Problem 1

Cost under FIFO basis 26,000

Net Realizable Value (40,000 – 12,000) 28,000

Lower of Cost and Net Realizable Value 26,000

Problem 2
Product A B C D Total Cost
Cost 102 45 24 9 874,800
Net Realizable Value 105 42 22 10
Estimated Sales Price 120 60 30 15
Estimated Disposal Costs 15 18 8 5
Lower of Cost and NRV 102 42 22 9
Multiply:
Number of Units 4,000 6,000 5,500 7,200
LCNRV of Inventory 408,000 + 252,000 + 121,000 + 64,800 = 845,800
Inventory Writedown P0 (3 x 6,000) + (2 x 5,500) = 29,000

Problem 3
There is Inventory Writedown when NRV is Lower than Cost.
12/31/18 12/31/19 12/31/20
Lower of Cost and NRV 300,000 480,000 600,000
Cost (FIFO) 380,000 500,000 660,000
Inventory Writedown 80,000 20,000 60,000

Beginning Inventory Writedown P0 80,000 20,000

Ending Inventory Writedown 80,000 20,000 60,000
Loss on Inventory Writedown 80,000 (60,000) 40,000
Gain on Reversal

Direct Method
2019 2020
Beginning Inventory 300,000 480,000
Purchases 1,200,000 1,400,000
Goods Available for Sale 1,500,000 1,880,000
Ending Inventory (480,000) (600,000)
Cost of Goods Sold 1,020,000 1,280,000

Sales 2,900,000 3,200,000

Cost of Goods Sold (1,020,000) (1,280,000)
Gross Profit 1,880,000 1,920,000
Selling Expenses (330,000) (450,000)
Administrative Expenses (310,000) (300,000)
Net Income 1,240,000 1,170,000

Allowance Method
2019 2020
Beginning Inventory 380,000 500,000
Purchases 1,200,000 1,400,000
Goods Available for Sale 1,580,000 1,900,000
Ending Inventory (500,000) (660,000)
Loss on Inventory Writedown 40,000
Gain on Reversal (60,000)
Cost of Goods Sold 1,020,000 1,280,000

Sales 2,900,000 3,200,000

Cost of Goods Sold (1,020,000) (1,280,000)
Gross Profit 1,880,000 1,920,000
Selling Expenses (330,000) (450,000)
Administrative Expenses (310,000) (300,000)
Net Income 1,240,000 1,170,000
Problem 4
Cost under FIFO basis 200,000
Net Realizable Value (204,000 – 10,000) 194,000
Loss on Inventory Writedown 6,000

Problem 5
Beginning Inventory 1,400,000
Purchases 6,600,000
Goods Available for Sale 8,000,000
Ending Inventory (1,200,000)
Loss on Inventory Writedown 200,000 (1,200,000 – 1,000,000)
Cost of Goods Sold 7,000,000

Problem 6
Inventory Units Computation
Product X (2,500 + 2,000 + 2,400 + 3,000 – 7,000) = 2,900
Product Y (1,500 + 1,000 + 1,500 + 2,000 – 5,000) = 1,000

Inventory End – FIFO

Product X (2,900 x 125) = 362,500
Product Y (1,000 x 98) = 98,000

Inventory End – NRV

Product X Product Y
Selling Price (90% x 150) 135
(90% x 124) 111.60
Selling Cost (10% x 135) (13.50)
(10% x 111.60) (11.16)
NRV per unit 121.50 100.44
Multiply: Inventory End in Units 2,900 1,000
NRV in Pesos 352,350 100,440
Cost – FIFO 362,500 98,000 = 460,500
LCNRV 352,350 + 98,000 = 450,350
Inventory Writedown (Required Allowance) 10,150

Product X Product Y Total

Beginning Inventory – Cost 300,000 135,000 435,000
Purchases 916,600 432,500 1,349,100
Goods Available for Sale 1,216,600 567,500 1,784,100
Ending Inventory – Cost 362,500 98,000 (460,500)
Gain on Reversal (15,000 - 10,150) (4,850)
Cost of Goods Sold 1,318,750

Allowance for Inventory Writedown 4,850

Gain on Reversal of Inventory Writedown 4,850

Problem 7
Case a
December 31, 2020 Journal Entry (1,200 – 1,150) x 1,000 = 50,000
Loss on Purchase Commitment 50,000
Estimated Liability for Purchase Commitment 50,000

February 28, 2021 Journal Entry

Purchases 1,150,000
Estimated Liability for Purchase Commitment 50,000
Accounts Payable 1,200,000

Case b
December 31, 2020 Journal Entry (1,200 – 1,150) x 1,000 = 50,000
Loss on Purchase Commitment 50,000
Estimated Liability for Purchase Commitment 50,000
February 28, 2021 Journal Entry (1,150 – 1,100) x 1,000 = 50,000 additional loss
Purchases 1,100,000
Estimated Liability for Purchase Commitment 50,000
Loss on Purchase Commitment 50,000
Accounts Payable 1,200,000

Case c
December 31, 2020 Journal Entry (1,200 – 1,150) x 1,000 = 50,000
Loss on Purchase Commitment 50,000
Estimated Liability for Purchase Commitment 50,000

February 28, 2021 Journal Entry (1,150 – 1,220) x 1,000 = 70,000 gain on purchase commitment
Purchases 1,200,000
Estimated Liability for Purchase Commitment 50,000
Accounts Payable 1,200,000
Gain on Purchase Commitment 50,000

*Gain on purchase commitment is only limited to the previously recorded loss.