PAS 2 – Inventories (Chapter 7)

1. Decide whether the item is included as part of Inventories as of December 31, 2019:

Finished goods in the bodega, at cost including overhead of P400,000 P 4,000,000

Finished goods included in the count specifically segregated per sales contract 100,000

Goods in the receiving department, returned by customer, in good condition 50,000

Materials ordered and in the receiving department, invoice not recorded 400,000

Materials orde;red, invoice received but goods not received. Freight is paid by seller 300,000

Finished goods shipped today, invoice mailed, FOB shipping point 250,000

Finished goods shipped today, invoice mailed, FOB Destination 150,000

Goods currently being used for window display 200,000

Goods on counter for sale 800,000

Materials in the receiving department, refused by us because of damage 180,000

Goods include in count, damaged and unsalable 50,000

Goods in the shipping department 250,000

Advance for materials ordered 200,000

Goods in process 650,000

Unexpired insurance on inventories 60,000

Advertising catalogues and shipping cartons 150,000

Finished goods in company-owned retail store, including 50% profit on cost 750,000

Finished goods still in transit through a vessel shipped FAS (free alongside) by our 500,000
company, including 50% profit on selling price

Finished goods still in transit through a vessel shipped ex-ship by our company, at 200,000
cost

Finished goods in hands of consignees including 40% profit on sales, excluding freight 400,000
paid by the our company of P50,000 for delivery to the consignee

Freight cost paid by our company (consignee) for consigned goods sold to customers 50,000

Finished goods in transit to customers, shipping FOB destination at cost 250,000

Finished goods out on approval, at cost 100,000

Unsalable finished goods, at cost 50,000

Office supplies 40,000

Materials in transit shipped FOB Shipping point, excluding freight of P30,000 330,000

Goods held on consignment, at sales price, cost P150,000 200,000

Finished goods in transit, including freight charge of P20,000, FOB Shipping point 250,000

Finished goods held by salesmen, at selling price, cost P100,000 140,000

Defective materials returned to suppliers for replacement 100,000

Shipping supplies 20,000

Gasoline and oil for testing finished goods 110,000

Machine lubricants 60,000

Storage costs of finished goods 180,000

Delivery to customers 40,000

Irrecoverable import duties 60,000

Salaries of the accounting department 600,000

Brokerage commission paid to agents for arranging imports 200,000

Sales commission paid to sales agents 300,000

After-sales warranty costs 250,000

Insurance on shipment for materials purchased 5,000

2. Eatable Company, a VAT-registered entity is engaged in the following transactions during the month of
December, the last month of the calendar year:

July 1 Purchased merchandise from A Company for P50,000, 2/10, n/30.

July 2 Purchased merchandise from B Company for P200,000, 2/10, n/30.

July 3 Purchased merchandise from C Company for P300,000, 2/10, n/30

July 12 Paid B Company for the July 2 purchase.

July 30 Paid A Company for the July 1 purchase.

July 31 Purchase returns during the month amounted to P10,000.

Assuming the invoice price of goods purchased is inclusive of 12% VAT, and that the related freight cost
of the transaction is P2,000.
Required:

Prepare the journal entries (perpetual and periodic system) on the books of Eatable under the following
SHIPPING TERMS

a. FOB DESTINATION AND FREIGHT COLLECT.

b. FOB DESTINATION AND FREIGHT PREPAID.
c. FOB SHIPPING POINT AND FREIGHT COLLECT.
d. FOB SHIPPING POINT AND FREiGHT PREPAID.

3. Natsu Company’s inventory transactions during the month of October are as follows. Inventories and
purchase information concerning the three products are given for the month of October.

Product C Product P Product A

Oct. 1 Inventory 50,000 units 30,000 units 65,000 units
at P6.00 at P10.00 at P0.90

Oct. 10 Purchases 70,000 units 45,000 units 30,000 units

at P6.50 at P10.50 at P1.25

Oct. 15 Sales 105,000 units 50,000 units 45,000 units

Sales price P8.00/unit P11.00/unit P2.00/unit

Oct. 18 Sales return 5,000 units

Oct. 25 Purchases 30,000 units

at P8.00
Oct. 29 Purchase returns 3,000 units
at P10.50

On October 31, the company’s suppliers reduced their prices from the most recent purchase prices by the
following percentages: product C, 20%; product P, 10%; product A, 8%. Accordingly, Natsu decided to reduce
its sales price on all items by 10%, effective November 1. Jennifer’s selling cost is 10% of sales price. Products
C and P have a normal profit (after selling costs) of 30% on sales prices, while the normal profit on product A
(after selling cost) is 15% of sales price.

Complete the table below:

Compute the following FIFO Periodic/ WAM – Periodic WAM - Perpetual

under the three COST
FORMULAS. FIFO Perpetual

1. Cost of Goods
Available for sale

2. Cost/Carrying
Amount of Ending
Inventory before
remeasurement

3. Carrying amount
of inventories after
remeasurement

4. Loss on inventory
writedown

5. Journal entry to
record the
remeasurement at
LCNRV

4. Killua Company is on a calendar year basis. The following data were found during your examination:
a. Goods in transit shipped F.O.B. shipping point on December 28 by a supplier in the amount of P10,000,
had been excluded from the inventory, and further testing revealed that the purchase had been
recorded.
b. Goods costing P3,000 had been received, included in inventory, and recorded as a purchase. However,
upon your inspection, the goods were found to be defective and would be immediately returned.
c. Materials costing P17,000 and billed on December 30 at a selling price of P26,400 had been segregated
in the warehouse for shipment to a customer. The materials had been excluded from inventory as a
signed purchase order had been received from the customer. Terms, F.O.B. destination.
d. Goods costing P7,000 was out on consignment with Gon, Inc. Since the monthly statement from Gon,
Inc. listed those materials as on hand, the items had been excluded from the final inventory and
invoiced on December 31 at P8,000.
e. The sale of P15,000 worth of materials and costing P12,000 had been shipped FF.O.B. point of
shipment on December 31. However, this inventory was found to be included in the final inventory.
f. Goods costing P10,000 and selling for P14,000 had been segregated, but not shipped at December 31,
and were not include in the inventory. A review of the customer’s purchase order set forth as F.O.B.
destination. The sale had not been recorded.
g. Killua has an invoice from a supplier, terms, F.O.B. shipping point, but the goods had not arrived as yet.
However, these materials costing P13,400 had been included in the inventory count, but no entry had
been made for their purchase.
h. Merchandise costing P20,000 had been recorded as a purchase but not included as inventory. Terms of
sale are F.O.B. shipping point according to the supplier’s invoice which had arrived by December 31.

Further inspection of the client’s records revealed the following December 31 balances before the above
adjustments: Inventory, P135,000; Accounts Receivable, P63,000; Accounts Payable, P69,000; Sales,
P603,200; Purchases, P315,000; Net income, P72,700.

1. Compute the adjusted balances of Inventory, Accounts Receivable, Accounts Payable, Sales,
Purchases and Net Income.
2. Propose adjusting entries.