computed as follows:
P24M + P16M + P20M = P60M
• Share of A in the allocation:
P24M / P60M
11. Beginning inventory is P2,000,000, net purchases is P5,200,000, and cost of goods sold is P5,600,000. How much
is the ending inventory?
ANSWER: P2,000,000 + P5,200,000 – P5,600,000 = P1,600,000
12. Cost of goods available for sale is P600,000 at cost and its retail equivalent is P750,000. If sales amounted to
P500,000, how much is the cost of sales?
ANSWER: 0.8 X P500,000 = P400,000
• Percentage of cost when compared with retail or selling price is computed as follows:
P600,000/ P750,000 = 0.8
13. Cost of goods available for sale is P600,000 at cost and its retail equivalent is P750,000. If sales amounted to
P500,000, how much is the ending inventory?
ANSWER: P600,000 – P400,000 = P200,000
14. The company is a manufacturing company. It has materials, goods in process, and finished goods amoungng to
P100,000, P200,000 and P50,000, respecgvely. How much should be considered as inventory in the statement
of financial posigon?
ANSWER: P100,000 + P200,000 + P50,000 = P350,000
15. The company is a manufacturing company. It has materials, goods in process, and finished goods amoungng to
P100,000, P200,000 and P50,000, respecgvely. Finished goods included P28,000 of consigned out goods whose
cost is P20,000. The materials inventory does not include P10,000 materials purchased FOB desgnagon because
it has not yet arrived the premises of the company. How much should be the correct inventory in the statement
of financial posigon?
ANSWER: P100,000 + P200,000 + P42,000 = P342,000
• Correct finished goods:
P50,000 – P28,000 + P20,000 = P42,000
• The materials inventory does not include the P10,000 and appropriately so.
• Consigned out goods is appropriately included in the inventory. But, the amount should be at cost and not at
selling price.
16. Cost of purchases based on vendors’ invoices amount to P1,000,000. Some of these goods are imported and the
company spent P100,000 on import duges, freight and handling. The company also paid P80,000 brokerage
commission to the agents who made the importagon possible. Later, all of these goods were sold for
P2,000,000 and the company paid P50,000 for freight and P100,000 for the commission of sales agents. What
amount should be recognized as cost of goods sold?
ANSWER: P1,000,000 + P100,000 + P80,000 = P1,180,000
• Freight in and all costs necessary to bring the inventory to a condition suitable for sale or use are included as
inventoriable cost.
• Freight out and all costs for selling the goods are selling expenses.
17. Materials were purchased for P100,000. The company incurred irrecoverable purchase taxes amoungng to
P10,000. Later labor and overhead amoungng to P150,000 were added to complete the product. These
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 products were stored at a nearby facility for 5 months, during which gme, the company incurred P20,000
storage cost. How much is the cost of inventory?
ANSWER: P100,000 + P10,000 + P150,000 = P260,000
• All costs necessary to bring the inventory to a condition suitable for sale or use are included as inventoriable
cost. This includes the irrevocable purchase taxes.
• The storage cost after the product has already been produced does not add value to the product. Hence, it is
not inventoriable.
18. The company sold goods worth P10,000 to a customer for P15,000. The customer had a right to return the
goods if it is unable to resell the goods to others. How much should be included as sales in the income
statement?
ANSWER: ZERO
• In substance, this is a consignment. In a consignment, the consignor owns the goods. There is no sales yet.
19. The company produced 10,000 kg of tobacco. Recent legislagon assures that these crops could be sold for P70
per kg in the next 2 years. The company was able to sell 7,000 kg of these goods during the year. How much
should be recognized as sales for the year?
ANSWER: 10,000kg x P70/ kg = P700,000
• Since the selling price for this agricultural product is assured by legislation, sales revenue is already recorded
upon production.
20. The company handed over a new system to the client for a price of P1,000,000. The price includes aler sale
support services for one year. The company esgmates that aler sale support services will have a cost of
P150,000 and a “stand alone” selling price of P250,000. How much should be reported as revenue from the sale
of computer system?
ANSWER: P1,000,000 – P250,000 = P750,000
• P250,000 revenue for after sale support services shall be distributed to 12 months based on the passage of
time. But, it is a revenue which is distinct from the sale of computer system.
21. Freestanding trees in the property amounted to P1,000,000. Animals related to recreagonal revenue raising
acgviges amounted to P550,000. Bearer animals are valued at P500,000. Bearer plants (not intended to be cut
off and sold as lumber) are valued at P600,000. Agricultural produce on bearer plants amounted to P240,000.
Agricultural produce already harvested amounted to P160,000. Dual purpose plants amount to P430,000. How
much should be considered as biological assets?
ANSWER: P1,000,000 + P500,000 + P240,000 + P430,000 = P2,170,000
• Biological assets are living plants or animals that are part of an agricultural production process or used to
produce agricultural produce.
• In this problem, the animals for recreational purposes are not part of “an agricultural production process or
used to produce agricultural produce.” They are part of PPE.
• In this problem, the bearer plants not intended to be cut off and sold as lumber are not a part of “an
agricultural production process or used to produce agricultural produce.” They are part of PPE
• Dual purpose plants do not only produce the agricultural produce such as fruits but are also itself part of “an
agricultural production process or used to produce agricultural produce.”
• Freestanding trees may be cut off and become available for sale, and hence, part of “an agricultural production
process or used to produce agricultural produce.”
• Biological assets should be recognized when control over the asset is obtained, and it is probable that future
economic benefits will flow to the entity.
• Biological assets should initially be measured at fair value less estimated point-of-sale costs. Subsequent to
initial recognition, they are generally measured at fair value less estimated point-of-sale costs, with changes
in fair value recognized in profit or loss.

