Explanation: A gain on reversal of inventory write-down is recognized if loss on

inventory write-down was recognized in prior periods. The amount of the gain is
limited to the amount of prior loss recognized.

NOTE: Not part of the coverage of the FTE

Explanation: Under the FIFO cost formula, cost of sales is represented by cost of
beginning inventory and earlier batch of purchases while ending inventory is
represented by the cost of recent purchases.
Explanation: Short-term and Long-term interest bearing notes are measured
initially at Face Amount while Long-term non-interest bearing notes are initially
measured at Present Value.
Explanation: Unearned Interest Income is presented as a deduction from the face
amount of the related Loans Receivable account.
Explanation: Indirect origination costs are charged as outright expense by the
Creditor.
Particulars Units Unit Cost Total Cost
Balance Jan 1 (Beginning inventory) 40,000.00 5 200,000.00
January 10 Purchases 12,000.00 7 84,000.00
January 24 Purchases 8,000.00 9.5 76,000.00
Total goods available for sale 60,000.00 360,000.00

Average unit cost (average periodic) [ P360,000 divided by 60,000 units] 6.00

January 7 sales (in units) 25,000.00

January 19 sales (in units) 20,000.00
Total units sold 45,000.00
X Average unit cost 6.00
COST OF SALES FOR THE MONTH OF JANUARY 270,000.00
Explanation: FOB destination means the Seller is responsible for the cost of the
freight but the same was paid by the Buyer (Freight collect) subject to
reimbursement upon remittance of the amount due to the Seller. Hence, the
Seller recognizes the Allowance for Freight Charge related to the sale.
Explanation: If the freight on the goods purchased is paid by the Seller, the term
of shipment is understood to be FOB Destination. Accordingly, the related
purchase should NOT form part of the cost of ending inventory.
Explanation: Goods out on consignment are part of the inventory of the
Consignor. The cost of transporting the goods to the consignee is part of the cost
of the inventory since the goods out on consignment are not yet considered sold.
Explanation: Cash refunds given to customers on the return of merchandise sold
to them relate to prior CASH SALES. Accordingly, they are not considered in the
determination of the AR balance.
NOTE: Excluded from the coverage of the FTE
Explanation: The cost of freight should form part of the cost of inventory if the
related purchase was made under the term FOB Shipping Point.
Accounts receivable 1,000,000.00
Notes receivable, collectible within 14 months (NOC is 15 months) 2,000,000.00
Advances to suppliers 1,500,000.00
Trade and other receivables 4,500,000.00

Explanation: The Receivable from officers is a nontrade receivable, hence, must

be collectible within 12 months from the end of the reporting date to be classified
as current. The customer’s credit balances must be reclassified as current
liabilities.
ANSWER: Zero

Explanation: The note is interest bearing, hence, no unearned interest income is

recognized upon receipt of the note from the customer.
NOTE: Not part of the coverage of the FTE
Accounts not due -
1-30 days past due (P1,000,000 x 5%) 50,000.00
31-60 days past due (P400,000 x 7%) 28,000.00
61-90 days past due (P200,000 x 10%) 20,000.00
over 90 days (P200,000 x 20%) 40,000.00
Required AFDA 138,000.00

Accounts receivable (P1,200,000 + P1,000,000 + P400,000 + P200,000 + P200,000) 3,000,000.00

AFDA (138,000.00)
Net realizable value 2,862,000.00
NOTE: Not part of the coverage of the FTE
Inventory, Jan 1 1,000,000.00
Purchases 12,000,000.00
Purchase returns and allowances (500,000.00)
Total goods available for sale 12,500,000.00
Estimated cost of sales (P15,000,000 x 75%) (11,250,000.00)
Estimated cost of ending inventory at the time of fire 1,250,000.00
Salvaged goods:
Partially damaged [ NRV P80,000, Cost P75,000 (P100,000 x 75%) whichever is lower ] (75,000.00)
Undamaged goods (P200,000 x 75%) (150,000.00)
Estimated inventory fire loss 1,025,000.00
NOTE: Not part of the coverage of the FTE
 Accounts Receivable
Beginning balance 1,000,000.00 Collections net of discount 6,860,000.00
Sales on account 11,000,000.00 Sales discount 140,000.00
Recovered accounts 15,000.00 Collections without discount 4,000,000.00
Accounts written off 30,000.00
Collection of recovered accounts 15,000.00
Sales returns 40,000.00
Ending balance 930,000.00
Total 12,015,000.00 Total 12,015,000.00
NOTE: Not part of the coverage of the FTE
 Accounts Receivable
Beginning balance 1,000,000.00 Collections net of discount 6,860,000.00
Sales on account 11,000,000.00 Sales discount 140,000.00
Recovered accounts 15,000.00 Collections without discount 4,000,000.00
Accounts written off 30,000.00
Collection of recovered accounts 15,000.00
Sales returns 40,000.00
Ending balance 930,000.00
Total 12,015,000.00 Total 12,015,000.00

