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MODULE 4
INVENTORY –Revised

Problem

1. Angel Company provided the following data:

Items counted in the bodega 4,000,000

Items included in the count specifically segregated
per sale contract 100,000
Items in receiving department, returned by customer,
in good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not
received. Freight is on account of seller 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items on receiving department, refused because of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000

What is the correct amount of inventory?

a. 5,700,000
b. 6,000,000
c. 5,800,000
d. 5,150,000

2. In connection with your audit of the Angel Manufacturing Company, you reviewed its inventory as of
December 31, 2019 and found the following items:

(a) A packing case containing a product costing 100,000 was standing in the shipping room when the
physical inventory was taken. It was not included in the inventory because it was marked “Hold for
shipping instructions.” The customer’s order was dated December 18, but the case was shipped and
the customer billed on January 10, 2020.

(b) Merchandise costing 600,000 was received on December 28, 2019, and the invoice was recorded.
The invoice was in the hands of the purchasing agent; it was marked “On consignment”.

(c) Merchandise received on January 6, 2020, costing 700,000 was entered in purchase register on
January 7. The invoice showed shipment was made FOB shipping point on December 31, 2019.
Because it was not on hand during the inventory count, it was not included.

(d) A special machine costing 200,000, fabricated to order for a particular customer, was finished in the
shipping room on December 30. The customer was billed for 300,000 on that date and the machine was
excluded from inventory although it was shipped January 4, 2020.

(e) Merchandise costing 200,000 was received on January 6, 2020, and the related purchase invoice
was recorded January 5. The invoice showed the shipment was made on December 29, 2019, FOB
destination.

(f) Merchandise costing 150,000 was sold on an installment basis on December 15. The customer took
possession of the goods on that date. The merchandise was included in inventory because Angel still
holds legal title. Historical experience suggests that full payment on installment sale is received
approximately 99% of the time.

(g) Goods costing 500,000 were sold and delivered on December 20. The goods were included in the
inventory because the sale was accompanied by a purchase agreement requiring Angel to buy back the
inventory in February 2020.
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Based on the above and the result of your audit, how much of these items should be included in the
inventory balance at December 31, 2019?
a. 1,300,000
b. 800,000
c. 1,650,000
d. 1,050,000

3. Ozz Company provided the following information for the current year:
Units Unit cost Total cost
January 1 Inventory on hand 200 1,500 300,000
April 3 Purchase 300 1,750 525,000
October 1 Purchase 500 2,000 1,000,000
The entity sold 400 units on June 25 and 400 on December 10. What is the weighted average cost of
the inventory at year-end?
a. 350,000
b. 400,000
c. 730,000
d. 365,000

4. JP Company has two products in the inventory.

Product X Product Y
Selling price 1,500,000 2,000,000
Materials and conversion
costs 1,000,000 1,200,000
General administration
costs 200,000 300,000
Estimated selling costs 400,000 500,000

At the year-end, the manufacture of items of inventory has been completed but no selling costs have yet
been incurred.

What is the measurement of Product X and Product Y?

a. 1,000,000 and 1,200,000
b. 1,100,000 and 1,500,000
c.1,500,000 and 2,000,000
d.500,000 and 800,000

5. The Starla Corporation applies the lower of cost or net realizable value (NRV) inventory. Data regarding
the items in work-in-process inventory are shown below:
Shorts Pants
Historical cost P56,640 P90,000
Selling Price 108,800 108,000
Estimated cost to complete 14,400 20,400
Replacement Cost 50,400 95,400
Normal profit margin as percentage of selling price 25% 10%

Under the lower cost or NRV rule, the pants should be valued at?
a. 67,800
b. 90,000
c. 87,600
d. 95,400

6. On November 15, 2021, Angel Company entered into a commitment to purchase 10,000 pillows on
February 15, 2022 at a price of P310 per piece. On December 31, 2021, the market price of pillow is 270
per piece. On February 15, 2022, the price of pillow is P300 per piece. What is the gain on purchase
commitment to be recognized on February 15, 2022?
a. 400,000
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b. 100,000
c. 300,000
d. 0

7. Tricia Company’s accounting records indicated the following information for 2020:
Inventory, January 1 700,000
Purchases 3,000,000
Sales 3,500,000

A physical inventory taken on December 31, 2020 resulted in an ending inventory of 700,000. The gross
profit on sales has remained constant at 25% in recent years. The entity suspects some inventory may
have been taken by a new employee.