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 • Once the biological asset is harvested, it is recognized as agricultural produce and should be measured at fair
value less estimated point-of-sale costs at the point of harvest. In this problem, the amount of inventory
derived from the harvest amounts to P160,000. Those that are not yet harvested amounting to P240,000 are
part of biological assets.
22. The company purchased milking cows worth P2,000,000 on January 1, 2023. During the current year, milk
worth P500,000 were harvested but not yet sold. How much should be considered as inventory?
ANSWER: P500,000
23. How much is the lower of cost or net realizable value if the beginning inventory is P1,000,000, purchases is
P5,000,000, cost of sales is P4,300,000 and the net realizable value is P1,500,000.
ANSWER: P1,500,000
• The ending inventory without considering the NRV is computed as follows:
P1,000,000 + P5,000,000 – P4,300,000 = P1,700,000
• P1,500,000 is lower than P1,700,000

PROBLEMS- MCQ

24. Company XYZ purchased inventory for P100,000 cash. P10,000 was spent for freight in. Company XYZ
purchased inventory for P150,000 on account. P12,000 was spent for freight in. Sales of inventory was made
for P140,000. At the end of the period, only P190,000 of inventory remained in the warehouse. How much is
the gross profit?
A. 82,000 C. 80,000
B. 58,000 D. 160,000

25. The engty had the following informagon related to inventories:

Purchases Unit
cost
January 10 10,000 P22
January 18 10,000 23
January 28 10,000 24
Using weighted average and if the entity sold 20,000 units, how much is the ending inventory?
A. 230,000 C. 240,000
B. 220,000 D. 460,000
26. Beginning inventory is P2,000,000 and net purchases is P5,200,000. The engty sold P8,000,000 at a gross profit
rate of 30%. How much should’ve been the ending inventory if it was not destroyed by fire?
A. 2,400,000 C. 4,800,000
B. 5,600,000 D. 1,600,000
27. The following information pertains to the inventory of the entity:
Retail
Beg. 100,000 120,000
Inventory
Purchases 500,000 700,000
Mark-downs 70,000
The amount of sales for the period is P500,000. How much is the ending inventory?
A. 600,000 C. 400,000
B. 200,000 D. 234,000
28. The following information pertains to the inventory of the entity:
Retail
Beg. 100,000 120,000
Inventory
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 Purchases 500,000 700,000
Mark-downs 70,000
The amount of sales for the period is P500,000. How much is the ending inventory if there’s a shrinkage of 2% of
sales?
A. 200,000 C. 190,000
B. 210,000 D. 196,000
29. The company purchased milking cows worth P2,000,000 on January 1, 2023. The fair value less cost to sell of
these cows are P2,800,000 at the end 2023. During the current year, milk worth P500,000 were harvested but
not yet sold. How much should be reported as biological assets at the end of 2023?
A. 2,000,000 C. 2,800,000
B. 2,500,000 D. 3,300,000

18. Ella Company regularly buys sweaters from Millard Company and is allowed trade discount of
20% and 10% from a list price. Ella made a purchase on March 20 and received an invoice with a
list price of P4,000,000, a freight charge of P100,000, and payment terms of net 30 days. Ella
should record the purchase at
A. 2,880,000 C. 4,000,000
B. 2,980,000 D. 4,100,000

19. The following information pertains to Rasner Company for 2023:

Merchandise purchased for resale 4,000,000
Freight out 200,000
Freight in 500,000
Storage cost 50,000
Purchase returns 120,000
The inventoriable cost should be
A. 4,250,000 C. 4,500,000
B. 4,380,000 D. 4,630,000

