Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
INVENTORY VALUATION
Essay Questions
2. Proof of the reasonable accuracy of a physical count. This is
popularly known as the
"gross profit test."
However, year-end statements require physical count, not a mere estimate of inventory value.
Under the gross profit method, the ending inventory is computed as "goods available for sale
minus cost of sales".
The cost of sales is determined through the use of the gross profit rate and this is the reason
the gross profit method is called as such.
This method is based on the major assumption that the rate of gross profit remains
approximately the same from period to period and therefore the ratio of cost of goods sold to
net sales is relatively constant from period to period.
The retail inventory method came to its name because the selling price or retail price is tagged
to each item and therefore the ending inventory is stated at selling price.
Goods available for sale at selling price minus net sales equals ending inventory at selling
price which is multiplied by the cost ratio to get the inventory at cost.
The cost ratio under the retail method is computed by dividing the goods available for sale at
cost by the goods available for sale at selling price.
2. Average cost approach - The markups and markdowns are
both included in the
computation of the cost ratio.
3. FIFO approach - A cost ratio is computed for the current
year. Thus, only the current
purchases are considered
together with markups and markdowns. The beginning
inventory is excluded in the computation.
4. LIFO approach - The cost ratio is computed following the
same procedure under FIFO
approach. Thus, the FIFO and
LIFO would have the same cost ratio for the current year.
5. Which approach is followed in measuring inventory under the retail inventory method?
PAS 2, paragraph 22, provides that the percentage used under the retail method shall take
into consideration inventory that has been marked down to below its original selling price.
This means that the average cost approach shall be applied in conjunction with the retail
inventory method.
Of course, PAS 2 requires either the FIFO or average method as a cost formula.
1. Original retail
2. Initial markup
3. Additional markup
4. Markup cancelation
5. Net markup
6. Markdown
7. Markdown cancelation
8. Net markdown
1. Original retail - is the sales price at which the goods are first offered for sale.
2. Initial markup - the original markup on the cost of goods or the amount added to the
original cost to get the original retail price.
3. Additional markup - is an increase in the sales price above the original sales price or the
amount added to the original retail price.
4. Markup cancelation - is a decrease in the sales price that does not reduce the sales price
below the original sales price.
5. Net markup - additional markup minus markup cancelation.
6. Markdown - is a decrease in the sales price below the original price.
7. Markdown cancelation - is an increase in sales price that does not raise the sales price
above the original sales price.
8. Net markdown - markdown minus markdown cancelation.
BIOLOGICAL ASSETS
Essay Questions
PAS 41 shall be applied to account for the following when they relate to agricultural activity:
a. Biological assets
b. Agricultural produce
c. Government grant related to a biological asset
Note that PAS 41 is applied to agricultural produce at the point of harvest. Thereafter, PAS 2
on inventories shall be applied. PAS 41 does not deal with the processing of agricultural
produce after harvest. For example, the processing of grapes into wine is covered by PAS
2.
Harvest is the detachment of produce from a biological asset or the cessation of a biological
asset's life processes.
3. Give examples of biological assets, agricultural produce and products that are the result of
processing after harvest.
The following table provides examples of biological assets, agricultural produce and products
that are the result of processing after harvest.
Again, the measurement of biological assets and agricultural produce is covered by PAS 41
and the measurement of products after harvest is covered by PAS 2 on inventories.
Capability to change
Living animals and plants are capable of biological transformation.
Management of change
The agricultural activity must be "managed" to facilitate biological transformation by
enhancing or at least stabilizing conditions necessary for the process to take place.
For example, harvesting from "unmanaged" sources, such as ocean fishing and
deforestation, is not agricultural activity.
Measurement of change
The change in quality or quantity brought about by biological transformation or harvest is
measured and monitored as a routine management function.
8. What are the conditions for the recognition of a biological asset or agricultural produce?
An entity shall recognize a biological asset or an agricultural produce when:
1. The entity controls the asset as a result of past event.
2. It is probable that future economic benefits associated
with the asset will flow to the
entity.
A biological asset shall be measured on initial recognition and at the end of each reporting
period at fair value less cost of disposal.
Agricultural produce shall be measured at fair value less cost of disposal at the point of
harvest.
"Cost of disposal" is the incremental cost directly attributable to the disposal of an asset.
In other words, cost of disposal is a necessary cost for a sale to occur that would not
otherwise arise.
Examples include commission to brokers and dealers, levy by regulatory agency and
commodity exchanges, and transfer tax and duty.
Under the Basis for Conclusions on PAS 41, cost of disposal specifically excludes transport
cost, finance cost and income tax.
There is a presumption that fair value can be measured reliably for a biological asset.
However, this presumption can be rebutted only on initial recognition for a biological asset
for which market-determined prices are not available or estimates of fair value are determined
to be clearly unreliable.
In such a case, the biological asset shall be measured at cost less accumulated depreciation
and any accumulated impairment loss.
However, once the fair value of such biological asset becomes clearly measurable, the entity
shall measure the biological asset at fair value less cost of disposal.
The prevailing view is that the fair value of agricultural produce at the point of harvest can
always be measured reliably.
The fair value measurement of agricultural produce stops at the time of harvest. After that
date, PAS 2 on inventory shall apply.
In other words, the harvested product becomes an inventory and shall be measured
subsequently at the lower of cost and net realizable value.
The harvested product is recorded by debiting inventory and crediting gain from change in
fair value.
13. Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
PFRS 13, paragraph 72, enumerates the fair value hierarchy or best evidence of fair value
as follows:
1. Level 1 inputs are the quoted prices in an active market for identical assets. An active
market is a market in which transactions for the asset or liability take place with sufficient
regularity and volume to provide pricing information on an ongoing basis. A principal
market is the market with the greatest volume and level of activity for the asset or liability.
2. Level 2 inputs are observable inputs either directly or
indirectly. Level 2 inputs include
quoted prices for similar assets in an active market and quoted prices for identical or
similar assets in an inactive market.
3. Level 3 inputs are unobservable inputs for the asset
usually developed by the entity
using the best available
information from the entity's own data.
An example is the financial forecast of expected cash inflows from the asset.
14. Explain the treatment of gain or loss from the fair value measurement of biological asset and
agricultural produce.
A gain or loss arising on initial recognition of a biological asset at fair value less cost of
disposal and any subsequent changes in fair value cost of disposal shall be included in profit
or loss.
