FAR-03: INVENTORIES

1. (INVENTORY INCLUSION/EXCLUSION) What is the correct amount of inventory from the data provided
by ABC Trading Co., as itemized below?
o Items counted in the warehouse, P3,500,000
o Items included in the count specifically segregated per sale contract, P120,000
o Items in the receiving department, returned by customer, in good condition, P80,000
o Items ordered and in the receiving department, P230,000
o Items ordered, invoice received but goods not received. Freight is on the account of the seller, P140,000
o Items shipped today, invoice mailed, FOB shipping point, P135,000
o Items shipped today, invoice mailed, FOB destination, P165,000
o Items currently being used for window display, P70,000
o Items on counter for sale, P910,000
o Items in the receiving department, refused because of damage, P155,000
o Items included in the count, damaged and unsaleable, P45,000
o Items in the shipping department, P140,000

2. (INVENTORY INCLUSION/EXCLUSION) ABC Manufacturing Co. included the following items under the
inventory account:
o Materials, P1,500,000
o Advances for materials ordered, P310,000
o Goods in process, P3,105,000
o Unexpired insurance on inventory, P20,000
o Advertising catalogs and shipping cartons, P90,000
o Finished goods in factory, P2,200,000
o Finished goods in entity-owned retail store, including 50% profit on cost, P750,000
o Finished goods in hands of consignees including 40% profit on sales, P600,000
o Finished goods in transit to customers, shipped FOB destination at cost, P240,000
o Finished goods out on approval, at cost, P115,000
o Unsaleable finished goods, at cost, P56,000
o Office supplies, P21,000
o Materials in transit, shipped FOB shipping point, excluding freight of P30,000, P330,000
o Goods held on consignment, at sales price, cost P150,000, P225,000
What is the correct amount of inventory?

3. (COST OF PURCHASES) ABC Merchandising Company has incurred the following costs during the current
year:
o Cost of purchases based on vendors’ invoices, 2/10, n/30, P6,500,000
o Trade discounts applied on purchases, already deducted from vendors’ invoices, P350,000
o Import duties, P320,000
o Freight and insurance on purchases, P960,000
o Other handling costs relating to imports, P140,000
o Cash discounts applied on payment, P112,500
o Storage costs of merchandise acquired, P215,000
o Salaries of Inventory Department personnel, P743,000
o Brokerage commission paid to agents for arranging imports, P180,000
o Sales commission paid to sales agents, P325,000
o After-sales warranty costs, P200,000
o Delivery cost made to customers, P56,000
What is the total cost of purchases, net of discounts taken?

4. GROSS VS. NET METHOD - On August 30 of the current year, ABC Company recorded separate purchases
of inventory of P500,000 and P1,500,000 under the credit terms of 3/15, n/30. The payment due on the P500,000
purchase was remitted on September 12 while the payment due on the P1,500,000 was remitted September 25.

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Under the gross and net method of accounting for cash discounts, these purchases should be included at what
respective amounts in the determination of cost of goods available for sale?

5. (COST FLOW) bABy Co. used a periodic inventory system. The entity provided the following inventory
transactions for the month of January:
January 1 Beginning inventory 100,000 units P30 per unit
January 5 Purchases 50,000 units P40 per unit
January 15 Purchases 50,000 units P50 per unit
January 20 Sales at P100/unit 100,000 units

The entity used the average pricing method to determine the value of inventory. What amount should be reported
as cost of goods sold for the month of January?

6. (COST FLOW) ABusy Co. used the perpetual system. The following information has been extracted from
the records about one product:
Units Unit Cost Total Cost
Jan. 1 Beginning Balance 8,000 70.00 560,000
6 Purchase 3,000 70.50 211,500
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
8 Purchase Return 800 73.50 58,800
Apr. 10 Sale 7,000
30 Sales Return 300

If the FIFO cost flow method is used, what is the cost of the inventory on April 30?

7. (COST FLOW) ABSea Co. accumulated the following data for the current year:
Raw materials – beginning inventory 90,000 units at P7.00 each
Purchases 75,000 units at P8.00 each
120,000 units at P8.50 each

The entity transferred 195,000 units of raw materials to work in process during the year.
Work in process – beginning inventory 50,000 units at P14.00 each
Conversion cost P6,050,000
Work in process – ending inventory 48,000 units at P15.00 each
The entity uses the FIFO method for valuing inventory. What is the cost of goods manufactured for the current
year?

8. (RELATIVE SALES VALUE METHOD) During the current year, ABC Development Co. purchased a tract
of land for P10.5 million. P1,500,000 were incurred additionally to subdivide the land during the year. Below
are the details for each class of lot, number of lots and selling price of each lot.
Lot Class Number of Lots Selling Price per Lot
A 100 P100,000
B 200 75,000
C 100 60,000

Under the relative sales value method, what is the cost allocated to each Class B lot?

