UM TAGUM COLLEGE Page 1 of 5

Department of Accounting Education

Competency Appraisal Course – 2nd Semester – S.Y. 2023-2023
Inventories (PAS 2) and Biological Assets (PAS 41)

PAS 2 - INVENTORIES
PROBLEM 1
On December 31. 2019, JAPAN CORP had an inventory balance Of P600,000 based on its recently conducted
annual inventory count on its warehouse and other storages within JAPAN's premises. The following items
are under consideration whether possible adjustments should be made:

• Goods costing P50,000 were not included on the count since these are located to another entity's
warehouse and was sent under a consignment arrangement.
• Goods with an invoice price of P100,000 that were sold by the entity and shipped on December 30
and were in transit on December 31, 2019. These goods were received by the customer on January 2,
2020 but were included on the inventory balance. Terms were FOB shipping point
• Goods billed at P50,000, not included on the inventory balance, were in transit on December 31, 2019
but received by the customers on January 3, 2020 under the shipping term FOB destination. The
related freight cost of this transaction is P2,000.
• Goods costing P30,000 were sold under a bill and hold arrangement included in the stock of inventory
in the warehouse.
• Goods purchased on an instalment basis with an invoice price of P45,000 were possessed before year-
end and was included on the inventory count. The title over the goods were retained by the seller
upon full payment is made.
• Inventories were sold at P150,000 to KOREA INC. JAPAN signed an agreement to repurchase the goods
sold at a price that covers all costs related to the inventory. These goods were not included on the
inventory count since it was shipped a day before the count.
• Inventory pledged to BPI BANK as collateral security for a bank loan costing P40,000 was not included
on the inventory count.
• Goods purchased under FOB shipping point term costing P60,000 were in transit on December 31,
2019 to JAPAN CORP. The related freight cost paid by the seller is P5,000.
The gross profit rate of JAPAN CORP. applied constantly throughout 2019 is 30%.

REQUIREMENT: Compute for the adjusted inventory balance as of December 31, 2019.

PROBLEM 2
The following information is available regarding the inventory movements of JG CORP. for the month of
September:
At the beginning of the month, the company has 2,000 units with a cost of P36 per unit.
Purchases Sales
Date Units Unit Cost Date Units Price
9/3 3,000 37.20 9/6 4,200 45
9/15 4,800 38.00 9/7 (600) 45
9/20 1,900 38.60 9/16 3,800 50
9/23 (300) 38.60
REQUIREMENTS: Compute for (a) ending inventory; (b) cost of goods sold (c) gross profit under the
following cost formulas:
a. FIFO
b. Average method – periodic
c. Average method – perpetual

PREPARED BY: JGR Financial Accounting and Reporting (FAR) 2023-2024

 UM TAGUM COLLEGE Page 2 of 5
Department of Accounting Education
Competency Appraisal Course – 2nd Semester – S.Y. 2023-2023
Inventories (PAS 2) and Biological Assets (PAS 41)

PROBLEM 3
JG CORP. follows PAS 2 in measuring its inventories. It applies the lower of cost or net realizable value
(NRV) in the valuation of its inventories. For its proper application, the following information was provided.

Raw Materials In-process Finished Goods

Marker Pen Marker Pen Marker Pen
Cost of purchase 50,000 45,000 140,000 150,000 200,000 250,000
Freight-in 5,000 8,000 20,000 15,000 10,000 15,000
Freight-out - - 5,000 5,000 5,000 10,000
Conversion cost - - 40,000 30,000 150,000 200,000
until completion
Selling price - - 200,000 180,000 500,000 450,000
Other selling costs - - 10,000 5,000 40,000 30,000
Replacement costs 40,000 43,000 - - - -
REQUIREMENT: Compute for the amount of inventories to be reported at balance sheet for the year
ended, December 31, 2019?

PROBLEM 4
JG CORP. has the following comparative information regarding its inventories:

2019 2020
Inventories, January 1 at cost 200,000 250,000
Purchases 800,000 850,000
Inventories, December 31 at cost 250,000 300,000
Inventories, December 31 at NRV 180,000 250,000
REQUIREMENT: Compute the adjusted cost of goods sold under direct method and allowance method.

PROBLEM 5
JEC ARCADE reported the following information for the current year:

Beginning inventory 5,000,000

Purchases 26,000,000
Freight-in 2,000,000
Purchases returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
Sales discounts 1,000,0000

A physical inventory taken at year-end resulted in an ending inventory of P4,000,000. At year end, unsold
goods out on consignment with selling price of P1,000,000 are in the hands of a consignee. The gross profit
was 40% on sales.
REQUIREMENT: a. What is the cost of goods available for sale?
b. What is the cost of goods sold?
c. What is the estimated cost of inventory shortage?

PREPARED BY: JGR Financial Accounting and Reporting (FAR) 2023-2024

 UM TAGUM COLLEGE Page 3 of 5
Department of Accounting Education
Competency Appraisal Course – 2nd Semester – S.Y. 2023-2023
Inventories (PAS 2) and Biological Assets (PAS 41)

PROBLEM 6
Presented below is information taken from for the three months ended March 31, 2019 in relation to
CORP.’s application of retail inventory method.