A loss may arise on initial recognition of a biological asset because cost of disposal is
deducted in determining fair value loss cost of disposal of a biological asset.
A gain may arise on initial recognition of a biological asset, for example, when a calf is born.
A gain or loss arising from initial recognition of agricultural produce at fair value less cost of
disposal shall also be included in profit or loss.
A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.
An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological
asset and agricultural produce and from the change in fair value less cost of disposal of
biological asset.
The principles espoused in PAS 41 for biological assets and agricultural produce do not apply
to agricultural land.
The requirements of PAS 16 which are applicable to property, plant and equipment apply
equally to agricultural land for purposes of measurement.
16. Explain the fair value measurement of biological assets physically attached to land.
Biological assets are often physically attached to land, for example, trees in a plantation
forest.
There may be no separate market for biological assets that are attached to the land but an
active market may exist for the combined assets, that is, for the biological assets and land as
a package.
An entity may use information regarding the combined assets to determine the fair value of
the biological assets.
For example, the fair value of the land may be deducted from the fair value of the combined
assets to arrive at the fair value of the trees in the plantation forest.
2. Biological asset measured at cost less any accumulated
depreciation and any
accumulated impairment losses.
1. An unconditional government grant related to a biological asset that has been measured
at fair value less cost of disposal shall be recognized in profit or loss when the grant
2. Which of the following is not a basic assumption of the gross profit method?
A. Goods not sold must be hand.
B. The beginning inventory plus purchases equal total goods to be accounted for.
C. The amount of purchases and the amount of sales remain relatively unchanged from the
comparable previous period.
D. The sales reduced to cost basis when deducted from the sum of beginning inventory and
purchases would result to inventory on hand. FA © 2014
4. The gross margin method of estimating ending inventory
may be used for all of the following,
except
A. Internal as well as external interim reports
B. Internal as well as external year-end reports
C. Estimate of inventory destroyed by fire or other casualty
D. Rough test of the validity of an inventory cost
determined under either periodic or
perpetual system. FA © 2014
6. The gross profit method of estimating inventory would not be useful when
A. There is a significant change in the mix of products being
sold.
B. The relationship between gross profit and sales remains
stable over time.
C. A periodic system is in use and inventories are required
for interim statements.
D. Inventories have been destroyed or lost by fire, theft or
other casualty, and the specific
data required for
inventory valuation are not available. FA © 2014
9. If the gross profit rate is based on sales, the cost of goods sold is computed as
A. Gross sales divided by sales ratio C. Net sales divided by sales ratio
B. Gross sales times cost ratio D. Net sales times cost ratio TOA © 2013
10. If the gross profit rate is based on cost, the cost of goods sold is computed as
A. Gross sales divided by sales ratio C. Net sales divided by sales ratio
B. Gross sales times cost ratio D. Net sales times cost ratio FA © 2014
11. Which statement is not valid about the gross profit method?
A. It may be used by auditors.
B. It is an acceptable accounting procedure.
C. It may be used to estimate inventory for annual
statements.
D. It may be used to estimate inventory for interim
statements. FA © 2014
D. Final inventory and the total of goods available for sale
contain the same proportion of
high cost and low cost
ratio goods. FA © 2014
15. Which of the following is not required when using the retail inventory method?
A. Total sales for the period.
B. A record of the total cost and retail value of goods purchased for the period. FA © 2014
C. All inventory items must be categorized according to the retail markup percentage.
D. A record of the total cost and retail value of the goods available for sale for the period.
16. What condition is not necessary when using the retail inventory method?
A. A record of sales for the period
B. A record of total cost of goods sold for the period
C. A record of total cost and retail value of goods purchased for the period FA © 2014
D. A record of total cost and retail value of goods available for sale for the period
17. The retail inventory method would include which of the following in the calculation of the
goods available for sale at both cost and retail?
A. Freight in C. Markups
B. Markdowns D. Purchase returns FA © 2014
20. The conventional retail method produces an ending inventory that approximates
A. Lower of cost or net realizable value
B. Lower of LIFO cost or net realizable value
C. Lower of FIFO cost or net realizable value
D. Lower of average cost or net realizable value FA © 2014
21. To produce an inventory valuation which approximates the lower of cost or net realizable
value using the retail inventory method, the computation of the ratio of cost to retail should
FA © 2014
A. Include markups and markdowns C. Include markups but not markdowns
B. Include markdowns but not markups D. Ignore both markups and markdowns
22. If the conservative retail inventory method is used, which of the following calculations would
include or exclude net markdowns?
FA © 2014 A. B. C. D.
Cost ratio Include Include Exclude Exclude
Ending inventory at retail Include Exclude Include Exclude
23. When the conventional retail inventory method is used, markdowns are commonly ignored in
the computation of cost to retail ratio because
A. There may be no markdowns in a given year.
B. This tends to give a better approximation of the lower
of cost or net realizable value.
C. Markups are also ignored.
D. This tends to result in the showing of a normal profit
margin in a period when no
markdown goods have
been sold. FA © 2014
Sensitivity analysis
24. Which of the following would cause a decrease in the cost ratio used in the retail inventory
method?
A. Higher freight in charges C. Lower net markups
B. Higher retail prices D. More employee discounts FA © 2014
25. What is the effect of freight in on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markup FA © 2014
26. What is the effect of net markup on the cost-retail ratio when using the conservative retail
method?
A. Increases the cost-retail ratio
B. Decreases the cost-retail ratio
C. No effect on the cost-retail ratio
D. Depends on the amount of the net markdown FA © 2014
Comprehensive
27. With regard to the retail inventory method, which of the following is the most accurate
statement?
A. It is not adaptable to FIFO costing.
B. Generally, accountants ignore net markups and net
markdowns in computing the cost
price percentage.
C. Generally, accountants exclude net markups and
include net markdowns in computing
cost price
percentage.
D. This method results in a lower ending inventory cost if
net markups are included but net
markdowns are
excluded in computing the cost price percentage. FA © 2014
Basic concept
30. It is the management by an entity of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional biological asset.
A. Agricultural activity C. Development activity
B. Biological activity D. Economic activity FA © 2014
33. It is a market in which transactions for the asset or liability take place with sufficient regularity
and volume to provide pricing information on an ongoing basis.
A. Active market C. Global market
B. Financial market D. Principal market FA © 2014
Land
34. Land that is related to agricultural activity is measured
A. At fair value. FA © 2014
B. At fair value in combination with the biological asset
that is being grown on the land.
