Nature and Cost flow of Inventory

Problem 1: Example Items included in Inventory

You have been assigned to compute for the correct balance of the inventory account for the year ended December 31, 2023:

Items counted in the warehouse (bodega) (including P32,000 damaged and unsalable goods)
Items included in the count specifically segregated per sales contract
Goods held on consignment at sales price, cost P 125,000
Items in receiving department, returned by the customer, in good condition
Goods out on consignment, at sales price, cost P 150,000
Items ordered and in the receiving department. invoice not yet received
Items ordered, invoice received but goods not yet received, Freight is paid by buyer
Items on counter for sale
Items in receiving department, refused by the entity because of damage
Items in shipping department
Items shipped today, invoice mailed, FOB shipping point
Items shipped today, invoice mailed, FOB destination
Items currently being used for window display

Problem 2 : Inventory Cost Flow

Cayco Company sells blankets for P30 each. The following was taken from the inventory records during July:

Date Product T Units Cost

3-Jul Purchase 500 15
10-Jul Sale 300
17-Jul Purchase 1000 17
20-Jul Sale 600
23-Jul Sale 300
30-Jul Purchase 1000 20
Determine the cost for sales and cost of ending inventory under each the following independent assumptions:
A. Specific Identification method
B. FIFO Method (periodic)
C. FIFO Method (perpetual)
D. Weighted-Average Method
E. Moving Average Method

A. Specific Identification method

Sales of July 10 originated from the purchase of July 3; Sales of July 20 and 23 are originated from the purchase of Jul

Date Product T Units Cost Inventory, end

3-Jul Purchase 500 15 200 3,000.00
17-Jul Purchase 1000 17 100 1,700.00
30-Jul Purchase 1000 20 20,000.00
24,700.00

Sales 1200 30 36,000.00

Cost of Goods Sold 4,500.00
 15,300.00 19,800.00
Gross Profit 16,200.00

B. FIFO Method (periodic)

Date Product T Units Cost Sales

3-Jul Purchase 500 15
10-Jul Sale 300 15
10-Jul from 07/03/2023 200 15
17-Jul Purchase 1000 17
20-Jul Sale 200 15
400 17
from 07/10/2023 600
23-Jul Sale 300 17
from 07/10/2023 300 17
30-Jul Purchase 1000 20
Total

Sales 1,200.00 30 36,000.00

Cost of Goods Sold 19,400.00
Gross profit 16,600.00

C. FIFO Method (perpetual)

Purchases
Date Product T Units Cost Total Cost
3-Jul Purchase 500 15 7,500.00
10-Jul Sale
Balance
17-Jul Purchase 1000 17 17,000.00
20-Jul Sale

20-Jul
23-Jul Sale
from 07/10/2023
30-Jul Purchase 1000 20 20,000.00
Total

Sales 1,200.00 30 36,000.00

Cost of Goods Sold 19,400.00
Gross profit 16,600.00

D. Weighted-Average Method (periodic)

 Total Cost
3-Jul Purchase 500 15 7,500.00
17-Jul Purchase 1000 17 17,000.00
30-Jul Purchase 1000 20 20,000.00
Total 2,500.00 44,500.00
17.80

Sales 1,200.00 30 36,000.00

Cost of Goods Sold 1,200.00 17.80 21,360.00
Gross profit 14,640.00

E. Moving Average Method (perpetual)

Purchases
Date Product T Units Cost Total Cost
3-Jul Purchase 500 15 7,500.00
10-Jul Sale
Balance
17-Jul Purchase 1000 17 17,000.00

20-Jul Sale
20-Jul
23-Jul Sale
from 07/10/2023
30-Jul Purchase 1000 20 20,000.00
Total

Sales 1,200.00 30 36,000.00

Cost of Goods Sold 19,500.00
Gross profit 16,500.00

Measurement of Inventory
Problem 3: Lower of Cost and Net Realizable Value
National Company provided the following information for different inventory items held at December 31, 2023:

