EDITH GEMA M.

DALIDA February 03, 2024

BS Accountancy 4B PACR

1. Define inventories.
- Inventories are assets held for sale in the ordinary course of business in the process
of production for such sale or in the form of materials or supplies to be consumed in
the production process or in the rendering of services.

2. Explain the two classes of inventory.

- A trading concern is one that buys and sells goods in the same form purchased. A
manufacturing concern is one that buys goods which are altered or converted into
another form before they are made available for sale.

3. What goods are includible in inventory?

- Goods owned and on hand, Goods in transit and sold FOB destination, Goods out on
consignment, Goods in transit and purchased FOB shipping point, Goods in the
hands of salesmen or agent, Goods sold on approval or trial.

4. What is the legal test of determining inventory inclusion?

- Is the entity the owner of the goods to be inventoried? If the answer is affirmative, the
goods shall be included. If the answer is negative, the goods shall be excluded from
the inventory.

5. Who is the owner of goods in transit?

- The ownership of goods in transit depends on the terms, whether FOB destination or
FOB shipping point.

6. Explain FOB destination.

- Under FOB destination, ownership of goods purchased is transferred only upon
receipt of the goods by the buyer at the point of destination.

7. Explain FOB shipping point.

- Under FOB shipping point, ownership is transferred upon shipment of the goods and
therefore, the goods in transit are the property of the buyer.

8. Explain freight prepaid.

- Freight charge on the goods shipped is already paid by the seller.

9. Explain freight collect.

- Freight collect means that the freight charge already paid by the buyer.

10. What do you understand by the maritime terms FAS, CIF, CF and Ex-ship?
- Maritime terms:
  FAS or free Alongside – A seller who ships FAS must bear all expenses and
risk involved in delivering the goods to the dock next to or alongside the
vessel on which the goods are shipped. The buyer bears the cost of loading
and shipment
 CIF or Cost, Insurance, Freight – Under this shipping contract, the buyer
agrees to pay in a lumpsum the cost of the goods, insurance cost, and freight
charge.
 CF – buyer agrees to pay cost of the goods and freight charge only.
 Ex-Ship – A seller who delivers the goods ex-ship bears all the expenses and
risk of loss until the goods are unloaded at the time title and risk of loss pass
to the buyer.

11. What is consignment?

- Is a method of marketing 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.

12. Who is the owner of goods on consignment?

- The seller or the consignor is the owner of the goods consigned until sold.

13. Explain the statement presentation of inventories.

- Inventories are generally classified as current assets. The inventories shall be
presented as one line item in the statement of financial position but the details of the
inventories shall be disclosed in the notes to financial statements.

14. Explain the two systems of accounting for inventories.

- The periodic system calls for the physical counting of goods on hand at the end of
the accounting period to determined quantities.
- The perpetual system required maintenance of records, called stock cards that
usually offer a running summary of the inventory inflow and outflow.

15. Distinguish trade discounts and cash discounts.

- Trade discounts are deductions from the list or catalog price in order to arrive at the
invoice price which is the amount actually charged to the buyer. Hence, these are not
recorded.
- Cash discounts are deductions from invoice price when payment is made within the
discount period. The purpose of cash discounts is to encourage prompt payment.

16. Explain the two methods of accounting for purchases.

- Under the Gross method, purchases and accounts payable are recorded at gross
amount.
- Under Net method, purchases and accounts payable are recorded at net amount.

17. What are the components of the cost of inventories?

- Cost of purchases, Cost of conversion, Other directly attributable cost.

18. Explain cost of purchases.

 - Cost purchase is the purchase price, import duties, and non-refundable taxes,
freight, handling and other cost directly attributable to the acquisition of finished
goods, materials, and services.

19. Explain cost of conversion.

- Cost of conversion includes the cost of direct labor and factory overhead that are
classified as fixed and variable production overhead.
- Fixed production overhead is the indirect cost of production that remains relatively
constant regardless of the volume of production. Variable production overhead is the
indirect cost of production that varies directly with the volume of production.

20. Explain the cost of inventory of a service provider.

- Labor and other cost of personnel directly engaged in providing the service, including
supervisory personnel.
- Directly attributable overhead.
- Labor and other cost relating to sales and general administrative personnel are not
included but are recognized as expenses in the period incurred.

Problem 10-26
1. C
2. C
3. C
4. A
5. C
6. B
7. A
8. A
9. D
10. A
Problem 10-27
1. A
2. C
3. B
4. C