C. At the resale value separate from the biological asset that is being grown on the land.
D. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment
Property.
Biological assets
36. Biological assets are TOA © 2013
A. Living animals only C. Both living animals and living plants
B. Living plants only D. Neither living animals nor living plants
39. Biological transformation results from asset changes through all of the following, except
A. Degeneration C. Procreation FA © 2014
B. Growth D. Production of agricultural produce
40. Which of the following criteria must not be satisfied before a biological asset can be
recognized in the financial statements?
A. An active market for the asset exists.
B. The entity controls the asset as a result of past event.
C. The fair value or cost of the asset can be measured reliably. FA © 2014
D. It is probable that future economic benefits relating
to the asset will flow to the entity.
41. Generally speaking, biological assets relating to agricultural activity shall be measured using
A. Historical cost
B. Net realizable value
C. A fair value approach
D. Historical cost less depreciation less impairment FA © 2014
44. When the fair value of the biological asset cannot be determined reliably, the biological asset
shall be measured at
A. Cost
B. Net realizable value
C. Cost less accumulated depreciation
D. Cost less accumulated depreciation and accumulated impairment losses FA © 2014
46. A gain or loss arising on the initial recognition of a biological asset and from a change in the
fair value less cost of disposal of a biological asset shall be included in
A. A capital reserve within equity C. Other comprehensive income FA © 2014
B. A separate revaluation reserve D. The profit or loss for the period
47. An entity owns a herd of cattle. Where should changes in the fair value of a herd of cattle be
recognized in the financial statements?
A. In profit or loss only
B. In the statement of cash flows only
C. In other comprehensive income only
D. In profit or loss or other comprehensive income FA © 2014
Agricultural produce
48. It is the harvested product of the entity's biological assets.
A. Agricultural produce C. Harvest
B. Agriculture D. Product TOA © 2013
49. Agricultural produce is
A. The harvested product from biological asset.
B. Valued at the time of harvest at the cost of production.
C. All of the choices are correct regarding agricultural produce.
D. Valued at each reporting period at fair value less cost of disposal. FA © 2014
52. When agricultural produce is harvested, the harvest shall be accounted for by using PAS 2,
Inventories, or another applicable PFRS. For the purpose of that standard, cost at the date
of harvest is deemed to be
A. Market value
B. The historical cost of the harvest
C. The historical cost less accumulated impairment losses
D. The fair value less cost of disposal at the point of harvest FA © 2014
53. Which of the following costs should not be included in cost
of disposal?
A. Commission to broker C. Transfer tax and duty
B. Levy by regulatory agency D. Transport cost FA © 2014
Processed product
56. Which of the following would be classified as a product that is the result of processing after
harvest?
A. Bananas C. Cotton
B. Cheese D. Wool FA © 2014
Government grant
57. An unconditional government grant related to a biological asset that has been measured at
fair value less cost of disposal shall be recognized as
A. Income when the grant becomes receivable.
B. A deferred credit when the grant has been approved.
C. A deferred credit when the grant becomes receivable.
D. Income when the grant application has been submitted. FA © 2014
58. If a government grant related to a biological asset is conditional on certain events, the grant
shall be recognized as
A. Income when the grant has been approved.
B. A deferred credit when the grant is approved.
C. Income when the conditions attaching to the grant are
met. FA © 2014
D. A deferred credit when the conditions attached to the
government grant are met.
60. Where there is a production cycle of more than one year for a biological asset, PAS 41
encourages separate disclosure of
A. Price change only C. Total change in value FA © 2014
B. Physical change only D. Physical change and price change
Gross profit
2. Beyonce Company sells merchandise on a consignment basis to dealers. The selling price
of the merchandise averages 25% above cost. The dealer is paid a 10% commission of the
sales price for all sales made. All dealer sales are made on a cash basis. The following
consignment activities occurred during the current year:
Manufacturing cost of goods shipped on consignment 8,800,000
Sales price of merchandise sold by dealers 9,600,000
Payments remitted by dealers after deducting commission 6,300,000
What is the gross profit on sales?
A. 1,220,000 C. 1,920,000
B. 1,700,000 D. 2,400,000 PA 1 © 2014
Ending inventory
3. Keepsake Company estimated the cost of the physical inventory on March 31 for use in
interim financial statement. The rate of markup on cost is 25%o. The inventory on January 1
was P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
A. 2,100,000 C. 3,600,000
B. 2,800,000 D. 3,975,000 PA 1 © 2014
4. Keepsake Company estimated the cost of its physical inventory on March 31 for use in interim
financial statement. The rate of markup on cost is 25%. The inventory on January 1 was
P5,500,000. During the period January 1 to March 31, the entity had purchases of
P4,300,000, purchase returns of P200,000 and sales of P7,500,000. What is the estimated
cost of inventory on March 31?
A. 2,100,000 C. 3,600,000
B. 2,800,000 D. 3,975,000 FA © 2014
5. Avarice Company has a recent gross profit history of 40% of net sales. The following data
are available from the accounting records for the three months ended March 31, 2014:
Inventory - January 1 650,000
Purchases 3,200,000
Net sales 4,500,000
Purchase return 75,000
Freight in , 50,000
Using the gross profit method, what is the estimated cost of inventory on March 31, 2014?
A. 1,120,000 C. 2,025,000
B. 1,125,000 D. 2,700,000 FA © 2014
7. On June 30, 2014, a flash flood caused damage to the merchandise stored in the warehouse
of Teachable Company.
* Net sales for 2013 were P800,000 costing P560,000.
* Inventory, January 1 was P200,000, 90% of which was in the warehouse and 10% in
downtown showroom.
* From January 1 to date of flood, the invoice value of purchases all stored in the
warehouse is P100,000, freight P4,000, and purchase return P6,000.
* Cost of merchandise transferred from the warehouse to showroom was P8,000 and net
sales from January 1 to June 30, 2014 (all warehouse stock) amounted P320,000.
What is the estimated cost of merchandise destroyed by flood?
A. 46,000 C. 66,000
B. 50,000 D. 80,000 FA © 2014
8. In December 2014, Unanimous Company had a significant portion of inventory stolen. The
entity determined the cost of inventory not stolen to be P100,000.
