EXERCISES ON INVENTORIES

PART 1
 EXERCISE 1

ABC Company regularly buys merchandise from DEF company and is allowed a trade discounts of 20% and
10% from the list price. ABC made a purchase on March 20,2019, and received an invoice with a list price of P
150,000, a freight charge of P 2,500, and payment terms of net 30 days.

REQUIRED : What is the total cost of merchandise purchases?

 EXERCISE 2

Jane Inc. had 10,200 units on April 30,2019, based on physical count of goods on that date. The following items
have not yet been recorded as purchases and sales as of April 30.

No. Transaction Terms Number of Units

1 Purchase FOB Shipping point 25,000
2 Purchase FOB Destination 30,000
3 Sale FOB Shipping point 6,500

4 Sale FOB Destination 5,000

Item 1-4 were shipped by the seller April 30,2019 and received by the buyer May 5,2019.

REQUIRED : How many units should be considered as inventory at the end of April 2013?
 EXERCISE 3

The Orient Trading’s inventory at the end of 2019 is P 9,500,000, before considering the following information.
Included in the amount are the following items:
• Merchandise in transit, purchased FOB Shipping point, P 680,000.
• Merchandise in transit, purchased FOB Destination, with invoice cost of P 420,000.
• Goods held on consignment, P 500,000.
• Goods out on consignment, at cost plus 50% markup on cost plus P 10,000 delivery charge, P 610,000.
The P 9,500,000 balance does not include the following items:
• Merchandise in transit to customers, FOB shipping point at selling price of P 540,000, which includes a 40%
markup on selling price.
• Merchandise in transit to customers, FOB destination at selling price of P 400,000, which includes a 40% markup
on selling price.

REQUIRED : What is the correct amount of inventory?

 EXERCISE 4

The physical inventory on December 31,2019 of Tintin Co. showed merchandise at P 172,000. You discovered
that the following items were excluded from this amount:
• Merchandise costing P 31,500 shipped by a vendor FOB shipping point on December 31,2019 and received
by Tintin on January 5,2020.
• Merchandise costing P 40,000 shipped by a vendor FOB destination on December 30,2019 and received by
Tintin on January 4,2020.
• Merchandise costing P 12,500 was shipped FOB destination to a customer on December 29,2019. The
customer expected to receive the merchandise on January 6,2020.
• Merchandise costing P 28,500 was shipped FOB shipping point to a customer on December 29,2019. The
goods are scheduled to arrive at the destination point on January 2,2020.

REQUIRED : What is the correct amount of inventory that should appear on Tintin’s December
31,2019 Statement of Financial Position?
 EXERCISE 5

Centerpoint Inc, is preparing its 2019 year-end financial statements. Prior to any adjustments, inventory is valued at P
562,500. The following information has been found relating to certain inventory transactions.
• Goods valued at P 110,000 are on consignment with a customer. These goods are not included in the P 562,500
inventory figure.
• Goods costing P 27,000 were received from a vendor on January 5,2020. The related invoice was received and
recorded on January 12,2020. The goods were shipped on December 31,2019, terms FOB shipping point.
• Goods costing P 85,000 were shipped on December 31,2019 and were delivered to the customer on January
2,2020. The terms of the sale were FOB Shipping point. The goods were included in the ending inventory of 2019,
even thought the sale was recorded in 2020.
• A P 35,000 shipment of goods to a customer on December 31,2019, terms FOB destination was not included in
the year-end inventory. The goods cost P 26,000 and were delivered to a customer on January 8, 2020. The sale
was properly recorded in 2020.
• An invoice for goods costing P 35,000 was received and recorded as a purchase on December 31,2019. The
related goods shipped FOB destination, were received on January 2,2020 and thus were not included in the
physical inventory.
• Goods valued at P 65,000 are on consignment from a vendor. These goods were not included in the year-end
inventory figure.
• A P 60,000 shipment of goods to a customer on December 30, 2019, terms FOB destination was recorded
as a sale in 2019. The goods costing P 37,000 and delivered to the customer on January 6,2020 were not
included in the 2019 ending inventory.

REQUIRED : Determine the correct inventory amount to be reported on Centerpoint’s Statement of

Financial position at December 31,2019.
 EXERCISE 6

Mega Company had the following inventory transactions during 2019:

Units Unit cost Unit Selling price
Inventory, January 1 250 P 10.50
Purchase, March 7 200 11
Purchase, July 15 275 11.75
Sale, May 20 (120) P 14
Sale, June 30 (55) 15
Sale, September 17 (250) 16
Inventory, 300
December 31
REQUIRED: Determine the cost of ending inventory, cost of goods sold and gross profit under each of
the following inventory cost flow methods. Round off unit cost and total cost to the nearest centavo.
a.) FIFO
b.) WEIGHTED AVERAGE
c.) MOVING AVERAGE
 EXERCISE 7

The following data were taken from the inventory records of Landmark Enterprises for January 2019:
Units Unit cost Total cost
Balance at January 1 2,400 P 10.75 P 25,800
Purchases: January 5 1,900 11.35 21,565
24 3,800 11.80 44,840
Sales: January 8 2,200
30 3,600
Balance: January 31 2,300

REQUIRED: Determine the inventory value at January 31 assuming that :

a.) Landmark enterprises maintains perpetual inventory records and uses the average costing method.
b.) Landmark enterprises does not maintain perpetual inventory records and uses the average costing
method.

