Name: Course & Year: Subject: FAR

PROBLEM 1: TRUE OR FALSE

1. The definition of inventories under PAS 2 states three types of inventories.

2. Goods in transit purchased FOB destination are included in the inventories of the buyer.

3. Consigned goods remain in the inventories of the consignee until the goods are sold to end customers.

4. An increase in inventory always has a corresponding increase in accounts payable.

5. At year-end, an entity's inventory costing P80,000 has a net realizable value of P70,000. According to PAS 2,
the entity should report the inventory at P70,000.

Use the following information for the next five questions:

Big Co. sells apples. At the start of the period, Big Co.'s inventory consisted of one (1) red apple with a carrying
amount of P2. During the period, Big Co. acquired one (1) green apple for P3 and one (1) blue apple for P4. Big
Co. sold the green apple during the period.

6. Under the FIFO cost formula, Big Co.'s ending inventory is P6.

7, Under the FIFO cost formula, Big Co.'s cost of goods sold for the period is P3.

8. Under the Average cost formula, Big Co.'s ending inventory is P3

9. Under the Average cost formula, Big Co.'s cost of goods sold is P3.

10. Under the Specific identification cost formula, Big Co.'s cost of goods sold is P3.

PROBLEM 2: MULTIPLE CHOICE - THEORY

1. Inventories are assets (choose the incorrect one)

a. Held for sale in the ordinary course of business.

b. In the process of production for sale.
c. In the form of materials or supplies to be consumed in the production process or in the rendering of services.
d. Held for use in the production or supply Of goods or services.

2. Which of the following should be excluded from an entity's inventories?

a. Goods in transit purchased under FOB shipping point

b. Unsold goods out on consignment
c. Goods given to prospective buyers under a 'sale on trial' agreement
d. Goods sold under installment sale whereby the entity retains legal title to protect the collectability of the sale
price

3. Which of the following is included in an entity's inventories?

a. damaged and worthless merchandise

b. goods sold under a sale with repurchase obligation
c. goods in-transit sold under FOB shipping point
d. goods purchased under a "lay-away" sale, physical possession over the goods is not yet obtained

4. Under this shipping cost, agreement, freight is not yet paid upon shipment. The carrier collects the shipping costs
from the buyer upon delivery.

a. freight collect
b. freight prepaid
c. FOB shipping point
d. FOB destination

5. Which of the following is incorrect regarding the accounting for consigned goods?

a. Consigned goods are properly included in the inventory of the consignor and not the consignee.
b. Freight incurred by the consignor in delivering consigned goods to the consignee forms part of the cost of
inventories.
c. The consignee records consigned goods received from the consignor through journal entries.
d. The consignor should not recognize revenue until the consignee sells the goods to third parties.
 6. Inventories are classified on the statement of financial position as

a. current assets. c. financial instruments.

b. noncurrent assets. d. intangible assets.

7. Which of the following is an objective of inventory accounting according to PAS 2 Inventories?

a. The proper recognition of cost of inventory that is charged as expense when the related revenue is recognized.
b. The proper representation of cost of inventories recognized as assets in the financial statements.
c. a and b
d. none of these

8. Spongebob Squarepants Co. utilizes an automated accounting system in which Spongebob inputs the serial number
of each item of inventory in the system. This enables Spongebob to track the movement Of each inventory; Which
inventory system is Spongebob most likely to be using?

a. perpetual system d. spatula system

b. periodic system e. a or b
c. patty system

9. Cost of goods sold is a residual amount under this system.

a. Skeletal system c. Perpetual system

b. Endocrine system d. Periodic system

10. Under this inventory system, a physical count is necessary before profit is determined.

a. Perpetual c. Under no such system

b. Periodical d. Periodic

11. Inventories are measured at

a. cost. c. replacement cost.

b. net realizable value. d. lower of a and b.

