INVENTORY COST FLOW AND LCNRV

Problem 1
An entity provided the following data relating to an inventory item:
Date Units Unit cost Total cost
Jan. 1 Beginning balance 5,000 200 1,000,000
Jan. 10 Purchase 5,000 250 1,250,000
Jan. 15 Sales 7,000 - -
Jan. 16 Sales return 1,000 - -
Jan. 30 Purchase 16,000 150 2,400,000
Jan. 31 Purchase return 5,000 150 750,000

1. What is the cost of inventory on January 31 using FIFO approach?

a. 2,250,000
b. 2,650,000
c. 3,000,000
d. 3,750,000
2. What is the cost of inventory on January 31 using periodic average approach?
a. 3,000,000
b. 2,785,650
c. 3,321,450
d. 3,375,000
3. What amount should be reported as inventory on January 31 using perpetual average
approach?
a. 2,550,000
b. 2,475,000
c. 2,250,000
d. 3,375,000

Problem 2
An entity has two products in the inventory.
Product A Product B
Selling price 2,000,000 3,000,000
Materials and conversion costs 1,500,000 1,800,000
General administration costs 300,000 800,000
Estimated selling costs 600,000 700,000

What amount should be reported as inventory under LCNRV?

a. 3,700,000
b. 3,200,000
c. 3,800,000
d. 3,300,000
Problem 3
On December 31, 2023, an entity entered into a commitment to purchase 100,000 barrels of aviation
fuel for ₱55 per barrel on March 31, 2024. The entity entered into this purchase commitment to protect
itself against the volatility in the aviation fuel market. By December 31, 2023, the purchase price of
aviation fuel had fallen to ₱50 per barrel. However, by March 31, 2024 when the entity took delivery of
the 100,000 barrels the price of aviation fuel had risen to ₱53 per barrel.
1. What amount should be recognized as loss on purchase commitment in 2023?
a. 500,000
b. 200,000
c. 300,000
d. 0
2. What amount should be recognized as gain on purchase commitment for 2024?
a. 500,000
b. 300,000
c. 800,000
d. 0

GROSS PROFIT METHOD

Problem 1
An entity reported the following information for the current year:
Inventory, January 1 5,000,000
Purchases 36,000,000
Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 43,000,000
Sales returns 3,000,000
Sales discounts 1,000,000
Sales allowances 500,000

A physical inventory taken at year-end resulted in an ending inventory of ₱3,000,000. At year-end,

unsold goods out on consignment with selling price of ₱1,000,000 are in the hands of a consignee. The
gross profit was 25% on cost. What is the estimated cost of inventory shortage?
a. 2,000,000
b. 3,000,000
c. 2,200,000
d. 4,250,000

Problem 2
On December 31, 2023, a fire destroyed most of the merchandise inventory of an entity. All goods were
compeletely destroyed except for partially damaged goods that normally sell for ₱100,000 and that had
an estimated net realizable value of ₱25,000 and undamaged goods that normally sell for ₱300,000. The
entity provided the following data for 2023:

Inventory, January 1 600,000

Net purchases 4,300,000
Net sales 5,600,000

Total 2022 2021 2020

Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of goods sold 6,750,000 3,840,000 2,200,000 710,000
Gross Income 2,250,000 1,160,000 800,000 290,000

What is the estimated amount of fire loss on December 31, 2023?

a. 700,000
b. 675,000
c. 450,000
d. 400,000

Problem 3
At the end of the current year, a fire damaged the warehouse and factory of an entity completely
destroying the goods in process inventory. There was no damage to either the raw materials or finished
goods. The physical inventory revealed the following:
January 1 December 31
Raw materials 1,700,000 2,000,000
Goods in process 4,300,000 0
Finished goods 6,000,000 4,500,000
Factory supplies 500,000 400,000

The gross profit margin historically approximated 30% of sales. The sales for the year amounted to
₱20,000,000. Raw material purchases totaled ₱4,000,000. Direct labor costs amounted to ₱5,000,000
and manufacturing overhead was applied at 60% of direct labor.
1. What is the total manufacturing cost?
a. 13,000,000
b. 11,800,000
c. 11,700,000
d. 11,600,000
2. What is the cost of goods manufactured?
a. 12,500,000
b. 15,500,000
c. 16,000,000
d. 18,500,000
3. What is the cost of the goods in process inventory destroyed in the fire?
a. 3,500,000
b. 3,800,000
 c. 2,500,000
d. 1,500,000

RETAIL METHOD
Problem 1
An entity used the retail inventory method to approximate the ending inventory. The following
information is available for the current year:
Cost Retail
Beginning inventory 850,000 1,200,000
Puchases 9,200,000 14,700,000
Freight in 200,000 -
Purchase returns 300,000 500,000
Purchase allowances 150,000 -
Purchase discounts 400,000 -
Departmental transfer – debit 200,000 300,000
Net markup - 300,000
Net markdown - 1,000,000
Sales - 9,500,000
Sales return - 1,000,000
Sales discounts - 100,000
Sales allowances - 200,000
Employee discounts - 500,000
Estimated normal shoplifting losses - 600,000
Estimated normal shrinkage - 400,000

1. What is the estimated cost of ending inventory using the conservative approach?
a. 3,000,000
b. 3,060,000
c. 3,180,000
d. 2,700,000
2. What is the estimated cost of ending inventory using the average cost approach?
a. 3,200,000
b. 3,624,000
c. 3,392,000
d. 2,880,000

Problem 2
During the current year, an entity reported the following:
Cost Retail
Beginning inventory 560,000 1,000,000
Net purchases 4,000,000 6,200,000
Net sales - 5,400,000
During the current year, the selling price of a certain inventory increased from ₱200 to 300. This
additional markup applied to 5,000 items but was later canceled on the remaining 1,000 units. The
following reductions were made in the retail price:
 To meet price competition 50,000
To dispose of overstock 30,000
Miscellaneous reductions 120,000
1. What is the cost of ending inventory using the conventional retail method?
a. 2,000,000
b. 1,320,000
c. 1,220,000
d. 1,200,000
2. What is the cost of ending inventory using the average retail method?
a. 1,240,000
b. 1,260,000
c. 1,216,000
d. 1,364,000

Problem 3
An entity provided the following information:
Cost Retail
Beginning inventory 1,400,000 2,000,000
Net purchases 5,850,000 8,000,000
Net markup - 1,500,000
Net markdown - 500,000
Net sales - 7,500,000

What is the estimated cost of ending inventory using the FIFO retail approach?
a. 2,275,000
b. 2,375,000
c. 2,310,000
d. 2,205,000