NAME: Lorraine Joy M.

Abanilla BSA-1 SECTION CODE: 075

PROFESSOR: Mr. Remi Gabon SUBJECT: INTACC-1

Activity 4 (A04) - Inventory Estimation Methods 3.0

Problem 1
On November 2, a flood destroyed the warehouse of RUBBER Company. Prior to the incident, the
records of the company shows that the inventory had an opening balance of P1,550,000 on January
1. The following records were still recovered after the flood devastation:

Requirements: (6 points)

Compute the following:

1. Cost of goods sold.

2. Estimated cost of ending inventories.

3. Cost of inventories destroyed by flood

Assumption 1: The gross profit rate of 20% is based on sale.

Assumption 2: The gross profit rate of 20% is based on cost/cost of goods sold.
 Problem 1

ASSUMPTION 1: The gross profit rate of 20% is based on sale

Sales 100%
Cost of sales 75%
Gross profit 25%

REQUIREMENT 1

Sales ₱ 6,000,000
Less: Sales return 550,000
Net sales ₱ 5,450,000
Multiplied by: Cost ratio 75%
Cost of sale/Cost of goods sold ₱ 4,087,500

REQUIREMENT 2

Purchases, including inventories still in transit,

January 1 to October 31 ₱ 4,100,000
Less: Purchase discount, January 1 to October 31 75,000
Less: Purchase returns and allowances, January 1 to
October 31 110,000
Add: Freight-in 30,000
Net purchases ₱ 3,945,000
Add: Beginning inventories 1,550,000
Cost of goods available for sale ₱ 5,495,000
Less: Cost of goods sold 4,807,500
Estimated ending inventories ₱ 687,500

REQUIREMENT 3

Estimated ending inventories ₱ 687,500

Less: Inventory still in transit 105,000
Less: Undamaged inventory recovered after the flood 95,000
Cost of inventories destroyed by flood ₱ 487,500
ASSUMPTION 2: The gross profit rate of 20% is based on cost/cost of goods sold.

Sales 120% : 120%/120% = 100%

Cost of sales 100% : 100%/120% = 83.33%
Gross profit 20% : 20%/ 120% = 16.67%

REQUIREMENT 1

Sales ₱ 6,000,000
Less: Sales return 550,000
Net sales ₱ 5,450,000
Multiplied by: Cost ratio 83.33%
Cost of sale/Cost of goods sold ₱ 4,541,485

REQUIREMENT 2

Purchases, including inventories still in transit,

January 1 to October 31 ₱ 4,100,000
Less: Purchase discount, January 1 to October 31 75,000
Less: Purchase returns and allowances, January 1 to
October 31 110,000
Add: Freight-in 30,000
Net purchases ₱ 3,945,000
Add: Beginning inventories 1,550,000
Cost of goods available for sale ₱ 5,495,000
Less: Cost of goods sold 4,541,485
Estimated ending inventories ₱ 953,515

REQUIREMENT 3

Estimated ending inventories ₱ 953,515

Less: Inventory still in transit 105,000
Less: Undamaged inventory recovered after the flood 95,000
Cost of inventories destroyed by flood ₱ 753,515
Problem 2
At the end of 2020, HARD Company reported the following information:

Requirements: (6 points)

Compute the following:

1. Cost of goods sold.

2. Estimated cost of ending inventories.

Assumption 1: Conservative method

Assumption 2: Average method
Assumption 3: First-in, first-out method
Problem 2

COST RETAIL COST RATIO

Beginning inventories ₱ 1,000,000 ₱ 1,500,000

Add: Purchases 12,000,000 16,400,000

Less: Purchase discounts 300,000 -

Less: Purchase returns and allowances 320,000 440,000

Add: Freight – in 20,000 -

Add: Mark up - 400,000

Less: Mark up cancelation - 130,000

Goods available for sale-conservative ₱ 12,400,000 ₱ 17,730,000 = 69.94%

Less: Mark down - 340,000

Add: Mark down cancelation - 110,000

Goods available for sale-average ₱ 12,400,000 ₱ 17,500,000 = 70.86%

Less: Beginning inventories 1,000,000 1,500,000

Goods available for sale- FIFO ₱ 11,400,000 ₱ 16,000,000 = 71.25%

Sales ₱ 11,000,000
Less: Sales returns and allowances 580,000
Add: Employee
discounts 400,000
Net sales ₱ 10,820,000
 COST RETAIL

Goods available for sale-average ₱ 12,400,000 ₱ 17,500,000

Less: Spoilages and breakages 60,000 60,000
Goods available for sale-average, adjusted ₱ 12,340,000 ₱ 17,440,000
Less: Net sales 10,820,000
Estimated ending inventories at retail ₱ 6,620,000

Assumption 1: Conservative Method

REQUIREMENT 1 CONSERVATIVE

Goods available for sale-average, adjusted ₱ 12,400,000

Less: Estimated ending inventories at cost 4,630,028
Cost of goods sold ₱ 7,769,972

REQUIREMENT 2
CONSERVATIVE
Estimated ending inventories at
retail ₱ 6,620,000
Multiplied by : Cost ratio 69.94%
Estimated ending inventories at cost ₱ 4,630,028

Assumption 2: Average Method

Requirement 1 AVERAGE

Goods available for sale-average, adjusted ₱ 12,400,000

Less: Estimated ending inventories at cost 4,690,932
Cost of goods sold ₱ 7,709,068

Requirement 2
AVERAGE
Estimated ending inventories at retail ₱ 6,620,000
Multiplied by : Cost ratio 70.86%
Estimated ending inventories at cost ₱ 4,690,932
Assumption 3: FIFO Method

REQUIREMENT 1 FIFO

Goods available for sale-average, adjusted ₱ 12,400,000

Less: Estimated ending inventories at cost 4,716,750
Cost of goods sold ₱ 7,683,250

REQUIREMENT 2 FIFO

Estimated ending inventories at

retail ₱ 6,620,000
Multiplied by : Cost ratio 71.25%
Estimated ending inventories at cost ₱ 4,716,750