INVENTORIES – CONTINUATION

b. Cost, insurance and freight (CIS) – buyer agrees to pay in a lump sum the cost of the goods, insurance
cost and freight charges. The seller must pay for the cost of loading. Thus, title and risk of loss shall pass
to the buyer upon delivery of the goods to the carrier.

c. Ex-ship (super FOB destination) - seller bears all expenses and risk of loss until the goods are unloaded
at which time and risk of loss shall pass to the buyer.

Consigned Goods

Consignment –method of marketing of goods in which the owner called the consignor transfers physical
possession of certain goods to an agent called the consignee who sells them on the owner’s behalf.

Rule: Consigned goods shall be included in the consignor’s inventory and excluded from the consignee’s
inventory. Freight and other charges on goods out on consignment are part of the cost of goods
consigned.

Periodic System and Perpetual System

Periodic System – calls for the physical counting of goods on hand at the end of the accounting period to
determine quantities. This procedure is generally used when the individual inventory items turn over
rapidly and have small peso investment such that it may prove impractical or inconvenient to record
inventory inflow and outflow, such as groceries, hardware and auto parts.

Perpetual System – requires the maintenance of records called stock cards that usually offer a running
summary of the inventory inflow and outflow. This procedure is commonly used where the inventory
items treated individually represent a relatively large peso investment. This is designed for control
purposes.

Trade Discounts and Cash Discounts

Trade discounts

 deductions from the list catalog price in order to arrive at the invoice price which is the amount
actually charged to the buyer

 to encourage trading or increase sale.

Cash discounts

 deductions from the invoice price when payment is made within the discount period

 to encourage prompt payment.

Inventory Costing Methods

First in, First out (FIFO) Method

 Goods first purchased are first sold

 Inventory is stated at current replacement cost.

 In the period of inflation, FIFO method would result to the highest net income. I

 In a period of deflation or declining prices, FIFO method would result to the lowest net income.

Note: Under FIFO-periodic and FIFO-perpetual, the inventory costs are the same.

Weighted Average – Periodic

 The cost of beginning inventory plus the total costs of purchases during the period is divided by the
total number of units purchased plus those in the beginning inventory to get the weighted average unit
cost. Such weighted average unit cost is then multiplied by the units on hand to derive the inventory
value.

Weighted Average – Perpetual (moving average method)

 A new weighted average unit cost must be computed every after purchase. Such weighted average unit
cost is then multiplied by the units on hand to get the inventory cost.