2014 2013
Purchases 5,200,000 5,000,000
Purchase return and allowance 240,000 200,000
Sales 7,880,000 8,200,000
Sales return and allowance 80,000 200,000
Beginning inventory 1,200,000 2,000,000
What is the estimated cost of the stolen inventory?
A. 144,000 C. 644,000
B. 600,000 D. 700,000 FA © 2014
9. On December 31, 2014, Frenzy Company had a fire which completely destroyed the goods
in process inventory. A physical inventory was taken after the fire.
December 31 January 1
Finished goods 1,000,000 1,400,000
Goods in process 0 1,000,000
Raw materials 600,000 300,000
Supplies 100,000 400,000
During the year, the entity reported sales of P3,000,000, purchases of P1,000,000, freight of
P100,000, direct labor of P800,000 and manufacturing overhead at 50% of direct labor. The
average gross profit rate is 30% on sales. What is the estimated cost of the goods in process
on December 31, 2014 that were completely destroyed by fire?
A. 1,300,000 C. 2,000,000
B. 1,700,000 D. 2,100,000 FA © 2014
10. On December 31, 2014, a big fire caused severe damage to the warehouse of Kleptomaniac
Company.
2014 2013
Merchandise inventory, beginning 1,000,000 -
Purchases 8,000,000 5,600,000
Purchase return 500,000 100,000
Sales 9,000,000 6,000,000
At the beginning of 2014, the entity changed the policy on the sellIng prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross profit rate in
2013. Undamaged merchandise marked to sell at P500,000 was salvaged. Damaged
merchandise marked to sell at P100,000 had an estimated realizable value of P10,000. What
amount should be reported as inventory fire loss?
A. 1,600,000 C. 1,840,000
B. 1,780,000 D. 2,200,000 FA © 2014
11. On the night of September 30, 2014, a fire destroyed most of the merchandise inventory of
Sonia Company. All goods were completely destroyed except for partial damaged goods that
normally sell for P100,000 and that had an estimated net realizable value of P25,000 and
undamaged goods that normally sell for P60,000. The following data are available:
Inventory, January 1 660,000
Net purchases, January 1 through September 30 4,240,000
Net sales, January 1 through September 30 5,600,000
Total 2013 2012 2011
Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of sales 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 September 30,2014?
A. 580,000 C. 630,000
B. 615,000 D. 700,000 FA © 2014
12. Cool Air Company lost 50% of its inventory by fire on December 31, 2014. No inventory had
been taken on December 31, 2014. The
following profit and loss data are available:
2014 2013 2012
Inventory, January 1 1,040,000 840,000 848,000
Purchases 3,600,000 2,876,000 2,836,000
Purchase returns 240,000 140,000 200,000
Sales 4,060,000 3,900,000 3,620,000
Sales returns 60,000 100,000 20,000
What is the value of the inventory destroyed by fire?
A. 800,000 C. 1,600,000
B. 880,000 D. 1,760,000 PA 1 © 2014
13. Ombudsman Company lost all inventory by fire on December 31, 2014.
2014 2013 2012
Inventory - January 1 1,040,000 1,410,000 850,000
Net purchases 4,360,000 2,730,000 2,640,000
Net sales 5,000,000 4,000,000 3,400,000
Goods with selling price of P300,000 are sent on consignment. These goods are still unsold
by the consignee on December 31, 2014. Goods purchased costing P190.000 are in transit
on December 31, 2014. The goods were shipped FOB shipping point on December 28, 2014
and properly recorded as purchases. What amount of inventory fire loss should be reported?
A. 1,410,000 C. 1,900,000
B. 1,500,000 D. 1,690,000 FA © 2014
15. Lin Company sells merchandise at a gross profit of 30%. On June 30,2014, all of the inventory
was destroyed by fire. The following figures pertain to the operations for the six months ended
June 30, 2014:
Net sales 8,000,000
Beginning inventory 2,000,000
Net purchases 5,200,000
What is the estimated cost of the destroyed inventory?
A. 800,000 C. 2,800,000
B. 1,600,000 D. 4,800,000 PA 1 © 2014
16. On December 31, 2014, a storm surge damaged the warehouse of Braveheart Company.
The entire inventory and many accounting records were completely destroyed.
January 1 December 31
Inventory 1,500,000
Purchases 5,500,000
Cash sales 900,000
Collections of accounts receivable 8,400,000
Accounts receivable 700,000 1,100,000
Gross profit rate on sales 40%
What is the inventory loss from the storm surge?
A. 1,180,000 C. 2,260,000
B. 1,720,000 D. 2,700,000 FA © 2014
Missing inventory
17. Boon Company provided the following information for the current year:
Beginning inventory 500,000
Purchases 2,500,000
Sales 3,200,000
A physical inventory taken at year-end resulted in an ending inventory of P500,000. 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. What is the estimated cost of missing
inventory at year-end?
A. 0 C. 440,000
B. 100,000 D. 600,000 FA © 2014
18. Olivia Company provided the following information for the year ended December 31,2014:
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31,2014, what is the estimated cost of missing inventory?
A. 151,000 C. 420,000
B. 165,000 D. 585,000 PA 1 © 2014
19. Celibacy Company provided the following information for the year ended December 31, 2014:
Inventory, January 1 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000
On December 31, 2014, a physical inventory revealed that the ending inventory was only
P420,000. The gross profit on sales has remained, constant at 30% in recent years. The
entity suspects that some inventory may have been pilfered by one of the entity's employees.
On December 31, 2014, what is the estimated cost of missing inventory?
A. 151,000 C. 420,000
B. 165,000 D. 585,000 FA © 2014
21. On September 30,2014, Brock Company reported that a fire caused severe damage to the
entire inventory. The entity has a gross profit of 30%o on cost. The following data are
available for nine months ended September 30,2014:
Inventory at January 1 1,100,000
Net purchases 6,000,000
Net sales 7,280,000
A physical inventory disclosed usable damaged goods which can be sold for PI 00,000. What
is the estimated cost of goods sold for the nine months ended September 30,2014?
A. 4,970,000 C. 5,500,000
B. 5,096,000 D. 5,600,000 PA 1 © 2014
22. On October 31, 2014, Pamela Company reported that a flood caused severe damage to the
entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The
following information is available from the records for ten months ended October 31, 2014:
Inventory, January 1 520,000
Purchases 4,120,000
Purchase returns 60,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000
A physical inventory disclosed usable damaged goods which can be sold for P70,000. Using
the gross profit method, what is the estimated cost of goods sold for the ten months ended
October 31,2014?
