AEC 12

- ACB

Inventories
NACAYA | OAFERINA | PAANO | PAILAGAO
PALOMAR | PAYOT | PITAO | QUIDLAT | QUIMZON
 PROBLEM 6: Number 4
Total Inventory
The records of Mint Co. show the following:
PROBLEM 6: Number 4
Total Inventory

Requirement:
Compute for the balance of inventory.
PROBLEM 6: Number 4
Total Inventory
Answer:
PROBLEM 6: Number 4
Total Inventory
Relevant Terms:
Product Financing Agreement - a seller sells inventory to a buyer but
assumes an obligation to repurchase it at a later date. The seller retains
ownership over the inventory.

Pledge of Inventory - a borrower uses its inventory as collateral

security for a loan. The borrower retains ownership over the inventory.

Warehouse Financing - a third party holds the inventory and acts as

the creditor's agent.
PROBLEM 6: Number 4
Total Inventory
Relevant Terms:
Loan of Inventory - an entity borrows inventory from another entity to
be replaced with the same kind of inventory.

Installment sale - sale where the possession of the goods is transferred

to the buyer but the seller retains legal title solely to protect the
collectability of the amount due is considered as a regular sale
PROBLEM 6: Number 4
Total Inventory
Relevant Terms:
Bill-and-hold agreement - is a contract (of sale) under which a seller
bills a customer but retains physical possession of the goods until it is
transferred to the customer at a future date. Included on the buyer's
inventory, excluded on the seller's

Lay away sale - is a type of sale in which goods are delivered only when
the buyer makes the final payment in a series of installments. Included
in the seller's inventory until delivered.
PROBLEM 6: Number 4
Total Inventory
Per item analysis:
INCLUDED
a. Inventory on display shelves, per physical count
b. Inventory stocked in warehouse, per physical count
d. Inventory purchased on installment basis; physical possession was
obtained but the seller retained the legal title to protect the collectability
of the purchase price, not included in the physical count
e. Inventory pledged as collateral security for a bank loan, not included in
the count
g. Inventory sold but Mint Co. is obligated to repurchase at a future date;
not included in the physical count
PROBLEM 6: Number 4
Total Inventory
INCLUDED

Explanation:
- a and b are both finished goods not yet sold so control is still on Mint Co.
- d it should be included in the physical count since it is still in possession
- e is included since Mint Co., the borrower, retains ownership over the
inventory
- g is included since the arrangement does not result to transfer of control
over the asset
PROBLEM 6: Number 4
Total Inventory
NOT INCLUDED
c. Inventory sold under a bill and hold agreement, included in the stock of
inventory in warehouse
f. Inventory purchased under a lay away sale plan, physical possession is
not yet obtained until full payment of the purchase price
Explanation:
- the given in letter c is in the buyer's inventory upon billing not in Mint
Co.'s, however, it should be deducted in the warehouse inventory since it
was included in it.
- letter f given is a lay away, therefore, it can only be recognized as part of
the inventory when there is already physical possession of goods
 PROBLEM 6: Number 9
Write-down of Inventory
Information on Mangosteen Co.s December 31, 20x1 inventory is
shown below:
PROBLEM 6: Number 9
Write-down of Inventory
Requirements:
a. Compute for the inventory to be presented in Mangosteen's
December 31, 20x1 statement of financial position.
b. Compute for the amount of write-down to be recognized in
20x1 profit or loss.
PROBLEM 6: Number 9
Write-down of Inventory
Answer:
 PROBLEM 6: Number 9
Write-down of Inventory
Step by step process:
Step 1: Compute for the total cost (purchase price + freight-in) for every
product line.

Explanation:
- Included in the Total Cost are Purchase Price which is the net of trade discounts and
other rebate. Also included is the transport cost (freight in). Purchase Price and Transport
Cost is added together to get the Purchase Cost
 PROBLEM 6: Number 9
Write-down of Inventory
Step by step process:
Step 2: Compute for the total net realizable value (selling price – freight-out)
for every product line.

Explanation:
- Pas 2.7, NRV is the estimated selling price in the ordinary course of the business less the
estimated costs of completion and the estimated costs necessary to make the sale.
- Selling Price is deducted with selling costs (Freight Out) to get the Net Realizable Value.
PROBLEM 6: Number 9
Write-down of Inventory
Step by step process:
Step 3: Compare the amounts between the total cost and total NRV and input
the lower amount.

Explanation:
- Comparing the amounts between the total cost and total NRV would help determine if
there should be a write down in inventory.
PROBLEM 6: Number 9
Write-down of Inventory
Requirement (a): Inventory Valuation

Explanation:
-Inventories are measured at the lower of cost and net realizable value. This is in line with
basic accounting concept that an asset shall not be carried at an amount that exceeds its
recoverable amount.
-Both Product A a C’s inventories are measured at Lower of Cost while the Product B is
measured at Lower of Net Realizable Value
PROBLEM 6: Number 9
Write-down of Inventory
Requirement (b): Write-down

Explanation:
- Product A is not written down because the cost is lower than the NRV.
- Product B is written down because the cost exceeds the NRV (P 55,000).
- Product C is not written down because the cost is lower than the NRV.

Computation:
Write-down (Product B)
= 225,000 (NRV) - 280,000 (Total Cost)
= (55,000)
THANK YOU!