purposes para mas mabenta
siya.
Inventories – Overview
 The applicable accounting standards applied in
inventories is the Philippine Accounting
Standards (PAS) or International Accounting
Standards (IAS) 2.
Inventories
 Inventories is an asset held for sale in the
ordinary course of business. Prinoduce mo with
the intention na ibenta in the ordinary course of
business or in the daily operation of the
business.
- Wholesale and retail are classified as
merchandise inventory.
 Wholesale
 Retail
 Process of Production
- Raw Materials, Work in Process or
Goods in Process, and Finished Goods
are classified as manufacturing
inventory.
 Supplies
 Materials
- Direct Materials: Ginagamit sa
paggawa mismo sa product
- Indirect Materials: Mga
palamuti na lang para mas
gumanda and mas mabenta
yung product.
 Rendering Services
- Direct Labor: Mismong
paggawa exactly nung finished
goods or product
- Indirect Labor: Mga palamuti na
lang din. Pwedeng hindi ilagay
pero nilalagay mo for salability
Classes of Inventories
 Merchandising
- Merchandise Inventory
 Manufacturing
- Finished Goods
Inventory
- Goods in Process or
Work in Process
Inventory
- Raw Materials
Inventory
- Factory and
Manufacturing Supplies
(Indirect materials and
labor)
Inclusions of Inventories
In order for us to determine if an item is
inventoriable or not, it undergo first to what we
call legal test. It means that we have the
ownership, we have the title. If that is the case,
we have the control on the asset (we can do
anything we want to that asset e.g., sell, make it
as collateral).
a. Goods that are owned on hand.
 Ikaw yung may-ari and nasayo. It does not
necessarily mean that nasa physical location
mo. The title to the inventory regardless of
location.
b. FOB Destination and Goods Sold in
Transit
 Kapag FOB Destination, yung ownership ng
goods na binebenta natin is mapapasa lang
natin sa buyer the moment na makarating sa
kanya.
 Goods sold in transit ikaw yung nagbenta. Si
seller yung may legal ownership. Tatandaan na
goods in transit ay binenta natin FOB
destination.
 Kapag nakita sa problem na Goods in Transit na
ibinenta natin tapos FOB Shipping Point, hindi
na siya kasama sa inventories natin.
 c. FOB Shipping Point and Purchased in
Transit
 Yung ownership ng goods na binenta natin is
mawawala na sa atin the moment na idedeliver
na siya sa customer.
 Sa FOB Shipping point, tayo na customer yung
magbabayad or may legal ownership ng goods.
 Kapag nakita natin sa problem goods purchased
in transit and FOB Destination, hindi pa yon sa
atin.
d. Goods on Consignment
 Under consignment, halimbawa tayo yung may-
ari ng business and nagbebenta tayo. Yung
binebenta natin ay ipinabebenta natin sa agents
natin.
 Consignor is yung mismong may-ari ng business
na nagpapatinda ng kanyang paninda. Yung mga
goods out on consignment, tayo pa rin yung
may inventory non regardless kung nasaan man
ang location non.
 Consignee yung inutusan magbenta for
commission basis. Hindi atin yung inventories
na yon.
 Kapag nakita natin sa problem na, pinapabenta
sayo, ikaw yung consignee and nakalagay sa
inyong usapan na considered sold whether na
maibenta mo or hindi, ibig sabihin nasa
consignee yung inventory.
 Kapag tayo yung nagcoconsigned ng goods,
wala tayong journal entry. Meron lang tayo ng
memorandum entry only. Ang nakalagay don ay
product A was sold in consignment basis
amounting to 200, 000 pesos.
e. In the hands of salesmen/ agent
- Yung pinapabenta natin sa mga
salesmen on a commission
basis, tayo pa rin yung
nagmamay-ari ng inventory.
f. Goods Hand by Customer on Approval
or Trial
- Kung for approval for the
customer lang siya, ang
ownership non ay nasa seller pa
rin kase pinapatest lang natin.
The mentioned terms above are all inventories
under legal test, but there is an exception of
that. It is what we call installment sale. We
received payment in installment. In real life,
even the goods is purchased through
installment, the goods are in possession of the
customers already. Kaya siya tinatawag na
substance over form. It means that kahit na
installment sale or kahit siya full blown sale, by
substance, binenta mo na rin naman eh.
Hinihintay mo na lang din magfull payment.
Kahit ganon, si seller tayo, nirerecognize na
natin siya as sale tapos meron etong deferred
income. Kase meron pa tayong hinihintay na
mga payments. Sa part ni buyer, purchase niya
eto that’s why yung inventory ay na kay buyer
na.
Seller –
Deferred Income
Buyer –
Purchase
Presentation of Inventories
Inventories are presented in financial statement,
particularly in statement in financial position, under
current assets with specific line-item inventories.
 One line item and disclosure to the notes
