Inventories (PAS 2) Problem Solving:

- Held for sale = Trading 1. Bodega/warehouse = Business

- In the process of production = Manufacturing 2. Specifically segregated per sale contract (may buyer na, pero
- Rendering of services = Services hindi pa kinukuha) = Buyer
3. Lugar ng negosyo, hindi iisa lang. May ibang department (iba
Trading physical location, wala sa warehouse) returned in good
- Merchandise Inventory/Inventory condition = Business
4. Receiving department (returned or purchased) = Business
Manufacturing Note:
a. Finished goods - pinakatapos na. a. Inventory first, without invoice = Buyer included.
b. Goods in process = hindi pa tapos, getting there. - Doesn’t matter kung may invoice or wala.
c. Raw materials = basic, para mabuo ang mina-manufacture. - Importante nasa atin na yung inventory.
d. Factory or Manufacturing supplies = not directly included in the b. Invoice first, without inventory = Not included.
product, kailangan lang gamitin but hindi ibebenta. Significance - Physical inventory kasi dapat ang dumating.
is so little, not considered as RM. Like: Indirect materials. 5. Items ordered, invoice before inventory; freight is paid by the
seller (irrelevant) = Ignored
Service Note:
- Labor and other costs of personnel directly engaged in - Nalalaman kung sino owner ng inventory.
providing the service. - General rule: Owner = shoulders the freight.
- Ex. Supervisory personnel. 6. Items shipped today, invoice mailed, FOB shipping point =
Ignored
Inclusions Note:
- Titulo ay naipasa na = pwede na isama sa inventory. - Ikaw nagbebenta.
- Actual delivery - Invoice is irrelevant.
- Symbolical delivery = Ex. Land (Title) Car (Key) - Items shipped = important.
a. Goods owned and on hand - FOB SP (pinasa na agad kay buyer; freight ay kay
- Normal sa warehouse. buyer)
b. Goods in transit and sold FOB destination 7. Items shipped today, invoice mailed, FOB destination =
- Nung nagta-travel = ang may-ari si Seller pa rin. Business
c. Goods in transit and purchased FOB shipping point Note:
- Umalis pa lang sa warehouse papunta sayo = may-ari - Hindi important ang invoice.
ay Buyer. - Wala na sa bodega kasi ni-ship na.
d. Goods out on consignment - FOB destination (nagtatravel pa inventory)
- “Patinda” - Included kahit wala sa bodega (since FOB D)
- Hindi nabili = isasauli sa may-ari (consignor) 8. Currently being used for window display = Business
- May commission si consignee. - Sa salamin = may nakadisplay = Business
e. Goods in the hand of salesman or agents - Kahit nasaan man (bodega, receiving, display) =
- Agent = extension of yourself. Business kasi nasa lugar.
- Inventory pa rin ng business. 9. Items on counter for sale = Business
f. Goods held by customer on approval or on trial 10. In receiving department, refused by us because of damage =
- Ex. Nag-aalok ng product. “Subukan po muna” = Not included.
Babalikan na lang para bilhin. Note:
 - Hindi tinatanggap kasi may damage. - “Tawad”/Hindi initial na value.
- Nirerefuse nga ba’t ia-add. - Cash discounts = encourage prompt payment.
11. Items included in count, damaged and unsalable = Deducted - Gross method (on credit = take adv.)
- Hindi na maibebenta (held for sale) - Hindi kasama sa cost yung discount.
- Loss na ito. - Rebates
12. Items in shipping department = Business - May criteria na dapat ma-meet.
Note: - Kung within 1 month = 100k units of inv.
- Nasa part ng business, saan man yan. - Kung di pa namemeet = wala pang discount.
- Kahit saang lugar ng business mo. - Part ng binayad = marerecover.
- Hindi pa nakakaalis at wala pang buyer. Ignored
- FOREX differences
Measurement of Inventories - Exchange rate ay nababago.
1. Initial Measurement - Not treated as a cost.
- At Cost (Purchase, Conversion, DACs) - Interest expense over financing period.
- Kung magkano yung inventories nung unang lumabas. - Bumibili on credit.
2. Subsequent - Usapan = 3 or 4 years to pay.
- Lower of Cost at NRV - May interest on credit compared to
- Magkano value nung lumipas ang panahon. cash prompt payment.
- Ex. Motor (Cash = mura) (Installment
Initial Cost of Inventories = mahal)
1. Cost of Purchase Problem Solving;
Purchase Price - List price - Trade discount = Invoice Price + Other cost
+ Import duties - Invoice Price x Cash Discount (% x N) = Net Payment + Other
- Hindi lahat ng paninda, nasa PH. Ex. Duty Cost (F.I.) = Total payment/Cr. Cash
free. Other nations to PH. Not an expense 2. Cost of Conversion
+ Irrecoverable taxes + Direct labor
- Hindi na maita-transfer sa ibang tao. + Overhead
- Component ng inventory. - Hindi directly na makikita yung effect sa
- Ex. VAT product pero kailangan.
- (a) VAT registered (input-output VAT) a. Factory expenses
= Recoverable. - Ex. Ilaw at Tubig
- (b) Non-VAT registered (Buyer) = b. Indirect materials
IRRECOVERABLE since can’t be - Little to nothing ang contribution.
transferred. - Ex. Rugby, Molder
+ Freight cost c. Indirect labor
- Kung wala yung pamasahe (hindi madadala - Contribution wala sa product.
kung saan gagamitin) - Ex. Janitor (matatapos kaya nang
+ Handling cost maayos ang production)
- May magbubuhat ng inventory (vehicle to - Do not form part of the product.
shipment) Cost behavior
+ Other DACs a. Fixed
- Trade discounts - same gastos regardless of the units produced.
 - Ex. Rent 6. Materials in transit, FOB destination = Ignored
- Constant over time. 7. Defective materials returned to suppliers for replacement =
b. Variable Ignored kasi nireturn nga.
- related to the level of production. 8. Shipping supplies = nature: related to production dapat hindi
- Ex. Glue selling efforts = Ignored
3. Other cost 9. Gas and oil for testing FG = Added (bring to condition for
- Ex. cost incurred due to customer’s specification. intended use, hindi mabenta na walang testing) (OH)
- Can it be capitalized/add to the cost ng inventory? Yes! 10. Materials lubricants = Added (OH = Production supplies)

