Name:

Date:
1. Inventories are
a. Assets held for sale in the ordinary course of business in the process of production for such sale, or in the form of materials or
supplies to be consumed in the production process or in the rendering of services.
b. Properties held to earn rentals or for capital appreciation or both.
c. Tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative
purposes; and are expected to be used during more than one period.
d. Identifiable non-monetary assets without physical substance.

2. La union company included the following items under inventories:

Materials P 1,400,000.00
Advance for Materials ordered 200,000.00
Goods in process 650,000.00
Unexpired insurance on inventories 60,000.00
Advertising catalogues and shipping boxes 150,000.00
Finished goods in factory 2,000,000.00
Finished goods in company - owned retail stores, including 50% profit on cost 750,000.00
Finished Goods in hands of consignees including 40% profit on sales 400,000.00
finished goods in transit to customers, shipped FOB destination, at cost 250,000.00
Finished goods out of approval, at cost 100,000.00
Office supplies 40,000.00
Unsalable finished goods, at cost 50,000.00
Materials in transit shipped FOB shipping point, excluding freight of P30,000 330,000.00
Goods held on consignment, at sales price, cost P150,000 200,000.00

Compute the amount to be presented as “Inventories” under current assets.

a. P5,500,000 c. P5,650,000
b. P5,470,000 d. P5,700,000

3. Ovation co. asks you to review its Dec 31 inventory values and prepare the necessary adjustments to the books. The following
information is given to you.
a. Ovation uses the periodic method of recording inventory. A physical count reveals P2,348,900 inventory on hand at Dec 31.
b. Not included in the physical count of inventory is P134,200 of merchandise purchased on Dec 15 from Standing. This
merchandise was shipped f.ob. shipping point on Dec 29 and arrived in January. The invoice arrived and was recorded on Dec
31.
c. Included in inventory is merchandise sold to oval on Dec 30, f.o.b. destination. This merchandise was shipped after it was
counted. The invoice was prepared and recorded as a sale on account for P128,000 on Dec 31. The merchandise cost P73,500,
and oval received it on January 3.
d. Included in inventory was merchandise received from owl on dec 31 with an invoice price of P156,300. The merchandise was
shipped f.o.b destination. The invoice, which has not yet arrived, has not been recorded.
e. Not included in inventory is P85,400 of merchandise purchased from oxygen industries. The merchandise was received on Dec
31 after the inventory had been counted. The invoice was received and recorded on Dec 30.
f. Included in inventory was P104,380 of inventory held by ovation on consignment from ovoid industries.
g. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This merchandise was shipped after it was counted.
The invoice was prepared and recorded as a sale for P189,000 on Dec 31. The cost of this merchandise was P105,200, and Kemp
received the merchandise on Jan 5.
h. Excluded from inventory was carton labelled “Please accept for credit”. This carton contains merchandise costing P15,000
which had been sold to a customer for P25,000. No entry had been made to the books to reflect the return, but none of the
returned merchandise seemed damaged.
The adjusted inventory cost of Ovation co. at Dec 31 should be ;
a. P2,217,620 c. P2,411,320
b. P2,396,320 d. P2,373,920

4. The inventory on hand at Dec 31 for Fair Co. valued at a cost of P947,800. The following items were not included in this inventory
amount:
a. Purchased goods, in transit, shipped FOB destination invoice price P32,000 which included freight charges of P1,600.
b. Goods held on consignment by Fair Co. at sales price of P28,000, including sales commission of 20% of the sales price.
c. Goods sold to Garcia Co., under terms f.o.b. destination, invoiced for P18,500 which includes P1,000 freight charges to deliver
the goods. Goods are in transit.
d. Purchased goods in transit, terms f.o.b deller, invoice price P48,000, freight cost, P3,000.
e. Goods out of consignment to Manil Co., sales price P36,400, shipping cost of P2,000.