Item Cost Sales Price Selling Cost Units

A 150.00 170.00 30.00 2,000
B 130.00 180.00 60.00 3,000
C 110.00 150.00 15.00 5,500
D 100.00 120.00 10.00 4,000

Inventory at Cost
Item Units Cost Total
A 2,000 150.00 300,000.00
 B 3,000 130.00 390,000.00
C 5,500 110.00 605,000.00
D 4,000 100.00 400,000.00
1,695,000.00

LCNRV
Item Units Cost Net Selling Price LCNRV Total
A 2,000 150.00 140.00 140.00 280,000.00
B 3,000 130.00 120.00 120.00 360,000.00
C 5,500 110.00 135.00 110.00 605,000.00
D 4,000 100.00 110.00 100.00 400,000.00
1,645,000.00
1,695,000.00
Inventory Write-down (50,000.00)
Problem 4: Inventory write-down (Periodic Inventory System)
National Company provided the following data:
I. The company uses periodic system and FIFO method of cost allocation.
II. The company uses Perpetual Inventory System

I. The company uses periodic system and FIFO method of cost allocation.
2022 2023 2024
Cost 650,000.00 680,000.00 720,000.00
Lower of Cost and NRV 620,000.00 630,000.00 690,000.00
Inventory Write-down 30,000.00 50,000.00 30,000.00
20,000.00 20,000.00
Direct Method
2022 Ending Inventory 620,000.00
Income Summary 620,000.00

Loss from decline in NRV of Inventory

Allowance from decline in NRV to Inventory

2023 Beginning Income Summary 620,000.00

Inventory 620,000.00

Ending Inventory 630,000.00

Income Summary 630,000.00

Loss from decline in NRV of Inventory

Allowance from decline in NRV to Inventory

2024 Beginning Income Summary 630,000.00

Inventory 630,000.00

Ending Inventory 690,000.00

Income Summary 690,000.00
 Allowance from decline in NRV to Inventory
Recovery in NRV of Inventory

II. The company uses Perpetual Inventory System Direct Method

2022 Cost of Sales 30,000.00
Inventory 30,000.00

Loss from decline in NRV of Inventory

Allowance from decline in NRV to Inventory

2023 Cost of Sales 50,000.00

Inventory 50,000.00

Loss from decline in NRV of Inventory

Allowance from decline in NRV to Inventory

2024 Cost of Sales 30,000.00

Inventory 30,000.00

Allowance from decline in NRV to Inventory

Recovery in NRV of Inventory
Problem 5: Presentation in Profit or loss
Additional Information on problem 4
I. Direct Method
II. Allowance Method
2024 2023
Sales 3,200,000.00 2,500,000.00
Purchases 1,600,000.00 1,300,000.00
General and Administrative Expense 680,000.00 630,000.00

I. Direct Method
Beginning Inventory 630,000.00 620,000.00
Add: Purchases 1,600,000.00 1,300,000.00
Total Goods Available for Sale 2,230,000.00 1,920,000.00
Less: ending Inventory 690,000.00 630,000.00
Cost of Goods Sold 1,540,000.00 1,290,000.00

2024 2023
Sales 3,200,000.00 2,500,000.00
Cost of Goods Sold 1,540,000.00 1,290,000.00
Gross Profit 1,660,000.00 1,210,000.00
Less: General and Administrative Expense 680,000.00 630,000.00
Profit 980,000.00 580,000.00
II. Allowance Method
Beginning Inventory 680,000.00 650,000.00
Add: Purchases 1,600,000.00 1,300,000.00
Total Goods Available for Sale 2,280,000.00 1,950,000.00
Less: ending Inventory 720,000.00 680,000.00
Cost of Goods Sold 1,560,000.00 1,270,000.00

2024 2023
Sales 3,200,000.00 2,500,000.00
Cost of Goods Sold 1,560,000.00 1,270,000.00
Gross Profit 1,640,000.00 1,230,000.00
Less: General and Administrative Expense 680,000.00 630,000.00
Loss from decline in NRV of Inventory 20,000.00
Add: Recovery in NRV of Inventory 20,000.00
Profit 980,000.00 580,000.00