Cost Retail
Inventory, Jan.1 179,600 200,000
Purchases 475,400 800,000
Purchase discounts 23,000
Purchase returns 50,000 80,000
Purchase allowance 10,000
Freight-in 5,000
Mark-ups 200,000
Mark-up cancellations 40,000
Departmental transfer-in 70,000 100,000
Departmental transfer-out 60,000 90,000
Abnormal loss 20,000 40,000
Markdown 115,000
Markdown cancellations 10,000
Sales 800,000
Sales return 80,000
Sales allowance and discounts 120,000
Normal shrinkage 100,000
The company conducted its interim inventory count and valued inventory at P50,000
REQUIREMENTS: Compute (a) estimated ending inventory (b) cost of goods sold (c) inventory shortage
using:
a. Conservative method
b. Average method
c. FIFO method

PREPARED BY: JGR Financial Accounting and Reporting (FAR) 2023-2024

 UM TAGUM COLLEGE Page 4 of 5
Department of Accounting Education
Competency Appraisal Course – 2nd Semester – S.Y. 2023-2023
Inventories (PAS 2) and Biological Assets (PAS 41)

BIOLOGICAL ASSETS – PAS 41

PROBLEM 1. The following information pertains to the agricultural activity of I BELONG TO THE ZOO
CORP. for the year ended December 31,2021
Fruit trees 300,000
Picked fruit 100,000
Animals related to recreational activities 350,000
Dairy cattle 200,000
Bottle milk 120,000
Lumber and logs 180,000
Land used in agricultural activity 600,000
Coffee plants 170,000
Harvested coffee beans 60,000
Peanut plants 160,000
Plants with dual use 450,000
Wooden furniture 130,000
Oil palms 200,000
Palm oil 70,000
Sheep 90,000
Wool 40,000
Pigs 150,000
Carcasses 85,000
Cured ham 70,000
Maize plants 175,000
Trees in lumber plantation 420,000
Roads to gain access in the lumber plantation 550,000

Determine the total amount of the following:

a. Biological assets under PAS 41 c. Property, plant and equipment under PAS 16
b. Agricultural produce under PAS 41 d. Inventory under PAS 2

PROBLEM 2. The following information Is available for biological assets of I BELONG TO YOU CORP. on
the acquisition date, January 1, 2021:

ACTIVE MARKET 1 ACTIVE MARKET 2

Market price 1,000 1,100
Commissions to brokers 60 40
Transfer taxes 40 30
Transport costs 80 100
REQUIREMENTS:
a. If “ACTIVE MARKET 1” is the principal market, how much should the biological assets initially
measured?
b. If neither of the markets is considered as principal market for the biological asset, what amount
of biological asset be recognized in the financial statements?

PREPARED BY: JGR Financial Accounting and Reporting (FAR) 2023-2024

 UM TAGUM COLLEGE Page 5 of 5
Department of Accounting Education
Competency Appraisal Course – 2nd Semester – S.Y. 2023-2023
Inventories (PAS 2) and Biological Assets (PAS 41)

PROBLEM 3. BELONG TO MY BABY CORP. has the following information regarding its biological assets and
agricultural produce for the current year 2021:

January 1, 2021 The entity acquired five (5) pigs at its fair value of P25,000. Other necessary costs
incurred in relation to the purchase transaction is P5,000. It was estimated that if the
asset is to be sold currently, costs to dispose amounted to P2,500.
September 11, 2021 One of the pigs gave birth to four (4) piglets with a fair value less cost to sell as of that
date of P1,500 each. Costs incurred to induce procreation such as costs artificial
insemination, costs of labor and caesarean birth totaled P600 each piglet.
November 15, 2021 The entity slaughtered two (2) pigs incurring total slaughter costs of P1,800. The quoted
price of each carcass is P12,500 and the costs to sell are estimated at P500 per carcass.
Each pig and piglet has a fair value less cost to sell on December 31, 2021 of P6,800 and
P2,300.
REQUIREMENTS:

a. What amount should be reported as biological asset on December 31, 2021?

b. What is the net amount to be presented in profit or loss in relation to the above transactions
for the year 2021?

PROBLEM 4. On January 1, 2021, I BELONG TO ONE TAKE CUTIE was granted by the national government
grant of P400,000 to aid the entity in financing the domestication of dragons. The dragons are managed to
produce eggs that are sold to the community. On October 1, 2021, I BELONG TO ONE TAKE CUTIE. was
granted by a foreign government a grant of P600,000 to aid the company in cotton plants. The grant
requires the entity to farm only within the city limits for 6 years. If any conditions are breached, the entity
must return the grant taking into consideration the portion retained based on passage of time.
REQUIREMENT: What is the total income from government grant to be recognized for the year 2021?

PROBLEM 5. On January 1 2022, the biological assets of I BELONG TO CUTIE consists of ten (10) 2-year-old
animals with fair value less costs to sell of P10,000 each for a total of P100,000.
Transactions during the year include:
• One animal aged 2.5 years was purchased on July 1, 2021 for P10,800.
• One animal was born on July 1, 2021.
• No animals were sold or disposed of during the period.
Per unit fair values less cost to sell are as follows:
July 1, 2021
New-born animal 7,000
2.5 years old animal 10,800
December 31, 2021
New-born animal 7,200
0.5 year old 8,000
2 year old animal 10,500
2.5 year old animal 11,100
3 year old animal 12,000
REQUIREMENT:
a. Change in FV-CTS due to price change
b. Change in FC-CTS due to physical change

- END OF HANDOUT -

PREPARED BY: JGR Financial Accounting and Reporting (FAR) 2023-2024