Not to Give Offense MONDAY 10 AUGUST 2020

GOSPEL READING: Matthew 17:22-27

22 As they were gathering in Galilee, Jesus said to them, "The Son of man is
to be delivered into the hands of men, 23 and they will kill him, and he will
be raised on the third day." And they were greatly distressed. 24 When they
came to Capernaum, the collectors of the half-shekel tax went up to Peter
and said, "Does not your teacher pay the tax?" 25 He said, "Yes." And when
he came home, Jesus spoke to him first, saying, "What do you think, Simon?
From whom do kings of the earth take toll or tribute? From their sons or
from others?" 26 And when he said, "From others," Jesus said to him, "Then
the sons are free. 27 However, not to give offense to them, go to the sea
and cast a hook, and take the first fish that comes up, and when you open
its mouth you will find a shekel; take that and give it to them for me and for
yourself."
PRAYER: Lord Jesus, your death brought true life and freedom. May I always
walk in the freedom and power of your love and truth and reject whatever is
contrary to your will for my life.
 LA SALLIAN PRAYER

 “Let us remember that we are in the holy presence of

God.”

 “ I will continue O my God to do all my actions for the

love of you. “

 “Saint John Baptist de La Salle, pray for us!”

 “Live, Jesus, in our hearts! Forever!”.

 Cost Flow Assumptions
1. Specific Identification
2. Average Cost
Moving Average Method
Weighted Average Method
3. First In First Out Method
 Specific Identification

 Specific cost are attributed to identify items of inventory. This is

the appropriate treatment for items that are segregated for a
specific project, regardless of whether they have been bought or
produced.
 However, it is inappropriate when they are large numbers of items
that are ordinarily interchangeable (identical).
 In such circumstances, the method of selecting those items that
remain in inventories could be used to obtain predetermined
effects on profit and loss. It offers opportunity to manipulate
income.
 It is used when a small number of costly distinctive items are sold.
 Examples: jewelry, automobile, artwork
 Average Cost
 Under the weighted average the cost formula, the cost of each item is determined from the
weighed average of the cost of similar items at the beginning of a period and the cost of the
similar items purchased or produced during the period.
 The average may be calculated on a periodic basis or as each additional shipment is received,
depending upon the circumstances of the entity.
 Items in the beginning inventory and items sold are priced at the average cost of goods available
for sale during the period. It considers the goods to indistinguishable and therefore valued at an
average of the cost incurred.
1. Moving-Average Method (Perpetual System) – requires the computation of a new average
after each purchase. Issues are priced at the latest average unit cost.
2. Weighted-Average Method (Periodic System) – average cost is determined only once at the
end of the period.
Average Cost = Cost of Goods Available for Sale, Units Available for Sale
 First In, First Out (FIFO) Method
 The FIFO formula assumes that the items of inventory that were
purchased or produced first are sold first, and consequently the items
remaining in inventory at the end of the period are those most
recently purchased or produced.
 Assumes goods are used in the order purchased. The earliest cost are
charged to the cost of goods sold and ending inventory are stated at
the recent costs.
 A better valuation for inventory is achieved because ending inventory
is reported at their approximate replacement cost.
 In periods of rising costs, ending inventory is highest under FIFO.
 While this method presents ending inventory at approximately current
cost, it does not match current cost against current revenues
 First In, First Out (FIFO) Method
First In First Out Method (FIFO) UNITS PRICE AMOUNT
Total Goods Available for Sales (TGAS) 10,000.00 43,900.00
MI- Beginning 2,000 4.00 8,000.00
Puchases - 03-15-2020 2,000 4.40 8,800.00
COST OF GOODS SOLD 4,000 16,800.00
TOTAL INVENTORY - 03-31-2020 27,100.00

