ACCOUNTING FOR INVENTORIES

(Orient Trading)

Reported inventory P9,500,000

Merchandise in transit purchased FOB destination (420,000)
Goods held on consignment (500,000)
Mark up on goods out on consignment
Sales price 600,000
Cost (600,000÷ 1.5) 400,000 (200,000)
Merchandise in transit to customers FOB destination
400,000 x (100% - 40%) 240,000
Merchandise purchased in transit FAS 150,000
Correct inventory P8,770,000

(Tintin Company)

Physical inventory at December 31, 2016 P 172,000

Merchandise in transit shipped FOB shipping point 31,500
Merchandise sold FOB destination still in transit 12,500
Correct inventory at December 31, 2016 P 216,000

(Centerpoint, Inc.)

Reported inventory P 562,500

Adjustments:
a. Goods out on consignment 110,000
b. Goods purchased in transit FOB shipping point 27,000
c. Goods sold in transit FOB shipping point
included in inventory ( 85,000)
d. Goods sold in transit FOB destination
e. not included in inventory 26,000
g. Goods sold in transit FOB destination
not included in inventory 37,000
Correct inventory P 677,500

(Mega Company)-
INVENTORY COST Cost of EI Cost of Goods Sold Gross Profit
FLOW
FIFO 3,506 4,550 1,955
Weighted average 3,333 4,723 1,782
Moving average 3,370 4,686 1,819

FIFO
Cost of ending inventory:
275 x 11.75 3,231.25
25 x 11.00 275.00 3,506.25
Cost of goods sold:
Cost of goods available for sale 8,056.25
Less ending inventory 3,506.25 4,550.00
Gross profit:
Sales 6,505.00
Less cost of goods sold 4,550.00 1,955.00

Weighted average
Cost of ending inventory:
Cost of goods available for sale 8,056.25
Number of units available for sale ÷ 725
Weighted average cost per unit 11.11
Units in ending inventory x 300 3,333.00
C ost of goods sold:
Cost of goods available for sale 8,056.25
Less ending inventory 3,333.00 4,723.25
 Gross profit:
Sales 6,505.00
Less cost of goods sold 4,723.25 1,781.75

Moving average
Cost of ending inventory:
Inventory, January 1 250 x 10.50 = 2,625.00
Purchase, March 7 200 x 11.00 = 2,200.00
Total 450 x 10.72 = 4,825.00
Sale, May 20 (120 x 10.72 = 1,286.40)
Sale, June 30 ( 55 x 10.72 = 589.60)
Balance 275 x 10.72 = 2,949.00
Purchase, July 15 275 x 11.75 = 3,231.25
Total 550 x 11.24 = 6,180.25
Sale, September 17 (250 x 11.24 = 2,810.00)
Balance 300 x 11.24 = 3,370.25

Cost of goods sold:

Cost of goods available for sale 8,056.25
Less ending inventory 3,370.25 4,686.00
Gross profit:
Sales 6,505.00
Less cost of goods sold 4,686.00 1,819.00

(City Company)- LOWER OF COST OR

NRV
Cost (under FIFO basis) P26,000
Net realizable value (40,000 – 12,000) P28,000
Lower of cost and net realizable value P26,000

(Rustan’s Trading)

Product Cost NRV Lower Quantity Amount

A 102 105 102 4,000 P408,000
B 45 42 42 6,000 252,000
C 24 22 22 5,500 121,000
D 9 10 9 7,200 64,800
Total P845,800

Dechavez Company

(a) Direct Method

The profit is computed as follows:
2015 2014
Sales P3,200,000 P2,900,000
Cost of goods sold (1,280,000) (1,020,000)
Gross profit P1,920,000 P1,880,000
Selling expenses (450,000) (330,000)
General and administrative expenses (300,000) (310,000)
Profit P 1,170,000 P 1,240,000
Cost of goods sold:
Beginning inventory P 480,000 P 300,000
Purchases 1,400,000 1,200,000
Total cost of goods available for sale P1,880,000 P 1,500,000
Ending inventory 600,000 480,000
Cost of goods sold P1,280,000 P 1,020,000
 (b) Allowance method
The profit is computed as follows: 2015 2014
Sales P3,200,000 P2,900,000
Cost of goods sold (1,240,000) (1,080,000)
Gross profit P1,960,000 P1,820,000
Selling expenses (450,000) (330,000
General and administrative expenses (300,000) (310,000)
Decline in NRV (40,000
Gain on adjustment of allowance - 60,000
Profit P 1,170,000 P 1,240,000

Cost of goods sold:

Beginning inventory P 500,000 P 380,000
Purchases 1,400,000 1,200,000
Total cost of goods available for sale P1,900,000 P 1,580,000
Ending inventory (660,000) 500,000
Cost of goods sold P1,240,000 P 1,080,000

Allowance to reduce Inventory to NRV

60,000 80,000 12/31/13

20,000 12/31/14

40,000- adjustment

60,000 12/31/2015

12/31/2013
Loss from decline in NRV 80,000
Allowance to reduce Inv to NRV 80,000

12/31/2014
Allowance to reduce Inv to NRV 60,000
Gain on Adjustment of Allowance 60,000

12/31/2015
Loss from decline in NRV 40,000
Allowance to reduce Inv to NRV 40,000