A. 3,360,000 C. 3,830,000
B. 3,825,000 D. 3,900,000 FA © 2014
Net income
23. The records of Mainstream Company were destroyed by flood at the end of the current year.
However, certain statistical data related to the income statement are available.
Interest expense 20,000
Cost of goods sold 2,000,000
Sales discount 100,000
The beginning inventory was P400,000 and decreased 20% during the year. Administrative
expenses are 25% of cost of goods sold but only 10% of gross sales. Four-fifths of the
operating expenses relate to sale activities. Ignoring income tax, what is the net income for
the current year?
A. 330,000 C. 400,000
B. 380,000 D. 480,000 FA © 2014
Comprehensive
Questions 24 & 25 are based on the following information. FA © 2014
Moderate Company provided the following information:
June July August
Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each
month is 30% of that month's cost of goods sold.
26. If the trend in gross profit rate continues, what is the estimated cost of merchandise lost in
the fire on October 15, 2014?
A. 1,210,000 C. 1,530,000
B. 1,400,000 D. 1,720,000
27. If the average gross profit rate is used, what is the estimated cost of merchandise lost in the
fire on October 15, 2014?
A. 1,020,000 C. 1,400,000
B. 1,340,000 D. 1,720,000
e. Through the carelessness of the receiving department a June shipment was damaged by rain.
This shipment was later sold in June at its cost of 100,000
28. What is the cost of goods sold for the month of June 2014?
A. 780,000 C. 960,000
B. 880,000 D. 980,000
2014 2015
Net sales 7,500,000 4,500,000
Beginning inventory 1,260,000
Purchases 6,450,000 3,180,000
Freight in 350,000 220,000
Purchase discounts 90,000 45,000
Purchase returns 120,000 40,000
Purchase allowances 20,000 15,000
Ending inventory 2,355,000 ?
35. What is the estimated cost of the goods in process on December 31, 2014 that were
completely destroyed by fire?
A. 1,300,000 C. 2,000,000
B. 1,700,000 D. 2,100,000
January 1 December 31
Inventory 500,000
Accounts receivable 480,000 440,000
Accounts payable 400,000 500,000
Collection on accounts receivable 2,640,000
Retail Method
Conservative retail inventory method
43. On December 31, 2014, Huff Company provided the following information:
Cost Retail
Inventory, January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markups - 210,000
Available for sale 4,900,000 7,000,000
Sales for the year totaled P5,530,000. Markdowns amounted to P70,000. Under the
approximate lower of average cost or marked retail method, what is the inventory on
December 31,2014?
A. 980,000 C. 1,400,000
B. 1,078,000 D. 1,540,000 PA 1 © 2014
44. Bouquet Company used the conventional retail inventory method to account for inventory.
Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markup 400,000
Net markdown 600,000
Sales 7,800,000
What amount should be reported as cost of sales?
A. 4,800,000 C. 5,200,000
B. 4,875,000 D. 5,250,000 FA © 2014
45. Sublime Company showed the following information on December 31, 2014.
Cost Retail
Inventory, January 1 280,000 700,000
Sales 5,000,000
Purchases 2,480,000 5,160,000
Freight in 75,000 ,
Markup 500,000
Markup cancelation 60,000
Markdown 250,000
Markdown cancelation 50,000
Estimated normal shrinkage is 2% of sales.
The entity used the retail inventory method in estimating the value of its inventory. What is
the estimated cost of inventory on December 31, 2014 at approximate lower of average cost
and net realizable value?
A. 450,000 C. 495,000
B. 460,000 D. 506,000 FA © 2014
46. Carmela Company used the conservative retail inventory method. The following
information relating to the inventory was gathered at year-end:
Cost Retail
Beginning inventory 530,000 900,000
Purchases 6,080,000 8,700,000
Purchase discounts 85,000
Freight in 105,000
Markups 600,000
Markdowns 800,000
Sales 8,600,000
Sales discounts 100,000
48. Fainthearted Company provided the following information for the current year:
Cost Retail
Beginning inventory 750,000 1,000,000
Purchases 4,150,000 5,800,000
Additional markup - 200,000
Available for sale 4,900,000 7,000,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the average
cost approach in applying the retail method, what is the inventory at year-end?
A. 980,000 C. 1,050,000
B. 994,000 D. 1,400,000 FA © 2014
49. Dean Company used the retail inventory method to estimate inventory. Data relating
to the inventory computation on December 31,2014 are as follows:
Cost Retail
Inventory, January 1 720,000 1,000,000
Purchases 4,080,000 6,300,000
Net markups 700,000
Sales 6,820,000
Estimated normal shoplifting losses 80,000
Net markdowns 500,000
Under the average cost retail method, what is the estimated inventory on December 31,
2014?
A. 360,000 C. 408,000
B. 384,000 D. 600,000 PA 1 © 2014
50. Abscond Company used the retail inventory method to estimate inventory for interim
statement purposes. Data relating to the computation of the inventory on December 31, 2014
are as follows:
Cost Retail
Inventory, January 1 720,000 1,000.000
Purchases 4,080,000 6,300,000
Markup 700,000
Markdown 500,000
Sales 5,900,000
Normal shoplifting losses 100,000
Under the average cost approach, what is the estimated cost of inventory on December 31,
2014?
A. 900,000 C. 1,024,000
B. 960,000 D. 1,500,000 FA © 2014
51. Caramel Company used the average retail inventory method. On December 31, 2014, the
following information relating to the inventory was gathered:
Cost Retail
Inventory, January 1 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase discounts 40,000
Freight in 150,000
Markups 300,000
Markdowns 400,000
Sales 4,400,000
Sales return 100,000
Sales discount 50,000
Sales allowance 30,000
What is the estimated cost of the inventory on December 31,2014?
A. 245,000 C. 315,000
B. 280,000 D. 400,000 PA 1 © 2014
53. On January 1, 2014, the stock inventory of Ron Company was P1,000,000 at retail and
P560,000 at cost. During the current year, the entity registered the following purchases:
Cost 4,000,000
Retail price 6,200,000
Original markup 2,200,000
The total net sales was P5,400,000. 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
During the current year, the selling price of a certain inventory increased from P200 to P300.
This additional markup applied to 5,000 items but was later canceled on the remaining 1,000
items. What is the inventory on December 31,2014 using the average cost retail method?