Round off unit cost and total cost to the nearest centavo.
 EXERCISE 8

• The inventory records of Rockwell Club Inc., could not be located because the accountant quit without final
turnover of records. In order to reconstruct the inventory at the beginning, the store manager gathered the
following data from their sales records for the month of January:
Units Unit price
January sales 160,500 P 12
January purchases:
4 30,000 7.80
10 37,500 7.50
16 45,000 7.20
24 42,000 7.40
As of January 31, 45,000 units were on hand. Rockwell’s gross profit on sale for January P 738,600. The
company uses a periodic FIFO inventory costing systems.

REQUIRED: What was the total cost and the unit average cost of the January 1 inventory?
 EXERCISE 9

The Sta. Lucia Company, organized in 2019, used the average costing method for tis inventory. It is considering
to changes its inventory costing policy and adopt the FIFO basis. Profit under the average costing and inventory
costs based on both average and FIFO are shown below:
2019 2020 2021
Profit P 3,600,000 P 5,000,000 P 7,000,000
Inventory ,end
Average basis 1,200,000 1,300,000 2,000,000
FIFO basis 1,240,000 1,420,000 2,650,000

REQUIRED: Determine the profit of Sta. Lucia company for each of the 3 years had the
company used the FIFO costing method.
 EXERCISE 10

Based on the physical inventory taken on December 31,2019, City Company determined its chocolate
inventory on a FIFO basis at P 26,000. City estimated that , after further processing costs of P 12,000, the
chocolate could be sold as a finished candy bars for P 40,000. City’s normal profit margin is 10% of sales.

REQUIRED: Under the lower of cost and net realizable value rule, what amount should City report as
chocolate inventory on its December 31,2019 Statement of Financial Position?
 EXERCISE 11

The following information is available for Rustan’s Trading:

Product A B C D
Cost P 102 P 45 P 24 P9
Estimated sales price 120 60 30 15
Estimated disposal costs 15 18 8 5
Number of units 4,000 6,000 5,500 7,200

REQUIRED: Using the lower of cost and net realizable value, determine the total inventory value to
be presented in Rustan’s Trading statement of financial position.
 EXERCISE 12

The De Chavez Company reported the following inventory figures at the end of each year:

Product 12/31/2019 12/31/2018 12/31/2017

Lower of cost & NRV P 600,000 P 480,000 P 300,000
Cost 660,000 500,000 380,000

12/31/2019 12/31/2018
Sales P 3,200,000 P 2,900,000
Purchases 1,400,000 1,200,000
Selling Expenses 450,000 330,000
Administrative Expenses 300,000 310,000

REQUIRED: Present profit or loss section of the statement of comprehensive income for the years ended
December 31,2019 and 2018 using a) Direct method. b) Allowance method
 EXERCISE 13

Purple Company had determined its December 31,2019 inventory on FIFO basis at P 200,000. Information
pertaining to that inventory follows:

Estimated selling price P 204,000

Estimated costs of disposal 10,000
Normal profit 30,000

Purple records losses that result from applying the lower of cost and net realizable value rule.

REQUIRED : What is the amount of loss that Purple should recognize at December 31,2019?
 EXERCISE 14

The following information pertains to Powder Blue Company at December 31,2019:

Inventory, January 1 P 1,400,000
Purchases during the year 6,600,000
Inventory, December 31:
Cost 1,200,000
NRV 1,000,000
Prior to 2019, the application of the lower of cost and net realizable value never produced a write down
in the company’s inventory to an amount below cost.

REQUIRED: What is the cost of goods sold and assuming the company applies the lower of cost and net realizable
using the allowance method?
 EXERCISE 15

The Philam Grocers Company uses the first in first out in calculating the cost of goods sold for the two
products that the company sells. At January 1,2019, the balance of inventory account was P 435,000 and the
allowance on inventory write down had a balance of P 15,000.
Inventories and purchases information concerning these two products are given for the year 2019:

Date Transaction Product X Product Y

Jan 1 Inventory 2,500 @ P 120 1,500 @ P 90
Jan 1- Dec 31 Purchases ( in 2,000 @ P 122 1,000 @ P 94
chronological 2,400 @ P 124 1,500 @ P 95
order) 3,000 @ P 125 2,000 @ P 98
Jan 1- Dec 31 Sales 7,000 @ P 150 5,000 @ P 124
At December 31,2019, because of a government order, Philams suppliers reduced the prices of both Product X
and Product Y by 10% effective January 1,2020. As a consequence, Philam also reduced its selling prices for both
product X and Y effective January 1,2020. Selling cost is consistently 10% of the sales price.

REQUIRED:
a.) Determine the cost of the inventory of Product X and Y at 12/31/2019.
b.) At what amount should the inventory be shown on December 31,2019, statement of financial position?
c.) How much cost of goods sold will be shown in the statement of comprehensive income for the year ended
12/31/2019?
d.) How much gain or loss shall be recognized as a result of measuring the inventories at the lower of cost and net
realizable value?
e.) Give the entries to set up the ending inventory and the adjustment of the related valuation account at the end
of the year.
 EXERCISE 16

On January 1,2019, ABC Company purchased merchandise from DEF Company with trade discounts of 15% and
20%. The list price is P 1,000,000 with payment terms of 2/10, n/30. On January 5, 2019, ABC company returned
P 50,000 worth of goods and paid its accounts to DEF Company on January 10,2019. Assume the company uses
perpetual method to account for their inventories.

REQUIRED: Prepare the entries under gross price, net price and allowance method.