The document provides information about an inventory class including: - Topics covered inventories, inventory valuation, biological assets, gross profit, and retail inventory method. - Formulas and calculations for inventory costing methods like FIFO, weighted average, and retail inventory method are presented. - An example problem demonstrates estimating ending inventory cost using the gross profit method.

1. Ms. Beams Hermosilla
Instructor
Opening Prayer – Valerie Dagohoy
Energizer– All
Topics
Inventories Rhinalyn
Inventory Valuation
Biological Asset
Valerie
Gross profit
Retail Inventory Method
Jessa Mae
National Anthem - All
Introduction of participants – Jessa Mae Buaco
Guitarist– Jessa Mae Buaco
Introduction of guest speaker – Rhinalyn Oraiz
Operator Shayne Judie Ann, Torres

2. Inventories

3. Inventories -are assets which held for sale of ordinary business by
the process of production for such sale the form of materials or supplies
to be consumed in the production process the rendering of service.
Classes of inventories
• Trading concern
• Manufacturing
Kinds of Manufacturing concern
• Finished good
• Goods in process
• Raw material

4. A consigned is a methods of
marketing goods which
called consignor transfer
physical certain good to
agent called consignee who
sell them of the owner
behalf..
2 system in accounting for
inventories
• Periodic system
• Perpetual system

5. Trade discounts and cash discount
Trade discount- are deduction from the list of catalog price in order to
arrive at the invoice price which is the amount actually charged to the buyers.
Thus trade discount are not recorded.
Cash discount- are deduction from the invoice price when payment is
made within the discount period. The purpose of cash is to encourage the goods
may be resold.

6. Illustration
list price 500,000 less 5-10% with credit terms of
5/10, n/30.
List price 500,000
First trade discount (5%x500,000) (25,000)
475,000
Second trade discount (10%x475,000) (47,500)
Invoice price 427,500
Cash discount (5%x427,500) ( 21,375 )
Payment within the discount period 406,125
The journal entry to record the
purchased is.
Purchased 427,500
Accounts payable 427,500
Note. that the trade discount are not
recorded. The journal entry to record the
payment of the invoice within the
discount period is.
Accounts payable 427,500
cash 406,125
purchase discount 21,375

7. Methods of recording purchases
1. Gross method-purchases and accounts payable are recorded at gross.
2. Net method-purchases and accounts payable are recorded at net.
Illustration-Gross method
1.Purchases on account, 150,000 2/10, n/30.
Purchases 150,000
Accounts payable 150,000
2.Assume payment is made within the
discount period.
Accounts payable 150,000
cash 147,000
purchases discount 3,000
3.Assume payment is made beyond the
discount period.
Accounts payable 150,000
cash 150,000
Illustration-Net method
1.Purchased on account, 350,000, 8/10, n/30.
Purchases 322,000
accounts payable 322,000
2.Asssume payment is made within the discount
period.
Accounts payable 322,000
cash 322,000
3.Assume is made beyond the discount period.
Accounts payable 322,000
Purchases discount loss(other expense) 28,000
cash 350,000
4.Assume it is the end of accounting period, no
payment is and made the discount period has
expired.
Purchases discount lost 28,000
accounts payable 28,000

8. Problem 1
Mako Company provided the following data at year-end.
Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale contract. 100,000
Items in receiving department returning by customer in the condition. 50, 000
Items ordered and in the receiving department invoice nor received 400,000
Items ordered invoice receive but goods not receive freight in paid in 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 receiving department , refused by us because of damage 180,000
Items included in count, damaged and usable 50,000
Items in the shipping department 250,000
Required.
Compute the correct amount of inventory.
4,000,000
(100,000)
Answer
50,000
400,000
X
X
150,000
200,000
800,000
X
(50,000)
250,000
5,700,000

9. Question;
Which term represent the deduction from the
invoice price of purchased goods granted by
suppliers for early payment.
a. Sales discount
b. Purchases discount
c. Trade discount
d. Purchases return and allowance

11. Cost of formulas;
- The cost of inventories shall be determined by using ;
a. First in, First out
(FIFO)
b. Weighted average
- If inventory are sold , the carrying amount will be
recognized as expense . Related as revenue as determined.