First In First Out Method (FIFO) UNITS PRICE AMOUNT

Total Goods Available for Sales (TGAS) 10,000.00 43,900.00
Puchases - 03-30-2020 2,000.00 4.75 9,500.00
Puchases - 03-15-2020 4,000.00 4.40 17,600.00
TOTAL INVENTORY - 03-31-2020 6,000.00 27,100.00
COST OF GOODS SOLD 16,800.00
LOWER OF COST and NET REALIZABLE VALUE
 Inventories shall be measured at the lower of cost or net
realizable value (NRV). Inventory must be written down to
net realizable value (NRV) subsequent to its acquisition if its
utility is no longer as great as its cost.
 Possible Reasons: Decline in the value of inventories due to;
 1. Obsolescence 2. Price level changes 3. Damaged goods
 The loss is recognized in the period the decline incurred.
Any reversal should be recognized in the Income Statement
in the period in which the reversal occurs.
 NET REALIZABLE VALUE (NRV)
NRV is th e estimated selling price in the ordinary
course of business less the estimated cost of
completion and the estimated costs necessary to
make the sale. The NRV is an approximate of
market price or market of the inventory.
Lower of cost or net realizable value (NRV) is
applied on an item by item basis or individual basis.
It can be consistently applied to batches of a
product using a FIFO or weighted average cost flow
assumptions or groups of similar products.
RECORDING OF INVENTORY WRITE-DOWN
 A. Direct Method – record write-down of inventory
cost to net realizable value directly in its inventory
and cost of goods sold account.
 B. Allowance Method – record the market decline as
an increase to a loss account and an allowance
account which is deducted from inventory on the
statement of financial position. The allowance
account must be adjusted each period.
DIRECT METHOD
ACCOUNT NAME DEBIT CREDIT
Loss Due to Decline to NRV 12,000.00
Inventories 12,000.00
To record inventory write-down to NRV 12,000.00 12,000.00
INTERNAL CONTROL FOR INVENTORIES
1. Clear lines of responsibility
2. Effective record keeping
3. Segregation of duties between
employees
4. Insurance foe key assets
5. Adequate security system
EX. 5-4 – LESTER COMPANY
EX.5-4.1 – INVENTORY COST – LESTER CO.
Exercise 5 – 4:
Inventory Cost
LESTER COMPANY
PROBLEM SOLVING Unadjusted Adjusted Ramarks
Lester Company provides the following data with respect to its inventory:
Goods counted in the warehouse 1,000,000.00 1,000,000.00
Goods included in the count specifically segregated per sales contract 25,000.00 - Already accounted
Goods in the receiving department, returned by customer, in good condition 12,500.00 12,500.00 Seller's good
Goods ordered and in the receiving department, invoice not received 100,000.00 100,000.00
Goods ordered, invoice received but goods not received. Freight paid by seller 75,000.00 -
Goods shipped today, invoice mailed, FOB shipping point 62,500.00 - Buyer's good
Goods shipped today, invoice mailed, FOB shipping destination 38,000.00 38,000.00
Goods currently being used for window display 50,000.00 50,000.00
Goods in the counter for sale 200,000.00 200,000.00
Goods in the receiving department, refused by us because of damage 45,000.00 - Supplier's good
Goods included in count, damaged and unsalable 12,500.00 - To be written-off
Goods in the shipping department 67,500.00 67,500.00
Compute the correct amount of inventory. 1,688,000.00 1,468,000.00
 Gross and Net Method Purchase Discount

 Gross Method – Under the gross method purchases is recorded at gross

amount. If the payment is made within the discount period, the buyer will
recognized purchase disccount:
GROSS METHOD
Purchases of goods on account 2/10, n/30 amounting to P10,000
ACCOUNT NAME DEBIT CREDIT
Purchases 10,000.00
Accounts Payable 10,000.00
To record purchases 2/10, n/30 10,000.00 10,000.00

Upon payment within discount period

ACCOUNT NAME DEBIT CREDIT
Accounts Payable 10,000.00
Purchase Discount 200.00
Cash 9,800.00
To record payment of accountwithin discount period 10,000.00 10,000.00
 Net Method of Recoding Purchase Discount
 The net method assumes that every supplier will pay in time to receive a
purchase discount. At the time of a purchase, record the discounted invoice
amount at net in the accounting journal. Debit the purchases account by
the discounted invoice amount to decrease the accounts payable by the amount
that is expected to pay.
Date Account Name - Net Method Debit Credit
Purchases 9,800.00
Accounts Payable 9,800.00
To record purchase on account - 2/10, n/30 9,800.00 9,800.00

Date Account Name - Net Method Debit Credit

Accounts Payable 9,800.00
Purchases 200.00
Cash 10,000.00
To record ppayment beyond dicount period- 2/10, n/30 10,000.00 10,000.00
EX.5-4.2 Trade Discount is Deduction from SRP

Patient Retailers purchased merchandise with a list price of ₱150,000, subject to a

trade discount of 15 percent and credit terms of 2/10, n/30.
At what amount should Patient record the cost of this merchandise if the gross
method is used?
Particulars Amount
List Price 150,000.00
Less: Trade discount - 15% 22,500.00
Invoice Price 127,500.00