12. Which of the following costs is inventoriable?

a. Abnormal amount of wasted materials in the production

b. Advertisement costs
c. Storage costs of completed goods
d. Storage costs of partly finished goods

13. Under the gross method of recording purchases,

a. cash discounts are -initially ignored and are recorded only when taken.
b. cash discounts are deducted from the cost of inventory on initial recognition.
c. cash discounts not taken are debited to a "purchase discounts lose ' account.
d. a and c

14. ENDEAVOR TO TRY co. purchased goods on account with list price of P10,000 and the following terms: 20%, 10%,
2/10 n30. If ENDEAVOR uses the net method of accounting for cash discounts, the amount debited for the purchase is
computed as

a. P10K x 80% x 90% x 98% c. P10K% x 80% x 90%

b. P10K x 20% x 10% x 2% d. P10K x 90% x 80% x 89%

15. If the merchandise inventory at the end of the period is understated,

a. gross profit will be overstated. c. gross profit will be understated.

b. total equity will be overstated. d. cost of merchandise sold will be understated.

16. ZENITH HIGHEST POINT co. buys and sells antiques. Each product is unique. If ZENITH adopts PAS 2 Inventories,
ZENITH co.

a. is required to use specific identification.

b. is required to use FIFO.
c. has the option of using either FIFO or specific identification.
d. has the option of using specific identification, FIFO or the average method, but not LIFO.
 17. When applying the lower of cost and net realizable value (NRV), inventories are

a. usually written down to net realizable value on an item-by-item basis.

b. usually not written down below fair value.
c. usually written down to net realizable value on a per classification basis, e.g., as finished goods, work-in-
process, and raw materials.
d. all of these

18. According to PAS 2 Inventories, the best evidence of the net realizable value of raw materials is

a. estimated selling price less costs to sell.

b. estimated selling price less costs to complete and costs to sell.
c. replacement cost.
d. fair value less costs to sell:

19. Raw materials and manufacturing supplies held for use in the production of inventories are

a. required under PAS 2 Inventories to be presented separately from the other inventories.
b. not disclosed since they are normally immaterial.
c. not Written down below cost if the finished products in which they will be incorporated are expected to be
sold at or above cost.
d. all of these

20. Reversals of inventory write-downs

a. are not prohibited under the PFRSs.

b. should not exceed the amount of write-downs previously recognized.
c. are always recognized in profit or loss.
d. all of these

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL

1. The inventory records of Sunset Co. on December 31, 20x1 show a balance of P260,000. The following information
was gathered:

a. Goods costing P10,000, purchased FOB shipping point, were not included in the ledger balance because these were
still in transit as of December 31, 20x1. The supplier shipped the goods on December 30, 20x1 and prepaid the freight
of P1,000.
b. Goods costing P5,000 were received on December 31, 20x1. These were recorded on January 3, 20x2.
c. Goods costing P16,000 were shipped to a customer on December 31, 20x1 on an FOB shipping point term. The
goods were included in the ledger balance because the customer received the shipment only on January 4, 20x2.
d. Goods costing P20,000 were shipped to a customer on December 31, 20x1 on an FOB destination term. The goods,
were not included in the leger balance because the goods were already dispatched when the inventories were
counted at around 11 P.M. on December 31, 20x1.
e. Obsolete goods costing P4,000 were included in the ledger balance. These goods have no resale value.

What is the correct amount of inventory on Dec. 31, 20x1?

a. 246,700 b. 276,000 c. 284,000 d. 306,000

2. Gordon Company's inventory at June 30, 2002 was P75,000 based on a physical count of goods priced at cost, and
before any necessary year-end adjustment relating to the following:

• Included in the physical count were goods billed to a customer FOB shipping point on June 30, 2002. These goods
had a cost of P 1,500 and were picked up by the carrier on July 10, 2002.

• Goods shipped FOB destination on June 28, 2002, from a vendor to Gordon, were received and recorded only on
July 3, 2002. The invoice cost was P2,500.