12. FIRST IN, FIRST OUT (FIFO)
Weighted average - periodic

13. Extreme Company showed the following
information:
Units Unit cost Total Cost
January 1 Beginning 10,000 40 400,000
31 Sale 5,000
April 1 purchase 15,000 50 750,000
July 31 Sale 18,000
October 1 Purchase 25,000 60 1,500,000
December 31 Sale 12,000
REQUIRED:
Compute the cost of the ending inventory and cost of sales
using:
 FIFO – periodic
 Weighted average
 Moving average

14. SOLUTION
Weighted Average- Periodic
January 1 10,000 40 400,000
April 1 15,000 50 750,000
October 1 25,000 60 1,500,000
Goods available 50,000 2 ,650,000
Less: Sales 35,000
Ending Inventory 15,000
Weighted Average 15,000 53 795,000
(2,650,000/50,000)
Units Unit cost Total Cost
January 1 Beginning 10,000 40 400,000
31 Sale 5,000
April 1 purchase 15,000 50 750,000
July 31 Sale 18,000
October 1 Purchase 25,000 60 1,500,000
December 31 Sale 12,000
FIFO
Inventory Jan. 1 400,000
Purchases 2,250,000
Goods available 2,650,000
Less: Inventory dec.31 900,000
Cost of sales 1,750,000
Moving Average – Perpetual
January 1 10,000 40 400,000
31 (5,000) 40 (200,000)
Balance 5,000 40 200,000
April 1 15,000 50 750,000
Total 20,000 47.50 950,000
July 31 (18,000) 47.50 (855,000)
Balance 2,000 47.50 95,000
October 1 25,000 60 1,500,000
Total 27,000 59.07 1,595,000
December 31 (12,000) 59.07 (708,840)
Balance 15,000 59.07 886,160
Cost of weighted Average –perpetual
January 31 sale 200,000
July 31 sale 855,000
Dec. 31 sale 208,480
Total Cost of sale 1,763,480 PROBLEM
Units Unit Cost Total CostFIFO
October 1 15,000 60 900,000
REQUIRED:
Compute the cost of the ending inventory and
cost of sales using:
 FIFO – periodic
 Weighted average
 Moving average
Weighted Average
400,000
2,250,000
2,650,000
795,000
1,855,000
Units Unit Cost Total Cost

15. Question;
The cost of inventories shall be measured using;
a. FIFO
b. Average method
c. LIFO
d. Either FIFO or average method

16. BIOLOGICAL ASSETS

17. ‘’Agricultural produce’’
‘’Government grant related to biological asset’’

18. Examples of biological assets
Biological Asset
Agricultural produce
Produce after harvest
1. Sheep
2. Tress in plantation
3. Plant
4. Dairy cattle
5. Pigs
6. Bushes
7. Vines
8. Fruit trees
1. Wool
2. Felled trees
3. Harvested cane
4. Milk
5. Carcass
6. Leaf
7. Grapes
8. Picked Fruit
1. Yarn, carpet
2. Lugs, Lumber
3. Sugar
4. Cheese
5. Sausage, cured ham
6. Tea, cured tobacco
7. Wine
8. Processed fruit

19. At the end of the period of biological asset shall be measured at fair value less cost of
disposal
Fair value is the amount for which an asset could be exchange between knowledgeable,
willing parties in an arms length transaction.
Cost of disposal is relating to the cost of an asset that usually on in disposition.

20. Is measurable at fair value less cost of disposal at the point of
harvest.
Fair value of Agricultural produce;

21. Diary cattle P 3,000,000
Beef cattle 5,000,000
Sheep 2,000,000 P 10,000,000
Problem
Central farm corporation reported the following lists of biological assets and agricultural produce for the year ended
dec. 31, 2014.
Assets Fair value
Diary cattle 3,000,000
Beef cattle 5,000,000
Sheep 2,000,000
Calves on diary 1,000,000
Calves on beef cattle 1,500,000
Lambs 800,000
Milk on diary cattle 500,000
Carcass on beef cattle 600,000
Wool 400,000
Question 1: What amount of biological asset should
central farm company in its dec. 31, 2014 statement of
financial position?
Answer: 13,300,000
Question 2: What amount should Central farm company report
as inventory related to the above biological assets?
Answer: 1,500,000
Mature biological assets:
Immature biological assets:
Calves on diary cattle 1,000,000
Calves on beef cattle 1,500,000
Lambs 800,000 3,300,000
Total fair value of biological asset 13,300,000
Milk on diary cattle P 500,000
Carcass on beef cattle 600,000
Wool 400,000
Total P 1,500,000
Solution:

22. Question;
Agricultural produce is measured at;
a. Fair value
b. Fair value less cost of disposal at the point of
harvest
c. Net realizable value
d. Net realizable value less normal profit margin

23. GROSS
PROFIT

24. Based on the assumption that the
rate of gross profit and therefore
the ratio of the cost of goods sold
to net sales is relatively constant
from period to period.

25. b. Theft of the merchandise has occurred and
the amount of inventory is required for
insurance purposes.
Common Reasons of making an estimate of
the cost of the goods on hand:
a. The inventory is destroyed by the fire and other
catastrophe or…
C. A physical count of the goods on hand is made and it is
necessary to prove the correctness of such count by
making an estimate.
D. Interim financial statements are prepared and a physical
count of the goods on hands is not necessary

26. BASIC FORMULA UNDER THE GROSS
PROFIT METHOD
GOODS AVAILABLE FOR SALE (GAS) X X
Less: Cost of Sale X X
Ending Inventory X X

27. GOODS AVAILABLE FOR SALE X X
GOODS AVAILABLE FOR SALE
Beginning inventory X X
Purchases X X
Add: Freight in X X
Total X X
Less: Purchases return, allowance and discount X X X X

28. GROSS PROFIT RATE ON COST TO GROSS PROFIT ON SALES
= If the gross profit rate on cost is 45% ,
the gross profit on sales computed as
follows:
NET SALES 145%
COST OF SALE 100%
GROSS PROFIT ON COST
35%
GROSS ROFIT ON SALES(45/145) 31%

29. GROSS PROFIT RATE ON SALES TO GROSS PROFIT
ON COST
= If the gross profit on sales is 40% the gross profit on cost is
computed as follows:

30. 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 3,20,0000
Net Sales 4,500,000
Purchase return 75,000
Freight in 50,000
Using the gross profit method , what is the estimated cost of the inventory on
March 31,2014?
PROBLEM

31. INVENTORY , BBEGINING 650,000
PURCHASES 3,200,000
FREIGHT IN 50,000
3,250,000
LESS: PURCHASES RETURN 75,000 3,175,000
GOODS AVAILABLE FOR SALE 3,825,000
LESS: COST OF SALES
NET SALES 4,500,000
MULTIPLY COST RATIO 60% 2,700,000
ENDING INVENTORY 1,125,000
ANSWER:
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 3,20,0000
Net Sales 4,500,000
Purchase return 75,000
Freight in 50,000
Using the gross profit method , what is the estimated cost of the
inventory on March 31,2014?
PROBLEM

32. Retail
Inventory
Method

33. The use of the retail inventory method required that
record to kept which must show the following.
a) Beginning inventory valued at cost and at retailed price.
b) Purchased during the period at cost and at retail price.
c) Adjustments to the original retail price such as additional mark up, mark up
cancelation, mark down and mark down cancelation.
d) Other adjustment such as department transfer, breakage, shrinkage, theft,
damaged goods and employees discount.

34. Basic Formula:
Goods available for sale at retail or selling price XX
Less. Net sale (Gross sale minus sales return only) XX
Ending inventory at selling price XX
Multiply by cost ratio XX
Ending inventory at cost XX
Cost ratio= Goods available for sale at cost
Goods available for sale at selling price

35. Cost Retail
Beg. Inventory 530,000 900 ,000
Purchases 6,080,000 8,700,000
Purchases discount (85,000)
Freight in 105,000
Mark up 600,000
GAS-conservation 6,630,000 10,200,000
Cost ratio (6,630,000/10,200,000)70. 5%
Less: Sales (8,600,000)
Ending inventory retail
Conservative cost ( 800,000X65%) P 520,000
Example