Patient Retailers purchased merchandise with a list price of ₱150,000, subject to a

trade discount of 15-10 and credit terms of 2/10, n/30.
Particulars Long Method Short Method
List Price 150,000.00 150,000.00
Less: Trade discount - 15% 22,500.00 85%
Net 127,500.00 127,500.00
Less: Trade discount - 10% 12,750.00 90%
Invoice Price 114,750.00 114,750.00

Trade Discounts 35,250.00 35,250.00

EX.5-4.2 PURCHASE DISCOUNTS-Less from Selling Price
 Trade Discount is reduction from the SRP (Suggested Retail Price) regular, established
price of a product. The use of trade discounts allows a company to vary the final price
based on each customer's volume or status. Trade discount is not recorded.

Date Account Name - Gross Method Debit Credit

Purchases 127,500.00
Accounts Payable 127,500.00
To record ppurchase on account - 2/10, n/30 127,500.00 127,500.00

Date Account Name - Net Method Debit Credit

Purchases 124,950.00
Accounts Payable 124,950.00
To record ppurchase on account - 2/10, n/30 124,950.00 124,950.00

 Purchase discount is a reduction from the purchase price if the payment is made within a
discount period, say 2/10, n/30. This means that buyer is given 30 days to settle the
accounts but if paid within the discount period of10 days, 2% cash discount is granted.
EX.5-4.3 Shipping Terms and Inventoriable Cost
3. Shipping Terms & Inventoriable Cost. Super Sale Club

Unadjusted Balance 36,400.00 36,400.00

 Merchandise costing ₱3,700 ordered on December 22, 2020; shipped to the company 3,700.00 - 3,700.00
FOB destination and arrived on January 2, 2021.
 Merchandise costing ₱4,800 held on consignment. 4,800.00 - 4,800.00
 Merchandise costing ₱6,200 ordered from a supplier on December 26, 2020; shipped 6,200.00
FOB shipping point on December 28 but had not arrived by December 31.
 Merchandise costing ₱5,900 ordered by a customer on December 27, 2019; shipped FOB 5,900.00
destination on December 29, 2020 for arrival at the customer’s warehouse on January 5, 2021
Compute the correct amount of inventory to be reported in Super Sale’s December 31, 2020 36,400.00 27,900.00
EX. 4a KDS Clothing Cost Flow FIFo and Moving Average
1. Compute for the Total Goods Available for Sales PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE AMOUNT
MI- Beginning 100 120.00 12,000.00
Puchases - 10-06-2020 40 125.00 5,000.00
Puchases - 10-15-2020 70 130.00 9,100.00
Puchases - 10-25-2020 40 130.00 5,200.00
Total Goods Available for Sales (TGAS) 250 31,300.00

2. Compute for the MI-Beginning

EX. 4 - KDS CLOTHING PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE INVENTORY-END
Puchases - 10-15-2020 60 130.00 7,800.00
Puchases - 10-25-2020 40 130.00 5,200.00
TOTAL INVENTORY - 03-31-2020 - 40 13,000.00

2. Compute for the Cost of Sales 31,300.00 13,000.00 18,300.00

Determine the Cost of Goods Sold

EX. 4 - KDS CLOTHING PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE COST OF SALES
Total Goods Available for Sales (TGAS) 250 31,300.00
Total Inventory - 10-31-2020 100 13,000.00
Cost of Sales 150 18,300.00
 EX.5-4.4a KDS Clothing Cost Flow (FIFO)

PERPETUAL METHOD
KIDS CLOTHING - SL RECORD - INVENTORY UNITS PRICE INVENTORY
MI- Beginning 100 120.00 12,000.00
Puchases - 10-06-2020 40 125.00 5,000.00
Sales - 10-10-2020 - FIFO - 50 120.00 - 6,000.00
Puchases - 10-15-2020 70 130.00 9,100.00
Sales - 10-20-2020 FIFO - 100 123.00 - 12,300.00
Puchases - 10-25-2020 40 130.00 5,200.00
TOTAL INVENTORY - 03-31-2020 100 13,000.00
PERPETUAL METHOD
First In First Out Method (FIFO) UNITS PRICE COST OF SALES
MI- Beginning 50 120.00 6,000.00
MI- Beginning 40 120.00 4,800.00
Puchases - 10-15-2020 60 125.00 7,500.00
Cost of Sales- FIFO 150 18,300.00

