UNIVERSITY OF ANTIQUE
Sibalom, Antique
College of Management and Governance
Name: REY ANN JOY BANDIOLA Program/Yr./Sec: BSMA- 2A
Instructions:
1. Answer your activities AS REQUIRED.
2. Submit your activities ON OR BEFORE THE DUE DATE.
3. There will be a FIVE (5)-POINT DEDUCTION for late submissions.
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QUESTIONS
1. Explain the use of the retail inventory method.
Answer: The retail inventory method is the other method of
estimating the value of inventory. PAS 2, paragraph 22, provides
that this method is often used in the retail industry for measuring
inventory of large number of rapidly changing items with similar
margin for which it is impracticable to use other costing method.
2. What is the basic formula for the retail method?
Answer:
Goods available for sale at retail or selling price
xx
Less: Net sales (Gross sales minus sales return only)
xx
Ending inventory at selling price
xx
Multiply by cost ratio
xx
Ending inventory xx
Goods available for sale at cost
Cost ratio =
Good available for sale at selling price
3. What are the three approaches in applying the retail
inventory method?
Answer:
a. Conservative or conventional or lower of cost and net
realizable value approach
b. Average cost approach
c. FIFO approach
4. What is the meaning of the following?
1. Initial markup
Original markup on the cost of goods.
2. Original retail
The sales price at which the goods are the first
offered for sale.
3. Additional markup
Increase in sales price above the original sales price.
4. Markup cancelation
Decrease in sales price that does not decrease the
sales price below the original sales price.
5. Net markup
Markup minus markup cancelation.
6. Markdown
Decrease in sales price below the original sales price.
7. Markdown cancelation
Increase in sales price that does not increase the
sales price above the original sales price.
8. Net markdown
Markdown minus markdown cancelation.
9. Maintained markup
Difference between cost and sales price after
adjustment for all of the above items.
10. Markon
Sometimes re ferred to as maintained markup.
5. What is the treatment of the following items in
connection with the retail inventory method?
1. Purchase discounts
Deducted from purchases at cost only.
2. Purchase returns
Deducted from purchases at cost and at retail.
3. Purchase allowances
Deducted from purchases at cost only.
4. Freight in
Addition to purchases at cost only.
5. Sales discount
Disregarded, meaning, not deducted from sales.
6. Sales allowance
Disregarded, meaning, not deducted from sales.
7. Sales return
Deducted from sales.
8. Employee discount
Added to sales.
Special discounts usually not recorded because the
employee discounts are directly deducted from the
sales price.
9. Normal and abnormal shortage, shrinkage, spoilage
and breakage
Normal: Deducted from goods available for sale at
retail.
Abnormal: The amount is deducted from goods
available for sale at both cost and retail so as not to
distort the cost ratio.
10. Departmental transfer in
Addition to purchases at cost and retail.
11. Departmental transfer out
Deduction from purchases at cost and retail.