What amount should Gordon report as inventory on its June 30, 2002, balance sheet?

a. 73,500 b. 74,000 c. 75,000 d. 76,500

 3. The following information was derived from the 20x1 accounting records of Clem Co.:

Goods in warehouse Goods held by consignees

Beginning inventory 110,000 12,000
Purchases 480,000 60,000
Freight in 10,000
Transportation to consignees 5,000
Freight out 30,000 8,000
Ending inventory 145,000 20,000

Clem’s 20x1 cost of sales was

a. 455,000 b. 485,000 c. 507,000 d. 512,000

4. The following items were included in Opal Co.'s inventory account at December31, 20x1 :

• Merchandise out on consignment, at sales price, P40,000

including 40% markup on selling price
• Goods purchased, in transit, shipped F.O.B. shipping point 36,000
• Goods held on consignment by Opal 27,000

By what amount should Opal's inventory account at December 31, 20x1, be reduced?

a. 103,000 b. 67,000 c. 51,000 d. 43,000

5. On August 1, Stephan Company recorded purchases of inventory of P80,000 and P100,000 under credit terms of
2/15, net 30. The payment due on the P80,000 purchase was remitted on August 14. The payment due on the
P100,000 purchase was remitted on August 29. Under the net method and the gross method, these purchases should
be included at what respective net amounts in the determination of cost of goods available for sale?

Net Method Gross Method Net Method Gross Method

a. 178,400 176,400 c. 176,400 178,400
b. 176,400 176,400 d. 180,000 176,400

6. On Dec. 15, 20x1, Pork Stew Co. purchases inventory With invoice price of on account under credit terms 2/10
n/30. Pork Stew uses the net method in accounting for cash discounts. On Dec. 31, 20x1, the account, is not yet
settled Assuming the inventories purchased remain unsold, what amounts of inventory and accounts payable are
reported in Pork Stew’s Dec. 31, 20x1 financial statements?

Inventory Accounts payable Inventory Accounts payable

a. 380,000 380,000 c. 372,460 380,000
b. 372,400 372,400 d. 380,000 372,400

Use the following information for the next two questions:

Neer Corp. purchased merchandise during 2004 on credit for P200,000; terms 2/10, n/30. All of the gross liability except
P40,000 was paid within the discount period. The remainder was paid within the 30-day term, At the end of the annual
accounting period, December 31, 2004, 90% of the merchandise had been sold and 10% remained in inventory. The
company uses a periodic system. There was no beginning inventory.

7. How much are the ending inventory and cost of goods sold, respectively, under the net method?

a. 19,600; 176,400 c. 20,000; 176,400

b. 20,000; 176,800 d. 19,600; 176,800

8. How much are the ending inventory (EI) and cost of goods sold (COGS), respectively, under the gross method,
assuming (i) the discount is allocated only to the goods sold; and (ii) the discount is allocated to both the ending
inventory and the goods sold?

Allocation to COGS only Allocation to both COGS and El

EI COGS EI COGS

a. 20,000 177,120 19,000 176,800

b. 19,000 176,400 20,000 177,120
c. 20,000 176,800 19,680 177,120
d. 19,600 176,800 20,000 176,400
Use the following transaction for the next two questions:
Information on Entity A’s inventory of product X is as follows:

Date Transaction Quantity Unit Cost

June 1 Balance forwarded 1,400 P24
8 Sale 400
14 Purchase 800 P35
18 Sale 900
24 Purchase 700 P30
29 Sale 600

9. What amounts of ending inventory (EI) and cost of goods sold(EI) are reported under each of the following cost
formulas?

FIFO periodic FIFO perpetual

EI COGS EI COGS

a. 31,500 51,100 32,000 50,600

b. 32,000 50,600 31,500 51,100
c. 29,800 52,800 29,800 52,800
d. 31,500 51,100 31,500 51,100

10. What amounts of ending inventory (EI) and cost of goods sold (EI) are reported under each of the following cost
formulas?

Weighted average — Periodic Weighted average – Perpetual

EI COGS EI COGS

a. 28,480 54,120 29,377 53,223

b. 22,360 60,240 29,377 53,223
c. 24,480 54,120 26,880 55,720
d. 22,360 60,240 26,880 55,720

Use the following transaction for the next two questions:

Information on Jackhammer Co.'s inventory of a certain product is as follows:

Date Transaction Units Unit cost

1-Nov Inventory 2,000 P36.00
7 Purchase 3,000 37.20
12 Sales 4,200
15 Purchase 4,800 38.00
16 Sales return 600
22 Sales 3,800
29 Purchase 1,900 38.60
30 Purchase return 300 38.60

11. What amounts of ending inventory (EI) and cost of goods sold (EI) are reported under each of the following cost
formulas?