Assuming that the company’s selling price is 140% of inventory cost, the adjusted cost of Fair Co.’s inventory at Dec 31 should be
a. P1,309,300 c. P1,055,700
b. P1,039,500 d. P1,037,300

5. Which statement is incorrect regarding measurement of inventories?

a. Inventories should be measured at lower of cost and NRV.
b. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the
inventories to their present location and condition.
c. Trade discounts, rebates and other similar items in determining the costs of purchase.
d. Foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency are included
in cost of inventories.
 6. Costs of purchase do not include
a. Purchase price
b. Import duties and other non-refundable taxes
c. Transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services.
d. Fixed and variable manufacturing overheads

7. Cost of inventories include

a. Storage cost
b. Abnormal amounts of wasted production costs
c. Selling costs
d. Cost of designing products for specific customers.

Use the following information for the next two questions:

Rowena Corp. began operation in 2016. In 2016 it incurred the following expenditures in purchasing materials for producing its product:
 Purchase price of raw materials = P3,000,000
 Import duty and other non-refundable purchase taxes = P800,000
 Refundable purchase taxes = P100,000
 Freight costs for bringing the goods from supplier to the factory raw material storeroom = P300,000
 Cost of unloading the materials into the raw material storeroom = P2,000
 Packaging = P200,000
On Dec 31, 2016 the entity received P53,000 volume rebate from supplier for purchasing more than P1,500,000 from supplier during the year.

The entity incurred the following additional costs in the production run:
 Salary of the machine workers on the factory = P500,000
 Salary of factory supervisor = P300,000
 Depreciation of the factory building and equipment used for production process = P60,000
 Consumables used in the production process = P20,000
 Depreciation of vehicle used to transport the goods from the raw materials storeroom to the machine floor = P40,000
 Factory rental = P100,000
 Depreciation and maintenance of the entity’s vehicle used by the factory supervisor (50 per cent for personal use) = P20,000. Private use
of the vehicle is an employee benefit.

During 2016 the entity incurred the following administration expenses:

 Depreciation of administrative building = P50,000
 Depreciation and maintenance of vehicles used by the administrative staff = P15,000
 Salaries of the administrative personnel = P305,000
 Of the administration expenses 20 per cent are attributable to administering the factory. The rest of the administration expenses are
attributable, in equal proportion, to the sales and other non-production operations (eg financing, tax and corporate secretarial functions)

In 2016 the entity incurred the following selling expenses:

 Advertising costs = P30,000
 Depreciation and maintenance of vehicles used by the sales staff = P10,000
 Salary of the administration personnel = P600,000
8. The total costs of purchase is
a. P3,747,000 c. P4,100,000
b. P4,047,000 d. P4,249,000
9. The total costs of conversion is
a. P1,134,000 c. P1,060,000
b. P1,144,000 d. P1,070,000

10. Buyer Co. regularly buys shirts from Vendor Co. and is allowed trade discounts of 20% and 10% from the list price. Buyer purchased shirts
from vendor on May 27 and received an invoice with a list price of P100,000 and payment terms 2/10, n/30. If the buyer uses the net
method of recording purchases, the journal entry to record the payment on june 8 will include
a. A debit to Accounts Payable of P72,000
b. A debit purchase discounts lost of P1,400
c. A credit to purchase discounts of P1,440
d. A credit to cash of P70,560

11. Catapult Corp. purchased mercahnsise during 2016 on credit for P200,000; terms 2/10, n/30. All of the gross liability except P40,000 was
paid within the 30-day term. At the end of the annual accounting period, Dec 31, 2016, 90% of the merchandise had been sold and 10%
remained in inventory. The entity has no beginning inventory. The entity uses net method of recording purchases.
If the entity used the gross method of recording purchases instead of the net method, the reported cost of goods sold would have been
a. The same c. lower by P720
b. Higher by P720 d. P176,400

12. Under PAS 2, the specific identification method of accounting for inventory is required for
a. All inventory items.
b. Inventory items which are interchangeable
c. Inventory items that are not interchangeable and goods that are produced and segregated for specific projects,
d. Biological (agricultural) inventories.