On December 31, 2020, what is the estimate cost of missing inventory?

a. 300,000
b. 375,000
c. 700,000
d. 0

8. On September 30, a tsunami destroyed a retail location of Waliyha Clothing including the entire
inventory on hand at the location. The inventory on hand as of October 31 totaled 480,000. From
October 31 until the time of the hurricane, the company made purchases of 53,000 and had sales of
458,000. Assuming the rate of gross profit to selling price is 70%, what is the approximate value of the
inventory that was destroyed?
a. 137,933
b. 181,500.
c. 205,000.
d. 395,600

9. You obtained the following information in connection with your audit of Tricia Corporation:
Cost Retail
Beginning inventory P1,987,200 P2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000
Tricia Corp. uses the retail inventory method in estimating the values of its inventories.
Based on the above and the result of your audit, answer the following:
1. The cost ratio to be used considering the provisions of PAS 2 is
a. 68.58%
b. 69.20%
c. 70.00%
d. 75.78%

2. The estimated ending inventory at retail is

a. P2,300,000
b. P2,060,000
c. P1,940,000
d. P1,860,000

3. The estimated ending inventory at cost is

a. P1,412,786
b. P1,275,588
c. P1,302,000
d. P1,287,120

4. The estimated cost of goods sold is

a. P5,468,400
b. P5,494,812
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c. P5,357,614
d. P4,685,117

10. Joseph Factory started operations in 2021.  Joseph manufactures bath towels.  60% of the production
are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen. 
During 2021, 6,000 dozens were produced at an average cost of P360 per dozen.  The inventory at the
end of the year was as follows:

220 dozens “Class A” @ P360 P  79,200

300 dozens “Class B” @ P360   108,000
P187,200

QUESTIONS:
Using the relative sales value method, which management considers as a more equitable basis of cost
distribution, answer the following:

1.   How much of the total cost should be allocated to “Class A”?
a.   P1,296,000                                   
b.   P1,620,000                                   
c.   P1,284,324
d.   P   925,714

2.   How much of the total cost should be allocated to “Class B”?
a.   P540,000                                      
b.   P875,676                                      
c.   P   864,000
d.   P1,234,286

3.   How much is the value of inventory as of December 31, 2021?

a.   P187,200                                      
b.   P187,946                                      
c.   P117,000
d.   P166,500

4.   How much is the cost of sales for the year 2021?
a.   P1,972,800                                   
b.   P1,993,500                                   
c.   P2,043,000
d.   P1,972,054

5.   How much is the gross profit for the year 2021?
a.   P242,200                                      
b.   P406,500                                      
c.   P221,500
d.   P242,946

11. A fire destroyed Jerome Company's inventory on October 31. On January 1, the inventory had a cost of
3,500,000. During the period January 2 to October 31, the entity had net purchases of 8,500,000 and
net sales of 17,000,000. Undamaged inventory at the date of fire had a cost of 170,000. The mark up on
cost is 66 2/3%. What was the cost of inventory destroyed by fire?
a. 1,630,000
b. 1,970,000
c. 1,550,000
d. 5,170,000

12. Jerome Company conducted a physical count on December 31, 2020 which revealed total cost of
5,000,000.

However, the following items were excluded from the count:

• Goods costing 100,000 shipped by a vendor FOB shipping point on December 29, 2020 and
received by Jerome Company on January 12, 2021.
• Goods in process costing 550,000 held by an outside processor for further processing.
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• Goods sold to a customer which is being held for the customer to call for at the customer's
convenience with a cost of 400,000.
• A packing case containing a product costing 150,000 was standing in the shipping room when
the physical inventory was taken. It was not included in the inventory because it was marked
"hold for shipping instructions".

What is the correct inventory on December 31, 2020?

a. 6,200,000
b. 5,800,000
c. 5,650,000
d. 5,000,000

13. In year 2021, a division experienced fire in which it destroyed all of inventory except for P55,000 of
inventory measured at cost. Additional Data available are below:

2020 2021 (to date of fire)

Sales P850,000 P510,000
Purchases 560,000 305,000
Cost of goods sold 425,000
Ending inventory 95,000

What is the approximate inventory lost to the fire?

a. 55,000
b. 90,000
c. 145,000
d. 400,000

14. A retailer imported goods at a cost of P 260,000, including P 40,000 non-refundable import duties and P
20,000 refundable purchase taxes. The risks and rewards of ownership of the time imported goods were
transferred to the retailer upon collection of the goods from the harbor warehouse. The retailer was
required to pay for the goods upon collection. The retailer incurred P 10,000 to transport the goods to its
retail outlet and a further P 4,000 in delivering the goods to its customer. Further selling costs of P 6,000
were incurred in selling the goods.

What amount should the inventory be valued?

a. 240,000
b. 250,000
c. 260,000
d. 270,000

15. The following audited balances pertain to Kaila Company

Accts. Payable:
Jan.1, 2020 286, 924
Dec.31, 2020 737, 824
Inventory balance:
Jan. 1, 2020 815, 386
Dec.31, 2020 488, 874
Cost of goods sold-2020 1, 859, 082

How much was paid by Kaila Company to its supplier in 2020?

a. 1, 081, 670
b. 1, 065, 900
c. 1, 071, 678
d. 1, 097, 000