A. 1,200,000 C. 2,000,000
B. 1,240,000 D. 2,400,000 FA © 2014
54. Airborne Company used the average cost retail inventory method. The entity provided the
following information for the year ended December 31,2014.
Cost Retail
Inventory - January 1 1,650,000 2,200,000
Net purchases 3,725,000 4,950,000
Departmental transfer - credit 200,000 300,000
Net markup 150,000
Inventory shortage - sales price 100,000
Employee discounts 200,000
Sales (including sales of P400,000 of items which
were marked down from P500,000) 4,000,000
What is the estimated cost of inventory on December 31,2014?
A. 1,924,000 C. 2,250,000
B. 1,950,000 D. 2,600,000 PA 1 © 2014
55. Hutch Company used the average cost retail inventory method to account for inventory. The
following information related to operations for the current year:
Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markups 400,000
Net markdowns 600,000
Sales 7,800,000
What amount should be reported as cost of sales for the current year?
A. 4,800,000 C. 5,200,000
B. 4,875,000 D. 5,250,000 PA 1 © 2014
56. Bizarre Company had always inventoried finished goods at selling price and prepared the
following statement on this basis:
Sales 1,400,000
Raw materials used at cost 500,000
Labor 600,000
Overhead 240,000
Total 1,340,000
Work in process at cost:
January 1 612,000
December 31 752,000 140,000
Cost of goods manufactured 1,200,000
Finished goods at selling price:
January 1 240,000
December 31 840,000 600,000 600,000
Gross income 800,000
What is the cost of goods sold?
A. 200,000 C. 600,000
B. 500,000 D. 840,000 PA 1 © 2014
Cost Retail
Beginning inventory 600,000 1,500,000
Purchases 3,000,000 5,500,000
Net additional markups 500,000
58. Groom Company used the LIFO retail method of inventory valuation. The entity provided
the following information for the current year:
Cost Retail
Inventory - January 1 1,200,000 1,500,000
Net purchases 4,200,000 5,900,000
Net markups 200,000
Net markdowns 100,000
Net sales 5,500,000
What is the estimated cost of ending inventory?
A. 1,400,000 C. 1,460,000
B. 1,440,000 D. 1,550,000 PA 1 © 2014
59. Emeritus Company which used the FIFO retail inventory method provided the following
information for the current year:
Cost Retail
Beginning inventory 1,200,000 1,800,000
Purchases 5,600,000. 7,200,000
Freight in 400,000
Net markup 1,400,000
Net markdown 600,000
Sales 7,600,000
What is the cost of goods sold for the current year?
A. 4,350,000 C. 5,594,000
B. 5,550,000 D. 5,682,000 FA © 2014
62. Based on a physical inventory taken on December 31,2014, Chewy Company determined
the chocolate inventory on a FIFO basis at P5,200,000 with a replacement cost of
P4,000,000. The entity estimated that, after further processing costs of P2,400,000, the
chocolate could be sold as finished candy bars for P8,000,000. The normal profit margin is
10% of sales. Using the measurement at the lower of cost and net realizable value, what
amount should be reported as chocolate inventory on December 31,2014?
A. 4,000,000 C. 5,200,000
B. 4,800,000 D. 5,600,000 PA 1 © 2014
63. Gracia Company used the lower of cost or net realizable value method to value inventory.
Data regarding the items in work in process inventory are presented below:
Markers Pens Highlighters
Historical cost 240,000 188,000 300,000
Selling price 360,000 250,000 360,000
Estimated cost to complete 48,000 50,000 68,000
Replacement cost 208,000 168,000 318,000
Normal profit margin as a percentage of selling price 25% 25% 10%
What is the measurement of the work in process inventory?
A. 676,000 C. 720,000
B. 694,000 D. 728,000 FA © 2014
Finished goods
64. Matrimony Company determined the year-end inventory on a FIFO basis at P4,000,000. The
entity provided the following information pertaining to the inventory:
66. Gatekeeper Company has two products with cost and selling price as follows:
Product X Product Y
Selling price 2,000,000 3,000,000
Estimated selling cost 600,000 700,000
Materials and conversion cost 1,500,000 1,800,000
General administration cost 300,000 800,000
At year-end, the manufacture of inventory has been completed but no selling cost has yet
been incurred. The inventory shall be measured at what amount?
A. 3,200,000 C. 3,700,000
B. 3,300,000 D. 3,800,000 FA © 2014
68. Starstruck Company is a retailer of Italian furniture and has five major product lines. At year-
end, the entity provided the following inventory data:
Units Unit cost NRV per unit
Sofas 100 1,000 1,020
Dining tables 200 500 450
Beds 300 1,500 1,600
Closets 400 750 770
Lounge chairs 500 250 200
What is the inventory at year-end using the lower of cost and net realizable value?
A. 1,040,000 C. 1,998,000
B. 1,075,000 D. 2,033,000 FA © 2014
71. Uptown Company used the perpetual method to record inventory transactions for 2014.
Inventory 1,900,000
Sales 6,500,000
Sales return 150,000
Cost of goods sold 4,600,000
Inventory losses 120,000
On December 24,2014, the entity recorded a P150,000 credit sale of goods costing
P100,000. These goods were sold on FOB destination terms and were in transit on December
31,2014. The goods were included in the physical count. The inventory on December 31,2014
determined by physical count had a cost of P2,000,000 and a net realizable value of
P1,700,000. Any inventory writedown is not yet recorded. What amount should be reported
as cost of goods sold for 2014?
A. 4,500,000 C. 4,920,000
B. 4,720,000 D. 5,020,000 PA 1 © 2014
72. Altis Company reported the following information for the current year:
Sales (100,000 units at P150) 15,000,000
Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
The inventory purchases during the year were as follows:
Units Unit cost Total cost
Beginning inventory, January 1 20,000 60 1,200,000
Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 70 2,800,000
Purchases, quarter ended Sept. 30 50,000 75 3,750,000
Purchases, quarter ended Dec. 31 10,000 80 800,000
150,000 10,500,000
The accounting policy is to report inventory in the financial statements at the lower of cost
and net realizable value. Cost is determined under the first-in, first-out method. The entity
has determined that, on December 31,2014, the replacement cost of inventory was P70 per
unit and the net realizable value was P72 per unit. The normal profit margin is P10 per unit.
What amount should be reported as cost of goods sold for the current year?