Accounts receivable as at end of the year 930,000.00

Rate of uncollectibility (P40,000 / P1,000,000) 0.04
Allowance for doubtful accounts, adjusted 37,200.00
NOTE: Not part of the coverage of the FTE
ANSWER: P3,900,000 (P4,050,000 less P150,000)

NRV = Estimated selling price less cost to complete and cost to sell

Carrying amount is the lower between cost and NRV

ANSWER: P 1,000,000

The note is non-interest bearing. Accordingly, the Maturity value and Carrying
amount are equal to the Principal amount of the note. Further, the amount of
discount is equal to the loss on discounting.
Unadjusted inventory 1,500,000.00
Adjustments:
Goods in transit, purchased FOB shipping point 40,000.00
Goods in transit sold to Sasa Lee, FOB destination (P17,500 / 140%) 12,500.00
Adjusted cost of ending inventory 1,552,500.00

Explanation:
Item B- Goods were held on consignment. The goods should form part of the inventory of ConSai Knor.
Item C- Goods were purchased under the term FOB destination (freight was paid by the Seller)
ANSWER: Invoice price (P1,000,000 x 80% x 90%) = Php 720,000

Explanation:
Trade discounts are deducted from the list price to arrive at the invoice price.
Explanation:
NRV or Cost, whichever is lower.
Explanation:
Trade discounts are given to encourage customers to buy in bulk (high volume) and to reward customers’
patronage of the Company’s products.
Explanation:
Advances to suppliers and Claims receivable, though classified as nontrade, are usually reported as
current assets. Subscriptions receivable, if silent on the timing of collection, are duly reported as CONTRA
EQUITY items.
NOTE: Not included in the coverage of the FTE
ANSWER: P1,200,000

NOTE: Not included in the coverage of the FTE

NOTE: Not included in the coverage of the FTE
Particulars Units Unit Cost Total Cost
Balance Jan 1 (Beginning inventory) 40,000.00 5 200,000.00
January 10 Purchases 12,000.00 7 84,000.00
January 24 Purchases 8,000.00 9.5 76,000.00
Total goods available for sale 60,000.00 360,000.00

Average unit cost (average periodic) [ P360,000 divided by 60,000 units] 6.00

Cost of ending inventory (15,000 units x P6) 90,000.00

 Accounts Receivable Accounts receivable as at end of the year 930,000.00
Beginning balance 1,000,000.00 Collections net of discount 6,860,000.00 Rate of uncollectibility (P40,000 / P1,000,000) 0.04
Sales on account 11,000,000.00 Sales discount 140,000.00 Allowance for doubtful accounts, adjusted 37,200.00
Recovered accounts 15,000.00 Collections without discount 4,000,000.00
Accounts written off 30,000.00 AFDA
Collection of recovered accounts 15,000.00 Ending balance 37,200.00 Beginning balance 40,000.00
Sales returns 40,000.00 Write off 30,000.00 Recovery 15,000.00
Ending balance 930,000.00 Provisions ( expense) 12,200.00
Total 12,015,000.00 Total 12,015,000.00 Total 67,200.00 Total 67,200.00
NOTE: Not included in the coverage of the FTE
ANSWER: Net payment (P1,000,000 x 80% x 90% x 98%) = P705,600

Invoice price is equal to the List Price less trade discounts

Net payment is equal to the Invoice price less any cash discount