A220 - INTERMEDIATE ACCOUNTING 1

PRELIM REQUIREMENT

REFLECTION PAPER

Real Excellence Online (REO) Webinar on Intermediate Accounting (FAR):

Inventories: Recognition and Management

Held on Tuesday, October 11, 2022

Via Live in Real Excellence Online (REO) CPA Reviewer FB Page

Submitted by:
MOLINA, Dianna Lynn L.
BSA-2 Block 4

Submitted to:
Ma’am Remedios A. Palaganas, CPA, MBA
Instructor
PART 1: About the Guest Speaker
In the free online webinar held by Real Excellence Online (REO) CPA
Review on October 11, 2022, I met Prof. Karim G. Abitago, CPA. Our time on the
webinar was well spent as we learned a lot from his discussion. Throughout the
presentation, he explained everything without difficulty and made sure the
viewers understood what he was saying. He used terms that students could
easily understand. Additionally, he certainly tried his best to keep us entertained
during the webinar by cracking jokes. I could tell how passionate he was about
delivering his knowledge through the way he went about explaining it to
everyone. Many viewers of his lectures, particularly students, have commented
on how well he explains FAR concepts. In situations where there is a problem or
conflicting viewpoints, he also provides examples of how this idea applies.
Prof. Karim G. Abitago, CPA, achievements:
● CPA Board Topnotcher, Top 1 May 2016
● Former Audit Associate, SGV & Co.
● FAR CPA reviewer in various review schools
● Outstanding Educator – ACLADEB
PART 2: Summary of the Webinar
On October 11, 2022, the REO held a free webinar. The objectives of
the webinar were to discuss one of the subtopics of Intermediate Accounting
(FAR), which is the recognition and measurement of inventories.
In the first part of the webinar, Mr. Rex Banggawan, CPA, MBA gave an
introduction and gave an overview of the purpose and features of REO. He
discussed how effective, efficient, and convenient the system is. He also
discussed the REO programs. After his term, he called on Prof. Karim Abitago,
who served as a reviewer on that webinar.
Prof. Karim Abitago, CPA discussed what inventory is, its recognition,
and measurement.
He discussed about the three definitions of inventories under PAS 2
under the definition of inventory, and these inventories are:
● Held for sale in the ordinary course of business.
● In the process of production for such sales.
● In the form of materials or supplies to be consumed in the production
process or in the rendering of services.

Also, he discussed how inventory is different from all the other assets of
a company, and the classes of inventories.
➔ Classes of inventory vary in accordance with the entity’s nature of
business:
a. Merchandising Business – Merchandise Inventories
b. Manufacturing Business – Finished Goods Inventories; Work in
Process Inventories; Raw Materials Inventories and Factory
Supplies
c. Service Business – Work in Progress in Inventories

Under the recognition, he also discussed when an item is considered

inventory, which goods must be included in inventory, the general rule, and its
exceptions. Aside from that, he also discussed the various shipping terms and
illustrated how they are processed, how to determine who owns the inventory,
and how to determine if you are the consignor or consignee.
➔ According to PSA 2, an item is recognized as inventories if it satisfies the
probable rule.
➔ GENERAL RULE: The one who has POSSESSION has LEGAL TITLE
➔ EXCEPTIONS:
1. GOODS IN TRANSIT
a. FOB Shipping Point
b. FOB Destination
c. Free Alongside (FAS)
d. Cost, Insurance, Freight (CIF)
 e. Ex-ship
2. CONSIGNED GOODS - the owner of consigned goods is the
consignor (the shipper).
Inventoriable Costs:
● Freight cost and other handling costs of goods out on
consignment.
Non-inventoriable Costs:
● Freight costs if the consigned goods are returned to
the consignor.
● The original freight cost of returned consigned goods.
● Storage cost and other reimbursable costs charged to
the consignor.
● Freight cost to final customer.
3. INVENTORY FINANCING AGREEMENTS
a. Sales with a Repurchase Agreement - owner is the Seller
b. Pledge of Inventories - owner is the Pledge or Borrower
c. Loan of Inventory - owner is the Borrower
4. SALE OR RETURN - owner is the Buyer
5. SALE ON TRIAL OR APPROVAL - owner is the Seller
6. INSTALLMENT SALE - owner is the Buyer
7. BILL AND HOLD SALE - owner is the Buyer
8. LAY-AWAY SALE - owner is the Seller
9. SPECIAL ORDER SALE - owner is the Buyer upon completion