A. 6,300,000 C. 6,700,000
B. 6,500,000 D. 6,900,000 PA 1 © 2014
Adjusting entry
73. In 2014, North Company experienced a decline in the value of inventory resulting in a
writedown from P3,600,000 to P3,000,000. The entity used the allowance method to record
the necessary adjustment. In 2015, market conditions have improved dramatically. On
December 31,2015, the inventory had a cost of P5,000,000 and net realizable value of
P4,600,000. What is included in the adjusting entry on December 31, 2015?
A. Debit allowance for inventory writedown P200,000
B. Credit allowance for inventory writedown P400,000
C. Debit gain on reversal of inventory writedown P200,000
D. Credit gain on reversal of inventory writedown P400,000
Comprehensive
Questions 1 thru 3 are based on the following information.
White Company carried four items in inventory. The following per-unit data relate to these items at
the end of first year of operations:
74. What is the measurement of inventory under LCNRV applied to individual item?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000
75. What is the measurement of inventory under LCNRV applied to inventory category?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000
76. What is the measurement of inventory under LCNRV applied to inventory as a whole?
A. 7,625,000 C. 7,875,000
B. 7,725,000 D. 8,275,000
Purchase commitment
77. On October 1, 2014, Gorgeous Company entered into a 6-month, P5,200,000 purchase
commitment for a supply of a special product. On December 31,2014, the market value of
this material had fallen to P5,000,000.On March 31, 2015, the market value of the purchase
commitment is P4,900,000. What is the loss on purchase commitment to be recognized on
March 31,2015?
A. 0 C. 200,000
B. 100,000 D. 300,000 FA © 2014
78. On December 31, 2014, Dos Company has outstanding purchase commitments for 50,000
gallons at P20 per gallon of raw material. It is determined that the market price of the raw
material has declined to P17 per gallon on December 31,2014 and it is expected to decline
further to P15 in the first quarter of 2015. What is the loss on purchase commitment that
should be recognized in 2014?
A. 0 C. 250,000
B 150,000 D. 850,000 PA 1 © 2014
79. On January 1,2014, Card Company signed a three-year, noncancelable purchase contract,
which allows Card to purchase up to 5,000 units of a computer part annually from Hart
Company at P100 per unit and guarantees a minimum annual purchase of 1,000 units. During
2014, the part unexpectedly became obsolete. Card had 2,500 units of this inventory on
December 31,2014, and believed these parts can be sold as scrap for P20 per unit. What
amount of loss from the purchase commitment should be reported in the 2014 income
statement?
A. 160,000 C. 240,000
B. 200,000 D. 360,000 FA © 2014
80. On November 15, 2014, Diamond Company entered into a commitment to purchase 10,000
ounces of gold on February 15,2015 at a price of P310 per ounce. On December 31, 2014,
the market price of gold is P270 per ounce. On February 15,2015, the price of gold is P300
per ounce. What is the gain on purchase commitment to be recognized on February 15,2015?
A. 0 C. 300,000
B. 100,000 D. 400,000 FA © 2014
81. On November 15, 2014, Damascus Company entered into a commitment to purchase
100,000 barrels of aviation fuel for P55 per barrel on March 31, 2015. The entity entered into
this purchase commitment to protect itself against the volatility in the aviation fuel market. By
December 31,2014 the purchase price of aviation fuel had fallen to P40 per barrel. However,
by March 31, 2015, when the entity took delivery of the 100,000 barrels the price of aviation
fuel had risen to P60 per barrel. What amount should be recognized as gain on purchase
commitment for 2015?
A. 0 C. 1,500,000
B. 500,000 D. 2,000,000 PA 1 © 2014
Biological assets
83. Forester Company has reclassified certain assets as biological assets. The total value of the
forest assets is P6,000,000 which comprises:
Freestanding trees 5,100,000
Land under trees 600,000
Roads in forests 300,000
6,000,000
In the statement of financial position, what total amount of the forest assets should be
classified as biological assets?
A. 5,100,000 C. 5,700,000
B. 5,400,000 D. 6,000,000 P1 © 2014
84. Africa Company purchased 2,000 llamas at the beginning of current year. These llamas will
be sheared semiannually and their wool sold to specialty clothing manufacturers. The llamas
were purchased for P5,000,000. During the current year, the change in fair value due to
growth and price changes is P350,000, the wool harvested but not yet sold is valued at net
realizable value of P100,000, and the decrease in fair value due to harvest is P50,000. What
is the carrying amount of the biological asset at year-end?
A. 5,100,000 C. 5,350,000
B. 5,300,000 D. 5,400,000 FA © 2014
85. Salve Company is engaged in raising dairy livestock. Information regarding activities relating
to the dairy livestock during the current year is as follows:
Carrying amount on January 1 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal
attributable to price change 400,000
Gain arising from change in fair value less cost of disposal
attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31 ?
A. 6,000,000 C. 7,150,000
B. 6,950,000 D. 8,000,000 P1 © 2014
Comprehensive
Questions 86 & 87 are based on the following information. P1 © 2014
Joan Company provided the following data:
Value of biological asset at acquisition cost on Dec. 31,2014 600,000
Fair valuation surplus on initial recognition at fair value on Dec. 31,2014 700,000
Change in fair value to December 31, 2015 due to growth and price fluctuation 100,000
Decrease in fair value due to harvest 90,000
86. What is the carrying amount of the biological asset on December 31, 2015?
A. 1,300,000 C. 1,400,000
B. 1,310,000 D. 1,490,000
87 What is the gain from change in fair value of biological asset that should be reported in the
2015 income statement?
A. 10,000 C. 710,000
B. 100,000 D. 800,000
88. What is the carrying amount of the biological asset on December 31, 2015?
A. 6,500,000 C. 7,400,000
B. 7,300,000 D. 7,500,000
89. What amount of net gain from the change in fair value of biological asset should be reported
in 2015?
A. 800,000 C. 1,300,000
B. 900,000 D. 1,400,000
90. What amount of gain on change in fair value should be recognized for biological asset in
2014?
A. 2,250,000 C. 2,650,000
B. 2,500,000 D. 2,900,000
91. What amount of gain on change in fair value should be reported for agricultural produce in
2014?