what’s the breakdown
 Kung maraming laman yung inventories mo,
particularly ikaw ay manufacturing, yung
breakdown non ay makikita sa notes of financial
statement nakadisclosed. Under disclosure,
andoon yung breakdown, yung nature ng
inventories.
Additional Information:
Why the classification of inventories is current asset
even though nadadala siya from one accounting period
to another accounting period and next accounting
period if hindi pa talaga siya nabebenta tulad ng PPE?
 Kase yung definition of current asset is if it is
held for sale or consumption within the normal
operation of business, either matagal yan sa 1
year or less than 1 year. Sa definition, yung
 inventories is held for sale in the ordinary
course business. It means that yung intention
mo is mabenta kaagad, hindi naman magamit
mo sa matagal na panahon. Wala namang
negosynate yung gusto na tumagal yung
products niya.
Inventory Discounts
Accounting For Inventories
 Periodic System
- Hindi mo kailangan ikeep tract daily
kapag may pumapasok or lumalabas na
inventory.
- Small amount but large volume.
- Year-end counting
- Cost of Ending Inventory -
ActualCount ×Cost of Inventory
 Perpetual System
- Kinekeep tract mo kung ilan na lang
yung natitirang inventory and kung
magkano na lang yung cost of sales
natin as of this moment.
- Merong stock cards na tinatawag – dito
kinekeeptract yung inflow and outflow
- Large amount but small volume.
The difference of Periodic and Perpetual inventory
system in terms of accounting is sa perpetual, instead of
Methods of Recording Purchase
purchases yung ginagamit na account in recording
entries, ang ginagamit mo is inventory. Sa perpertual,
pag magrerecord ng freight-in, hindi freight-in yung
ginagamit, inventory. Under pa rin ng inventory yung
pamasahe kase kinakarga mo siya sa costing ng paninda
mo.
Inventory Shortages
 Normal Shortage
- Normally nangyayari lalo na kung may
nasisira, nabubulok.
- Nagmamanufacture ka ng shampoo
dosehan yon, kapag may nasira sa isa,
wala na yon lahat, dispose na lahat yon.
Normal lang yon na nangyayari.
- Yung mga nasira is chargeable sa Cost
of Goods Sold
 Abnormal Shortage
- Kapabayaan yung naging result, mga
isolated cases.
- It is part of other expenses.
 Trade Discount
- Ginagamit para maencourage na bumili
ng marami yung customers
- Hindi siya nirerecord kase binibigyan
mo siya ng list price tyaka mo
binabawas yung trade discount bago
siya maging invoice price.
- Nirerecord siya in invoice price.
 Cash Discount
- Ang purpose ng Cash discount ay
masingil mo ng maaga yung customer
mo na nangutang sayo ng paninda.
- Kaya may nakagalay pag cash discount
na “quoted” na bibigyan mo siya ng
discount kapag nakapagbayad siya
within the given discount period kase
nga ineencourage mo yung customer na
magbayad sayo ng maaga.
 Gross Method
- This is the one na typical na ginagawa
sa practice. Kung magkano talaga yung
invoice price, yon talaga yung
nirerecord.
- It violates the matching principle, yung
matching of cost sa income kase yung
nangyayari sa gross ay nirerecognize
lang yung discount kapag naavail mo
yung discount, kung di mo naavail, di
mo irerecord.
- Ang mangyayari yung discount ay
magiging purchase discount loss.
- Discount loss is under expense,
particularly miscellaneous expense or
other expense.
 Net Method
 - Nirerecord mo in net of discount.
Naadvance na yung discount.
Theoritically, net method daw yung
maganda. Practically, yung gross
method yung ginagamit.
Measurement of Inventories
nagproprovide na lang tayo ng
allowance. Ang tawag don ay Allowance
for Obsolescence or Allowance for
Inventory Obsolescene.
- Allowance for Inventory Obsolescence
means obsolete na luma na, pwedeng
hindi na maibenta, or kung maibebenta
mo ay mabababa na ang value.

 Initial Measurement
- At cost
- Kung magkano natin binili
a. Cost of Purchase
- Merchandise Inventory
- Kung magkano mo talaga siya
binili
- Nakacash basis
- Purchase price plus import
duties

b. Cost of Conversion
- Naconvert siya from raw
materials to finished goods
- Manufacturing Inventory
- Direct Materials, Direct Labor,
Factory Overhead

c. Other Costs directly attributable of

bringing the asset from the inventory to
location or condition
- Kapag kasali, capitalizable.
- Kapag hindi kasali, outright
expense.

Excluded:

- Abnormal wasted materials,

labor, and overhead
- Storage cost

In other words, lahat ng ginastos mo para

yung product ay maging saleable,

 Subsequence Measurement
- Lower of Cost and Net Realizable Value
- Net realize value is the recoverable
amount of the inventory. Kung
magkano mo lang siya irerecover.
- Merong mga inventories na pwedeng
luma na at hindi na maibebenta kaya