Total Goods Available for Sales (TGAS) 250 31,300.00

 The Perpetual Inventory System provides a continuous record

balance of Inventory and Cost of Goods Sold account.
 EX.5-4.4 - TOTAL GOODS AVAILABLE FOR SALE
PERPETUAL METHOD
First In First Out Method (FIFO) UNITS PRICE AMOUNT
MI- Beginning 100 120.00 12,000.00
Puchases - 10-06-2020 40 125.00 5,000.00
Puchases - 10-15-2020 70 130.00 9,100.00
Puchases - 10-25-2020 40 130.00 5,200.00
Total Puchases 19,300.00
Total Goods Available for Sales (TGAS) 250 31,300.00
 The total cost of goods available for sale is the sum total recorded cost of
beginning finished goods or merchandise inventory in an accounting period, plus the
cost of merchandise purchase or any finished goods produced or added during the
period.
EX.5-4.4a KDS Clothing - Cost Flow (FIFO)
Determine by Physical Inventory Count
EX. 4 - KDS CLOTHING PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE INVENTORY-END
Puchases - 10-15-2020 60 130.00 7,800.00
Puchases - 10-25-2020 40 130.00 5,200.00
TOTAL INVENTORY - 03-31-2020 100 13,000.00

 Under FIFO - The earliest cost are charged to the cost of goods sold and ending
inventory are stated at the recent costs.
Determine the Cost of Goods Sold
EX. 4 - KDS CLOTHING PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE COST OF SALES
Total Goods Available for Sales (TGAS) 250 31,300.00
Total Inventory - 10-31-2020 100 13,000.00
Cost of Sales 150 18,300.00

 The Periodic Inventory System-No record. Inventory at the end of the period
is determined by physical Count and Cost of Goods Sold is calculated.
EX.5-4.4a Determine the Cost of Goods Sold using FIFO

Determine the Cost of Goods Sold using FIFO

EX. 4 - KDS CLOTHING PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE AMOUNT
MI- Beginning 50 120.00 6,000.00
MI- Beginning 40 120.00 4,800.00
MI- Beginning 10 120.00 1,200.00
Puchases - 10-06-2020 40 125.00 5,000.00
Puchases - 10-15-2020 10 130.00 1,300.00
Cost of Sales 150 18,300.00

 Under FIFO - The earliest cost are charged to the cost of goods sold and ending
inventory are stated at the recent costs.
 EX.5-4.4b-MOVING AVERAGE (PERPEPTUAL SYSTEM)
MOVING AVERAGE (PERPEPTUAL SYSTEM)
MOVING AVERAGE (PERPEPTUAL SYSTEM) UNITS PRICE INVENTORY-END
MI- Beginning 100 120.00 12,000.00
Puchases - 10-06-2020 40 125.00 5,000.00
Sales - 10-10-2020 - 50 121.43 - 6,071.43
Puchases - 10-15-2020 70 130.00 9,100.00
Sales - 10-20-2020 - 100 125.18 - 12,517.86
Puchases - 10-25-2020 40 130.00 5,200.00
TOTAL INVENTORY - 10-31-2020 100 12,710.71

MOVING AVERAGE (PERPEPTUAL SYSTEM)

Cost of Sales UNITS PRICE COST OF SALES
Sales - 10-10-2020 - 50 121.43 - 6,071.43
Sales - 10-20-2020 - 100 125.18 - 12,517.86
Cost of Sales - 150 - 18,589.29

 The Perpetual Inventory System provides a continuous record balance of Inventory

and Cost of Goods Sold account.
 EX.5-4.4b-MOVING AVERAGE (PERPEPTUAL SYSTEM)
MOVING AVERAGE (PERPEPTUAL SYSTEM)
MOVING AVERAGE (PERPEPTUAL SYSTEM) UNITS PRICE AMOUNT
MI- Beginning 100 120.0000 12,000.00
Puchases - 10-06-2020 40 125.0000 5,000.00
Moving Average 140 121.4286 17,000.00
Sales - 10-10-2020 - 50 121.4286 - 6,071.43
Moving Average 90 121.4286 10,928.57
Puchases - 10-15-2020 70 130.0000 9,100.00
Moving Average 160 125.1786 20,028.57
Sales - 10-20-2020 - 100 125.1786 - 12,517.86
Moving Average 60 125.1786 7,510.71
Puchases - 10-25-2020 40 130.0000 5,200.00
Moving Average 100 127.1071 12,710.71
TOTAL INVENTORY - 10-31-2020 100 127.11 12,710.71

