Classroom Exercises on Inventories

1. Physical and Perpetual Inventory Systems

Below are selected transactions

a. Purchased merchandise, P100,000. terms: n/30.
b. Paid freight FOB SP, P10,000.
c. Returned damaged merchandise to supplier, P20,000.
d. Sold merchandise on account, P112,000. Mark-up is 40% of cost.
e. Issued a credit memo to a customer for returned merchandise, P28,000.
f. Year- end inventory per physical count amounted to P30,000.
Prepare: (1) Journal entries under physical and perpetual methods. (2) Under the
perpetual method assume that the physical count shows inventory on hand at (a) P25,000;
(b) P35,000.

2. Gross and Net Methods

Purchased merchandise on account, P100,000, terms: 2/10, n/30. Prepare entries under
gross and net methods.

3. Inventory Cost Flow Methods

The following data are available:

Date Purchases Sales Balance
Oct 1 100 @ P10 100 units
Oct 5 200 @ P11 300
Oct. 18 200 100
Oct 27 200 @ P12 300
Compute ending inventory and cost of goods sold assuming: (a) specific identification
(ending inventory came from Oct 1 and Oct 27 purchases); (b) FIFO – perpetual and
periodic; (c) average method – perpetual and periodic.

5. Lower of Cost or Net Realizable Value

Assume the following:

Net realizable
Items Units Unit Cost value
A 1,000 P11 P10
B 3,000 23 25
C 2,000 30 32

Perform year-end valuation procedure.

6. Gross Profit Method

Assume sales amounted to P100,000 , beginning inventory is P5,000 and purchases

totaled P80,000. Compute the estimated value of ending inventory. (a) Gross profit rate
is 40% of on sales. (b) Gross profit is 60% of cost.

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 31-Dec-06 31-Dec-07 31-Dec-08
Cost 500,000.00 520,000.00 600,000.00
LCNRV 480,000.00 490,000.00 575,000.00

8. Lump-Sum Acquisition

ABC Company purchased products X, Y and Z at a lump-sum price of P1,200,000.

Assume that the said products have the following sales price: X – P150,000; Y –
P450,000 and Z – P900,000.

Determine the cost of each product.

7. Lower of cost or net realizable value

Assume the following data for ABC Merchandising. The company uses the FIFO
method of cost allocation.

Prepare the journal entries under the Direct method and Allowance method, assuming
periodic and perpetual inventory system is used.

8. Purchase Commitment

Assume that on October 1, 2007, ABC Company entered into a non-cancelable

commitment to purchase six months after date, 100,000 units of an inventory item at
P10 each. On December 31, 2007, the cost of the inventory is P9.00 per unit.

a. When the actual purchase is made on April 1, 2008, the cost of inventory item is
P9.00
b. When the actual purchase is made on April 1, 2008, the cost of inventory decreased
further to P8.50
c. When the actual purchase is made on April 1, 2008, the cost of inventory increased
to P9.26
d. When the actual purchase is made on April 1, 2008, the cost of inventory increased
to P11.00

Record the above transactions.

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