FIFO periodic FIFO perpetual

EI COGS EI COGS

a. 151,500 276,260 152,960 274,800

b. 152,960 274,800 151,500 276,260
c. 152,960 274,800 152,960 274,800
d. 131,500 296,260 131,500 296,260
 12. What amounts of ending inventory (EI) and cost of goods sold(EI) are reported under each of the following cost
formulas?

Weighted average — Periodic Weighted average – Perpetual

EI COGS EI COGS

a. 150,080 277,680 152,270 275,490

b. 150,080 277,680 159,377 268,383
c. 150,080 277,680 156,880 270,880
d. 152,360 275,400 161,280 266,480

13. With LIFO, cost of goods sold is P195,000, and ending inventory is P45,000. If FIFO ending inventory is P65,000 how
much is FIFO cost of goods sold?

a. 215,000 b. 195,000 c. 175,000 d. 65,000

14. Thug Co., a VAT payer, purchased goods and incurred the following:

Invoice price (inclusive of P 12,000 Value-Added Tax) 112,000

Shipping costs 40,000
Transit insurance 12,000
Commission to broker 5,600
Interest incurred on the loan used 'to finance the purchase 15,000

What amount is capitalized as cost of inventory?

a. 157,600 b. 172,600 c. 160,600 d. 152,000

15. Headache Co.'s records show the following information:

Purchases 500,000
Purchase returns 25,000
Purchase discounts 10,000
Beginning inventory 60,000
Ending inventory 75,000
Freight-in 60,000
Freight-out 40,000
Commissions paid to sellers on sales 200,000
Sales 1,000,000
Sales discounts 50,000
Sales returns 10,000

How much is the gross profit?

a. 190,000 b. 230,000 c. 430,000 d. 490,000

16. Information on Crythena Col's inventories of Products X, Y and Z on Dec. 31, 20x1 is as follows:

X Y Z
No. of units 3,700 2,500 1,300
Purchase cost (per unit) P50 P30 P109
Delivery cost from supplier (per unit) 5 4 68
Estimated selling price (per unit) 56 60 250
Estimated costs to sell (per unit) 4 8 75

What amount of inventory is reported in the financial statements?

a. 549,900 b. 518,600 c. 504,900 d. 490,800

17. Information on Bamboo Co.'s inventories on Dec. 31, 20x1 is as follows:

Cost NRV
Raw materials and factory supplies 160,000 148,000
Finished goods 1,780,000 1,870,000

What amount of write-down is recognized on Dec. 31, 20x1?

a. 12,000 b. 78,000 c. 90,000 d. 0

18. Information on Broken Co.'s inventories is as follows:

20x2 20x1
Inventory, December 31 at cost 450,000 440,000
Inventory, December 31 at NRV 490,000 410,000

What amount of inventory write-up (or reversal of inventory write-down) is recognized in 20x2?

a. 40,000 b. 30,000 c. 20,000 d. 0

19. Temple Co.'s records show the following information:

Beginning inventory 60,000

Purchases 500,000
Purchase returns 25,000
Purchase discounts 10,000
Freight-in ?
Cost of goods sold 510,000
Ending inventory 75,000

How much are the freight-in and total cost of goods available for sale, respectively?

a. 70,000; 515,000 c. 40,000; 545,000

b. 60,000; 585,000 d. O; 525,000

20. Lunch Co.'s records show the following information:

Beginning inventory 60,000

Purchases 500,000
Purchase returns ?
Purchase discounts 10,000
Freight-in 60,000
Total cost of goods available for sale 585,000
Cost of goods sold 510,000

How much are the purchase returns and ending inventory respectively?

a. 25,000; 75,000 c. 25,000; 85,000

b. O; 75,000 d. 15,000; 75,000