Inventory Estimation Method

Problem 6: Gross Profit Method

The following figures are from the books of National Company for the six months ended June 30, 2023:

Inventory, January 1, 2023 750,000.00

Purchases 3,500,000.00
Sales 4,800,000.00
Purchase returns 95,000.00
Purchase discouns 15,000.00
Sales Return 75,000.00
Sales Discounts 20,000.00

Determine the estimated cost of June 30, 2023 inventory assuming that the company maintains a gross profit rate of:
a. 30% based on sales
b. 30% based on cost of sales

a. 30% based on sales

b. 30% based on cost of sales

Problem 7: With undamaged or partially damaged merchandise

On October 30, 2023, a big fire caused severe damage to the warehouse of National Company. Thus, the company suffered a l
company’s books.

January 1, 2023
2022
to date of fire
Merchandise Inventory, beginning 200,000.00
Purchases 1,350,000.00 1,150,000.00
Purchase Returns 40,000.00 25,000.00
Sales 1,650,000.00 1,300,000.00

At the beginning of 2023, the company changes its policy on the selling price of the merchandise in order to produce

Selling price undamaged inventory 65,000.00

Selling price damaged inventory 20,000.00
NRV of damaged inventory 6,000.00
Required:
Compute for the estimated cost of merchandise inventory lost from the fire on October 31 ,2023.
ed December 31, 2023:

4,000,000 3,968,000.00
80,000 (80,000.00)
250,000
60,000 60,000.00
200,000 150,000.00
30,000 30,000.00
100,000 100,000.00
150,000 150,000.00
200,000
220,000 220,000.00
35,000
25,000 25,000.00
13,000 13,000.00
4,636,000.00

rom the purchase of July 17.

300
900
1,200.00
Total Cost Cost of Goods Sold

4500

3000
6800

5100
5,100.00
20,000.00
25,100.00 19,400.00

Cost of Goods Inventory

Units Cost Total Cost Units Cost
500.00 15.00
300 15 4,500.00 (300.00)
200.00
1,000.00 17.00
200 15 3,000.00 (200.00) 15.00
400 17 6,800.00 (400.00) 17.00
600.00
300 17 5,100.00 (300.00) 17.00
300.00
1,000.00 20.00
1200 19,400.00 1,300.00
 Cost of Goods Inventory
Units Cost Total Cost Units Cost
500.00 15.00
300 15 4,500.00 (300.00)
200.00
1,000.00 17.00
1,200.00
600 16.67 10,000.00 (600.00)
600.00
300 16.67 5,000.00 (300.00)
300.00
1,000.00
1200 19,500.00 1,300.00 19.23
Allowance Method
650,000.00
650,000.00

30,000.00
30,000.00 620,000.00 30,000.00

650,000.00
650,000.00

680,000.00
680,000.00 630,000.00 50,000.00

20,000.00
20,000.00

680,000.00
680,000.00

720,000.00
720,000.00 690,000.00 30,000.00
 20,000.00
20,000.00

Allowance Method Inventory

30,000.00 Cash/AR
30,000.00

Cost of Goods Sold

20,000.00
20,000.00

20,000.00
20,000.00
ss profit rate of:
he company suffered a loss on its inventory. The following information was available from the

dise in order to produce a gross profit rate of 5% higher than the gross profit in 2022.
Total Cost
7,500.00
(4,500.00)
3,000.00
17,000.00
(3,000.00)
(6,800.00)
10,200.00
(5,100.00)
5,100.00
20,000.00
25,100.00
Total Cost
7,500.00
(4,500.00)
3,000.00
17,000.00
20,000.00
(10,000.00)
10,000.00
(5,000.00)
5,000.00
20,000.00
25,000.00
Purchases 5,000,000.00
Cash/AP 5,000,000.00

Cash/AR 6,000,000.00
Sales 6,000,000.00
 5,000,000.00
Cash/AP 5,000,000.00

6,000,000.00
Sales 6,000,000.00

t of Goods Sold 4,350,000.00

Inventory 4,350,000.00

650,000.00
Inventory 620,000.00