A. 0 C. 400,000
B. 150,000 D. 2,250,000
92. What amount of net gain on biological asset should be reported in the current year?
A. 350,000 C. 550,000
B. 400,000 D. 600,000
93. What amount of gain on agricultural produce should be recognized in the current year?
A. 100,000 C. 350,000
B. 150,000 D. 400,000
95. What is the fair value of biological assets on December 31, 2014?
A. 400,000 C. 500,000
B. 450,000 D. 550,000
96. What is the fair value of the biological assets on December 31, 2014?
A. 1,320 C. 1,400
B. 1,360 D. 1,440
97. What is the gain from change in fair value of biological assets that should be recognized in
2014?
A. 222 C. 300
B. 292 D. 332
98. What is the gain from change in fair value due to price change?
A. 55 C. 237
B. 222 D. 292
99. What is the carrying amount of the biological assets on December 31?
A. 2,350,000 C. 2,800,000
B. 2,380,000 D. 3,160,000
100. What is the gain from change in fair value attributable to price change?
A. 0 C. 450,000
B. 360,000 D. 810,000
101. What is the gain from change in fair value attributable to physical change?
A. 360,000 C. 700,000
B. 450,000 D. 810,000
Questions 102 thru 106 are based on the following information. P1 © 2014
Farmland Company produces milk on its farms. The entity produces 20% of the community's milk
that is consumed. Farmland Company owns 5 farms and had a stock of 2,100 cows and 1,050
heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000
kilograms of milk. However, on December 31,2014 the entity is currently holding 50,000 kilograms
of milk in powder. On December 31,2014, the biological assets are:
No animals were born or sold during the current year. The unit fair value less cost of disposal is as
follows.
103. What is the fair value of biological assets purchased on July 1, 2014?
A. 2,250,000 C. 3,375,000
B. 3,000,000 D. 3,750,000
104. What is the fair value of biological assets on December 31, 2014?
A. 11,850,000 C. 15,225,000
B. 14,550,000 D. 15,750,000
105. What is the increase in fair value of biological assets on December 31, 2014?
A. 3,000,000 C. 5,250,000
B. 4,950,000 D. 6,150,000
106. What is the increase in fair value of biological assets due to physical change?
A. 1,260,000 C. 1,740,000
B. 1,440,000 D. 3,000,000
ANSWER EXPLANATION
1. Answer is (C).
Sales 480,000 / 12% 100% 4,000,000
Cost of sales 15% / 25% 60%
Selling expense 10%
Administrative expenses 15%
Bad debts 3%
Net income 12% 480,000
2. Answer is (C).
Sales 9,600,000
Cost of sales (9,600,000 / 125%) 7,680,000
Gross profit 1,920,000
3. Answer is (C).
Goods available for sale (5,500,000 + 4,300,000 - 200,000) 9,600,000
Cost of goods sold (7,500,000 /125%) (6,000,000)
Inventory - March 31 3,600,000
4. Answer is (C).
Goods available for sale (5,500,000 + 4,300,000 - 200,000) 9,600,000
Cost of goods sold (7,500,000 /125%) (6,000,000)
Inventory - March 31 3,600,000
5. Answer is (B).
Inventory – January 1 650,000
Purchases 3,200,000
Freight-in 50,000
Total 3,250,000
Less: Purchase returns 75,000 3,175,000
Goods available for sale 3,825,000
Less: Cost of sales (4,500,000 x 60%) 2,700,000
Inventory – March 31 1,125,000
6. Answer is (A).
Goods available for sale (2,500,000 + 7,500,000) 10,000,000
Cost of goods sold (15,000,000/166 2/3%) (9,000,000)
7. Answer is (A).
Cost ratio (560,000 / 800,000) 70%
Inventory – January 1 200,000
Net purchases (100,000 + 4,000 – 6,000) 98,000
Goods available for sale 298,000
Cost of sales (70% x 320,000) 224,000
Inventory – June 30 74,000
Inventory in showroom (10% x 200,000 + 8,000) 28,000
Fire loss 46,000
8. Answer is (B).
Net sales in 2013 8,000,000
Less: Cost of sales:
Beginning inventory 2,000,000
Net purchases in 2013 4,800,000
Goods available for sale 6,800,000
Less: Ending inventory 1,200,000 5,600,000
Gross profit 2,400,000
Gross profit rate (2,400,000/8,000,000) 30%
Inventory, January 1, 2014 1,200,000
Net purchases – 2014 4,960,000
Goods available for sale 6,160,000
Less: Cost of sales
Sales 7,880,000
Less: Sales return & allowances 80,000
Net sales 7,800,000
Cost of sales (7,800,000 x 70%) 5,460,000
Estimated value of ending inventory 700,000
Less: Cost of inventory not stolen 100,000
Estimated cost of stolen inventory 600,000
9. Answer is (A).
Raw materials – January 1 300,000
Purchases 1,000,000
Freight in 100,000 1,100,000
31. Answer is (A). Gross profit rate for 2014 (2,025,000/7,500,000) 27%
Sales 100%
Cost of sales 73%
Gross profit rate 27%
Markdown . (500,000)
Goods available for sale 4,800,000 7,500,000
Cost ratio (4,800/7500) – 64%
Sales (5,900,000)
Normal shrinkage and breakage (100,000)
Inventory at retail 1,500,000
Average cost (1,500,000 x 64%) 960,000
Sales (5,500,000)
FIFO inventory- 12/31 (2,000,000 x 70%) 1,400,000 2,000,000
(a x b) (a x c)
Total cost NRV LCNRV
Category 1:
A 2,625,000 2,875,000 2,625,000
B 1,700,000 1,600,000 1,600,000
Subtotal 4,325,000 4,475,000
Category 2:
C 2,000,000 1,600,000 1,600,000
D 1,950,000 1,800,000 1,800,000
Subtotal 3,950,000 3,400,000 .
Grand total 8,275,000 7,875,000 7,625,000
LCNRV - by individual item 7,625,000
82. Answer is (B). Fair value measurement stops at the point of harvest and PAS 2 on inventory
applies after such date. Accordingly, the coffee beans inventory shall be measured at the
lower of cost and net realizable value on December 31, 2015. The fair value less cost of
disposal of P3,500,000 at the point of harvest is the initial cost of coffee beans inventory for
purposes of applying PAS 2. The net realizable value of P3,200,000 is the measurement on
December 31,2015 because this is lower than the deemed cost of P3,500,000.
83. Answer is (A). Only the freestanding trees shall be classified as biological assets. The land
under trees and roads in forests shall be included in property, plant and equipment.