Moving under the measurement, he discussed how to measure

inventories, how to compute cost using various formulas, how to use and when to
use the specific identification, FIFO method, and the average method. Last but
not the least, he discussed the concept of NRV (net realizable value) and
showed how to compute it, also how to determine LCNRV.
INITIAL MEASUREMENT: COST
➔ ELEMENTS OF COST:
● Cost of Purchase
● Cost of Conversion
● Other necessary costs in bringing inventories to their present
location and condition.
SUBSEQUENT MEASUREMENT: LOWER OF COST OR NET
REALIZABLE VALUE (LCNRV)
➔ COST FORMULAS:
● Specific Identification
● First In, First Out (FIFO) Method
● Average Method
 ➢ Periodic System - Weighted Average Method
➢ Perpetual System - Moving Average Method

CONCEPT OF NRV
- Measuring inventories at the lower of cost or NVR is in line with the
basic accounting concept that an asset shall not be carried at an
amount in excess of amounts it is expected to be realized
(recoverable amount).
- So if:
● Cost > NVR = There is inventory write-down
● Cost < NVR = There is reversal of inventory write-down if
there is a previous inventory write-down
HOW TO COMPUTE NRV
a. Finished Goods/Merchandise Inventories: ESP – ECTS
b. Work-in-Process Inventories: ESP – ECTS – ECTC
c. Raw Materials and Factory Supplies: Current Replacement Cost
ESP = Estimated Selling Price
ECTS = Estimated Cost to Sell
ECTC = Estimated Cost to Complete
DETERMINATION OF LCNRV
- Lower of Cost or NRV (LCNRV) is applied on an ITEM BY ITEM
BASIS.
- This is applied to all types of inventories except for RAW
MATERIALS AND FACTORY SUPPLIES.
- These items of inventories are tested for possible write-down only if
the related finished goods are to be written down.

At the end of his discussion, he provided some tips on how to better

study and comprehend accounting effectively and efficiency.
PART 3: What I have Learned
It was a pleasure to participate in the webinar, particularly learning from
Prof. Karim Abitago. Taking part in the webinar has been a great experience for
me. I learned new things that will be of great help to me and to my major classes.
The lesson taught me a lot from the beginning to the end. I learned the classes of
inventories vary in accordance with the entity's nature of business. One is in the
merchandising business, where there is only one inventory, called merchandise
inventory. Another one is in manufacturing, where there are three inventories:
finished goods inventories, work-in-process inventories, and raw material
inventories. Another one of them is in the service business, and it is called a
work-in-progress inventory. Moreover, I learned when an item is considered
inventory, what goods must be included in inventory, as well as exceptions, which
helped me to understand how the inventory is transported to its destination and
who is responsible for its costs. I also learned that there are not only two shipping
terms but five; the FOB shipping point, FOB destination, free alongside (FAS),
the cost, insurance, freight (CIF), and the ex-ship. Aside from that, I learned how
to determine who owns the inventory. In order to know who owns the inventory,
you need to learn where the point of transfer of ownership is. As Prof. Karim
Abitago said, always check the shipping terms because it will dictate who owns
the inventory or goods in transit. I also learned how to determine if you are the
consignor or consignee. I also learned how to measure inventories. There are
two measurements in measuring inventories; the initial measurement, and the
subsequent measurement. As I've learned about measurement, not all prices are
capitalized or need capitalization. There are things that should be capitalized and
things that should not be capitalized. I also learned how to compute costs using
different cost formulas, the specific identification, the FIFO method, and the
average method, which are quite interesting to solve. Lastly, I learned how to
compute net realizable value, and how to determine LCNRV.
As a result of webinar discussions, I have discovered that it is critical to
know a concept deeply. This is because the more I know about the concept, the
easier it is to apply it to a problem. Therefore, as Prof. Karim said, we must keep
reading and practicing what we have learned to master the concept, and spend
more time studying it and understanding it.
PART 4: E-Certificate and Documentary