20. On August 1, Erica Company recorded purchases of inventory of P800,000 and P1,000,000 under
credit terms of 2/15, net 30. The payment due on the P800,000 purchase was remitted on August
14. The payment due on the P1,000,000 purchase was remitted on August 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. 1,764,000 1,784,000
B. 1,764,000 1,800,000
C. 1,784,000 1,764,000
D. 1,800,000 1,764,000

21. On June 1, 2023, Elijah Company sold merchandise with a list price of P5,000,000 to XYZ. Elijah
allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the sale was Made
FOB shipping point. Elijah prepaid P50,000 of delivery cost for XYZ as an accommodation. On
June 11, 2009, Elijah received from XYZ full remittance of
A. 3,420,000 C. 3,800,000
B. 3,470,000 D. 3,850,000

22. The unadjusted physical inventory of Edna Company at December 31, 2023 was P6,000,000.
Other information follows:
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 • Goods were received and recorded on January 2, 2024 with a cost of 700,000. These goods
were shipped by the supplier on December 29, 2023, FOB shipping point.
• Goods in the warehouse costing P1,000,000 were billed to the customer FOB shipping point
on December 30, 2023. The goods were included in inventory because they were shipped on
January 5, 2024.

A special order, fabricated to specifications of a customer costing 200,000, was finished and
specifically segregated in the back part of the shipping room on December 31, 2023. The customer
was billed on that date and the machine included in inventory because the customer accepted
delivery on January 6, 2024.
How much should Edna report as inventory on its December 31, 2023 balance sheet?
A. 5,700,000 C. 6,700,000
B. 6,500,000 D. 7,700,000

26. Avarice Company has a recent gross profit history of 40% of net sales. The following data are
available from the accounting records for the three months ended March 31, 2023:
Inventory - January 1 650,000
Purchases 3,200,000
Net sales 4,500,000
Purchase return 75,000
Freight in , 50,000
Using the gross profit method, what is the estimated cost of inventory on March 31, 2023?
A. 1,120,000 C. 2,025,000
B. 1,125,000 D. 2,700,000

27. Boon Company provided the following information for the current year:
Beginning inventory 500,000
Purchases 2,500,000
Sales 3,200,000
A physical inventory taken at year-end resulted in an ending inventory of P500,000. The gross
profit on sales has remained constant at 25% in recent years. The entity suspects some inventory
may have been taken by a new employee. What is the estimated cost of missing inventory at year-
end?
A. 0 C. 440,000
B. 100,000 D. 600,000

28. On December 31, 2023, Huff Company provided the following information:
Cost Retail
Inventory, January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markups - 210,000
Available for sale 4,900,000 7,000,000
Sales for the year totaled P5,530,000. Markdowns amounted to P70,000. Under the approximate
lower of average cost or marked retail method, what is the inventory on December 31,2023?
A. 980,000 C. 1,400,000
B. 1,078,000 D. 1,540,000

Joan Company provided the following data:

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 Value of biological asset at acquisition cost on Dec. 31,2022 600,000
Fair valuation surplus on initial recognition
at fair value on Dec. 31,2022 700,000
Change in fair value to December 31, 2023
due to growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000

32. What is the carrying amount of the biological asset on December 31, 2023?
A. 1,300,000 C. 1,400,000
B. 1,310,000 D. 1,490,000

33. What is the gain from change in fair value of biological asset that should be reported in the 2023
income statement?
A. 10,000 C. 710,000
B. 100,000 D. 800,000

Forester Company has reclassified certain assets as biological assets. The total value of the forest
assets is P6,000,000 which comprises:
Freestanding trees 5,100,000
Land under trees 600,000
Roads in forests 300,000
6,000,000
34. In the statement of financial position, what total amount of the forest assets should be classified as
biological assets?
A. 5,100,000 C. 5,700,000
B. 5,400,000 D. 6,000,000

Questions 36 thru 38 are based on the following information.

Honey Company has a herd of 10 2-year old animals on January 1, 2023. One animal aged 2.5 years
was purchased on July 1,2023 for PI08, and one animal was born on July 1, 2023. No animals were
sold or disposed of during the year. The fair value less cost of disposal per unit is as follows:

2 - year old animal on January 1 100

2.5-year old animal on July 1 108
New born animal on July 1 70
2 - year old animal on December 31 105
2.5 - year old animal on December 31 111
Newborn animal on December 31 72
3 - year old animal on December 31 120
0.5 - year old animal on December 31 80

36. What is the fair value of the biological assets on December 31, 2023?
A. 1,320 C. 1,400
B. 1,360 D. 1,440

37. What is the gain from change in fair value of biological assets that should be recognized in 2023?
A. 222 C. 300
B. 292 D. 332

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38. What is the gain from change in fair value due to price change?
A. 55 C. 237
B. 222 D. 292

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