13. Which statement is incorrect regarding cost formulas?

a. Specific identification of cost means that specific costs are attributed to identified inventory.
b. Under the weighted average cost formula, the cost of each item is determined from weighted average of the cost of similar
items purchased or produced during the period.
c. The average cost formula may be calculated on a periodic basis, or as each additional shipment is received, depending upon the
circumstances of the entity.
d. The FIFO formula assumes that the items of inventory that were purchased or produced last are sold first, and consequently the
items remaining in inventory at the end of the period are those earlier purchased or produced.
Used the following information for the next two questions.
Transactions for the month of june were:

Purchases units unit cost total cost sales

1-Jun 400 P 3.20 P 1,280.00 2-Jun 300 @ P5.00
3-Jun 1100 3.10 3,410.00 6-Jun 800 @ 5.50
7-Jun 600 3.30 1,980.00 9-Jun 500 @ 5.50
15-Jun 900 3.40 3,060.00 10-Jun 200 @ 6.00
22-Jun 250 3.50 875.00 18-Jun 700 @ 6.00
3,250 10,605.00 25-Jun 150 @ 6.00
14. Assuming that perpetual inventory records are kept in pesos, the ending inventory on a FIFO basis is
a. P1,900 c. P2,065
b. P1,920 d. P2,100
15. Assuming that perpetual inventory records are kept in units only, the ending inventory on an average – cost basis is
a. P1,980 c. P 1,970
b. P1,956 d. P 1,995

Use the following info for the next two questions.

Dung uses the perpetual inventory system. Ding’s inventory transactions for the month of Aug were as follows:
No. Unit Cost Total Cost
Aug 1 Beg Inventory 20 P 4.00 P80
7 Purchases 10 4.20 42
10 Purchases 20 4.30 86
12 Sales 15 ? ?
16 Purchases 20 4.60 92
20 Sales 40 ? ?
28 Sales returns 3 ? ?
16. Using the info, assume that ding uses the FIFO cost flow method and that the sales retirns relate to the Aug 20 sales. The sales return
should be costed back into inventory at what unit cost?
a. P4.00 c. P4.07
b. P4.30 d. P4.60
17. Assuming that Ding uses weighted average cost flow method, the Aug 12 sales should be costed at what unit cost?
a. P4.16 c. P4.07
b. P4.30 d. P4.60

Use the following information for the next two questions.

Orang Dampuan Co. wholesales bicycles. It uses the perpetual inventory system. The co.’s reporting date is Dec 31. At Dec 1, 2016, inventory on
hand consisted of P350 bicycles at P820 each and 43 bicycles at P850 each. During the month ended Dec 31, 2016, the ff. inventory transactions
took place (all purchase and sales transactions are on credit) :

Dec 2 Sold 300 bicycles for P1,200 each

3 Five bicycles were returned by a customer. They had originally cost P820 each and were sold for P1,200 each
9 Purchased 55 bicycles at P910 each.
13 Purchased 76 bicycles at P960 each.
15 Sold 86 bicycles at P1,350 each.
16 Returned one damaged bicycles to the supplier. This bicycle had been purchased on Dec 9.
22 Sold 60 bicycles at P1,250 each.
26 Purchased 72 bicycles at P980 each.
29 Two bicycles, sold on Dec 22, were returned by a customer. The bicycles were badly damaged so it was decided to write them
off. They had originally cost P910 each.
18. The COGS for the month of Dec using moving average method id (Round unit costs to the nearest peso)
a. P 367,230 c. P 366,320
b. P365,410 d. P372,725
19. The COGS for the month of Dec using FIFO method is :
a. 367,230 c. P366,320
b. P365,410 d. P372,725

20. An entity has partially – completed inventory located in its factory, to which the following estimates relate :
Production cost incurred to date P268,000
Production costs to complete 20,000
Transport costs to customer 5,000
Future selling costs 10,000
Selling price 300,000
At what amount should the entity report the inventory on its statement of financial position?
a. P280,000 c. P268,000
b. P270,000 d. P225,000

21. NRV of inventories may fall below cost for a number of reasons including:
i. Product obsolescence
ii. Physical deterioration of inventories
iii. An increase in the expected replacement costs of the inventory
iv. An increase in the estimated costs of completion
a. I,II & IV c. I,III & IV
b. II,III & IV d. I&II

22. Which is incorrect regarding writedown of inventory to NRV?

a. The practice of writing inventories down below cost to net realizable value is consistent with the view that assets should not be
carried in excess of amounts expected to be realized from their sale or use.
 b. Inventories are usually written down to NRV item by item.
c. Estimates of NRV are based on the most reliable evidence, available at the time the estimates are made, of the amount the
inventories are expected to realize.
d. Materials and other supplies held for use in the production of inventories are written down below cost even if the finished
products in which they will be incorporated are expected to be sold at or above cost.