Exclusions Subsequent Measurement

1. Abnormal wastages - LCNRV (Lower of Cost and Net Realizable Value)
- If included = Deducted - Item by item basis. Ex. Item A - cost and Item B - NRV
- Separate item = Ignored. - Kung ano mas mababa = conservatism principle.
- Process or nature.
- Ex. Sterilized = Boiled = Evaporation = Normal Formula:
wastages = Part of inventory, not deducted. NRV = SP - CTS - CTC == Benefit na.
- Pwede iwasan pero nangyari.
- Ex. Iniinom ng employee yung milk = nabawasan ang Goods in process:
weight. - Assumed na tapos na, estimated nga lang.
- Ex. Accident, nabasag ang lalagyan.
2. Storage cost Reasons why SP<Cost: Tubo<puhunan
- Item (Raw materials or WIP) = Included. 1. Inventories are damaged - Ex. Fire/loss/pest
- Finished goods = Expense/Not capitalizable. 2. Becomes wholly/partially obsolete - Ex. Typewriter to printer
- Wala na sa criteria for DACs. 3. SP have declined - Ex. Market behavior.
- Nasa condition na eh. 4. Est. cost of completion/selling has increased - Ex. Nagmahal
- For the purpose of selling. yung proseso, etc.
3. Administrative/Distribution/Selling expense Rule:
- Operating expense. a. Cost is higher than NRV
- Ex. Salary of accountant. - With inventory writedown (pababain ang value)
- Ex. Vendor (sumarap ba yung product?) b. Cost is less than NRV
- Needed by the business but not included in the - No acctg problem. Dapat mabenta nang mas mataas.
inventory. - No inventory writedown.

Problem Solving: Accounting Method:

1. Finished goods in storeroom; at cost including overhead = a. Direct/COGS Method
Added (natural na part ng cost ang overhead kaya no effect) - Diretso na sa COGS. Nagrereflect na sa COGS.
2. FG in transit, freight charge; FOB SP = Ignored Inventory, end
3. FG held by salesman at selling price; cost = Added = at cost Income Summary
ang idadagdag. - Mas mataas ang COGS.
4. WIP, at cost of materials & direct labor = Kunin ang overhead b. Allowance
rate = Added ang tatlo (DM,DL,OH) - Nagkaroon ng write down/loss
5. Materials = Raw materials = Added Loss on IWD
 Allow on IWD. - Ending Inventory in the last period = Beginning Inventory in the
- Reflect the NRV. Same lang. next year/period.
- TGAS - COGS (From GP rate) = Ending Inventory
Presentation:
- In case of loss: Problem Solving: Gross Profit Method - Fire Loss
- BI + NP = TGAS - EI = COGS B4 WD + LOSS ON IWD 2020:
= COGS AFTER IWD. Sales 6,000,000 100%
- In case of recovery: COGS 4,500,000 75%
- BI + NP = TGAS - EI = COGS B4 WD - GAIN ON IWD G.P. 1,500,000 25%
= COGS AFTER IWD.
Allow on IWD COGS = BI+NP-EI
Gain on recovery/reversal of IWD 2021:
Sales 9,000,000 100%
Problem Solving: COGS 8,500,000 70%
- Normal profit is ignored. G.P. 1,500,000 30%
NRV = SP - CTS - CTC
130-15 = 115
90-10=80 Ending Inventory
45-5=40 - Undamaged merchandise (LCNRV dapat)
75-15=60 - If at cost = diretso
- Mamimili lang ano mas mababa between Cost and NRV. - If selling price given = amount x G.P. rate)
- Damaged merchandise (LCNRV dapat)
Problem Solving: Goods in Transit - NRV lower (recoverable from fire loss)
1. Shipped FOB D (Dec 2019) Received (Jan 2020) = Added to = Inventory Fire Loss
Seller
2. Shipped FOB SP; same date = Ignored by Seller
3. Shipped by vendor FOB D; same date = Ignored by buyer
4. Purchased FOB SP;same date = Added by buyer

Problem Solving: Gross Profit Method

Last Year:
Sales 7,500,000 100%
COGS 5,975,000 (BI+NP=TGAS-EI) 73%
G.P. 2,025,000 (GP/Sales) 27%

- Kung ano GP rate nakaraan = applied to the next period.

Next Year:
Sales 4,500,000
COGS 3,285,000 (4.5M - 1.215M)
G.P. 1,215,000 (4.M x 27%)