9. (LCNRV) ABC Products Inc. has two products in its inventory list: Products AB and BC. The following
information pertains to each of these products:
Product AB Product BC
Replacement cost 3,600,000 4,500,000
Selling price 3,800,000 4,700,000
Materials and conversion costs 2,500,000 2,800,000
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 General administration costs 1,300,000 1,800,000
Estimated selling costs 1,600,000 1,700,000
Normal profit margin based on selling price 15% 20%

At the end of the current year, the manufacture of items of inventory has been completed but no selling costs
have yet been incurred.
9.1 By what amount should inventory be recorded at year-end?
9.2 By what amount should the inventory be written down, if any?
10. (PURCHASE COMMITMENT) ABC Jewels Inc. entered into a purchase commitment on November 15,
2023 to purchase 10,000 ounces of gold on February 15, 2024 at a price of P550 per ounce. On December 31,
2023, the market price of gold is P535 per ounce. On February 15, 2024, the price of gold is P560 per ounce.
10.1 What is the loss on purchase commitment to be recognized on December 31, 2023?
10.2 What is the gain on purchase commitment to be recognized on February 15, 2024?
10.3 By what amount should Purchases account be debited on February 15, 2024?
10.4 What amount should be recognized as Accounts Payable on February 15, 2024?

11. (GROSS PROFIT METHOD) ABC Consignment Inc. sells merchandise on a consignment basis to dealers.
The selling price of the merchandise averages 30% above cost. The dealer is paid a 12% commission of the sales
price for all sales made. All dealer sales are made on a cash basis. The following consignment activities occurred
during the current year:
o Manufacturing costs of goods shipped on consignment, P8,950,000
o Sales price of merchandise sold by dealers, P9,750,000
o Payments remitted by dealers after deducting commission, P7,920,000

11.1 What is the gross profit on sales?

12. (INVENTORY ESTIMATION) ABC Warehousing Inc. provided the following information for the year
ended December 31, 2023:
o Inventory, beginning, P650,000
o Purchases , P2,300,000
o Purchase returns, P80,000
o Purchase allowance, P30,000
o Freight in, P60,000
o Sales, P3,400,000
o Sales discounts, P20,000
o Sales returns, P30,000
On December 31, 2023, a physical inventory revealed that the ending inventory was only P440,000. The gross
profit on sales has remained constant at 30% in recent years. The entity suspected that some inventory may have
been pilfered by one of the entity’s employees. On December 31, 2023, what is the estimated cost of missing
inventory?

13. (INVENTORY ESTIMATION) ABC Fire Inc. lost 65% of its inventory when a fire broke out on December
31, 2023. No inventory had been taken on December 31, 2023. The following profit and loss data are available
for the periods covered:
2023 2022 2021
Beginning inventory 1,020,000 840,000 730,000
Purchases 1,880,000 1,560,000 1,480,000
Purchase returns 200,000 190,000 160,000
Sales 2,240,000 1,800,000 1,530,000
Sales returns 140,000 100,000 30,000

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14. (RETAIL INVENTORY METHOD) The following information were made available by ABC Mart Inc.:
Cost Retail
Beginning inventory P 265,000 P 410,000
Net purchases 840,000 1,370,000
Mark up 140,000
Mark up cancellation 35,000
Mark down 60,000
Mark down cancellation 25,000
Sales 1,450,000
Sales returns 82,500
Sales allowances 7,500
Sales discounts 10,000

14.1 What is the company’s estimated ending inventory when using the conservative method? Round
off the cost-to-retail ratio to two decimal places.
14.2 What is the company’s estimated ending inventory when using the average method. Round off the
cost-to-retail ratio to two decimal places.
14.3 What is the company’s estimated ending inventory when using the FIFO method. Round off the
cost-to-retail ratio to two decimal places.

15. Costs that are incurred in bringing the inventories to their present location and condition are capitalized as
cost of inventories and these include
a. Cost of designing the products for specific customers
b. Abnormal amount of wasted material, labor and production cost
c. Storage cost not necessary in the production process before a further production stage
d. Distribution cost
16. When a portion of inventory has been pledged as security on a loan
a. The value of the portion pledged should be subtracted from the debt
b. An equal amount of retained earnings should be appropriated
c. The fact should be disclosed but the amount of current assets should not be affected
d. The cost of the pledged inventory should be transferred from current assets to non-current assets
17. The amount of any writedown on inventory to net realizable value and all losses of inventory shall be
a. Recognized as operating expense in the period the writedown or loss occurs
b. Recognized as other expense in the period the writedown or loss occurs
c. Recognized as component of cost of sales in the period the writedown or loss occurs
d. Deferred until the related inventory is sold
18. In a period of falling prices, the use of which inventory cost flow method would typically result in the
highest cost of goods sold?
a. FIFO
b. Weighted average
c. Specific identification
d. None of the choices provided
19. Which of the following would cause a decrease in the cost ratio as used in the retail inventory method?
a. Higher retail prices
b. Lower net markups
c. More employee discounts
d. Higher freight in charges
20. Under PAS 2, which is not a mandated disclosure?
a. The accounting policies adopted in measuring inventories, including the cost formula used
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 b. The carrying amount of each item of inventories
c. The carrying amount of inventories carried at fair value less costs to sell
d. The amount of inventories recognized as an expense during the period

End

“The expert in anything was once a beginner.” – Helen Hayes

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