 Under the weighted average the cost formula, the cost of each item is determined from the weighed
average of the cost of similar items at the beginning of a period and the cost of the similar items
purchased or produced during the period.
 Moving-Average Method (Perpetual System) – requires the computation of a new average after each
purchase. Issues are priced at the latest average unit cost.
EX5-4.5 COST FLOW – FIRST IN FIRST OUT(FIFO)
EX.5-4.5 - TOTAL GOODS AVAILABLE FOR SALE-PERIODIC-FIFO

PINE SHOP PERIODIC METHOD-FIFO

First In First Out Method (FIFO) UNITS PRICE AMOUNT
MI- Beginning-01-01-2020 100.00 50 5,000.00
Puchases - 01-09-2020 300.00 125 37,500.00
Puchases - 01-19-2020 90.00 130 11,700.00
Total Goods Available for Sale 490.00 54,200.00
 Inventory at the end of the period is determined by physical count number to
150 units.
 The Periodic Inventory System- No record. Inventory at the end of the period is
determined by physical Count and Cost of Goods Sold is calculated.
EX.5-4.5a Determine the Cost of Goods Sold using FIFO
Determine the Inventory- End by Physical Count
EX. 5 PINE SHOP PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE AMOUNT
Puchases - 01-19-2020 90.00 130 11,700.00
Puchases - 01-09-2020 60.00 125 7,500.00
Inventory 01-31-2020 150.00 19,200.00

 Under FIFO - The earliest cost are charged to the cost of goods sold
and ending inventory are stated at the recent costs.
Calculate the Cost of Sales
EX. 5 PINE SHOP PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE AMOUNT
MI- Beginning-01-01-2020 100.00 50 5,000.00
Puchases - 01-09-2020 240.00 125 30,000.00
Total Cost of Sales 340.00 130 35,000.00

 Under FIFO - The earliest cost are charged to the cost of goods sold
and ending inventory are stated at the recent costs.
Calculation-Cost of Sales and M.Inventory-End
Calculate the Cost of Sales
EX. 5 PINE SHOP PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE COST OF SALES
Total Goods Available for Sale 490.00 110.61 54,200.00
Less: MI- Ending-01-31-2020 150.00 19,200.00
Cost of Sales 340.00 35,000.00

Determine the Inventory- End by Physical Count

EX. 5 PINE SHOP PERIODIC METHOD-FIFO
First In First Out Method (FIFO) UNITS PRICE INVENTORY-END
Total Goods Available for Sale 490.00 110.61 54,200.00
Less: Cost of Sales 340.00 130.00 35,000.00
Inventory 01-31-2020 150.00 19,200.00
6. Gross Purchase and Net Purchase Method
6. Gross Purchase and Net Purchase Method

ACE CORPORATION
Gross and Net Puchase Method
Particulars Amount Remarks
Purchases 3,400,000.00 2/10, n/30
Purchases Return and Allowances - 100,000.00 Within seven (7) days
Net Purchase 3,300,000.00
Total Discount 66,000.00 2%
Puchase Discount Taken 34,000.00
Puchase Discount Lost 32,000.00
7. Cost Flow (Single Transaction)
 EX.5-4.7 Cost Flow (Single Transaction)

EX. 7 VRL ENTERORISE PERPETUAL METHOD-FIFO

MOVING AVERAGE (PERPEPTUAL SYSTEM) UNITS PRICE AMOUNT
MI- Beginning-08-01-2020 20,000.00 10.00 200,000.00
Sales - 08-15-2020 - 17,500.00 10.00 - 175,000.00
Puchases - 08-22-2020 10,000.00 16.00 160,000.00
MI- Beginning-08-31-2020 12,500.00 14.80 185,000.00
EX.5-4.8. Inventory Cost and NRV: Estimation
 EX.5-4.8. Inventory Cost and NRV: Estimation

COMMODITY HYPER
Particulars Amount Answer Key
Estimated Selling Price 2,400.00 12.00
Less: Selling Expenses - 440.00 2.40
Net realizable Value 1,960.00 14.40
Cost of Commodity 1,500.00 7.80
 Inventories shall be measured at the lower of cost or net realizable value (NRV).
Inventory must be written down to net realizable value (NRV) subsequent to its
acquisition if its utility is no longer as great as its cost.