23. The closing inventory at cost of a company at Dec 31, 2016 amounted to P284,700. The following items were included at cost in the total:
 400 coats, which had cost P80 each and normally sold for P150 each. Owing to a defect in manufacture, they were all sold after
the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.
 800 skirts, which had cost P20 each. These too were found to be defective. Remedial work in Feb 2017 cost P5 per skirt, and
selling expenses for the batch totalled P800. They were sold for P28 each.
what should the inventory value be according to PAS 2 inventories after considering the above items?
a. P281,200 c. P282,800
b. P282,100 d. P329,200

24. The Paaka Corp included the following in its unadjusted trial balance as of Dec 31, 2016:
Inventory, 12/31/15 P 19,450,000
Purchases 127,850,000
Available for Sale P147,300,000
The inventory at Dec 31,2016 was counted at a cost of P14.5 million. This includes P500,000 of slow moving inventory that is expected to
be sold for a net amount of P300,000.
The cost of sales for the year ended Dec 31,2016 is
a. P133,100,000 c. P132,800,000
b. P133,000,000 d. P132,600,000

25. Which statement is incorrect regarding reversal of inventory write down to NRV?
a. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is
clear evidence of an increase in NRV because of changed economic circumstances, the amount is the lower of the cost and the
revised net realizable value.
b. The reversal is limited to the amount of the original write-down.
c. The amount of any reversal of any write down of inventories, arising from an increase in NRV, shall be recognized as a reduction
in the amount of inventories recognized as an expense in the period in which the reversal occurs.
d. All the statements are correct.

26. En-en Co. installs replacement siding, windows, and louvered glass doors for family homes. At Dec 31, 2016, the balance of inventory
account was P502,000, and the allowance for inventory writedown was P33,000. The inventory cost and other data at Dec 31,2016, are as
follows: (amounts in thousands)
Item Cost Replacement cost Sales price NRV Normal profit
A P 89 P 86 P 91 P 87 P5
B 94 92 93 85 7
C 125 135 129 111 10
D 194 114 205 197 20
TOTAL P 502 P 427 P 518 P 480 P 32
The gain on reversal of inventory write down is
a. P 33,000 c. P 8,000
b. P 11,000 d. P 0

27. Camella Co. bought a 10 – hectare land in Gingoog, to be improved, subdivided into lots, and eventually sold. Purchase price of the land
was P58,000,000. Taxes and documentation expenses on the transfer of the property amounted to P800,000. The lots were classified as
follows:
Lot Class Number of Lots Selling Price Total clearing costs
A 10 P1,000,000 None
B 20 800,000 P1,000,000
C 40 700,000 3,000,000
D 50 600,000 8,000,000
Purchase and Improvement costs allocated for class B lots under the relative sales value method of inventory valuation are
a. P13,485,700 c. P12,200,000
b. P10,800,000 d. P12,047,600

Use the following info for the next two questions.

On the Nov 15,2015, Socrates entered in to a commitment to purchase 200,000 units of raw material X for P8,000,000 on March 15,2016. Socrates
entered into this purchase commitment to protect itself against the volatility in the price of raw material X had fallen to P35 per unit.
28. How much will be recognized as loss on purchase commitment on march 15, 2016 if the price of the material had fallen further to P32 per
unit?
a. P1,200,000 c. P600,000
b. P1,000,000 d. P 0
29. How much will be recognized as gain on purchase commitment on march 15, 2016 if the price of the material had risen to P42 per unit?
a. P1,400,000 c. P400,000
b. P1,000,000 d. P 0

30. On January 1, 2016, Jelly Corp. signed a 3-year noncancelable purchase contract, which allows Jelly to purchase up to P500,000 units of a
computer part annually from Pyramid Supply Co. at P10 per unit and guarantees a minimum annual purchase of P100,000 units. During
2016, the part unexpectedly became obsolete. Jelly had 250,000 units of this inventory at Dec 31,2016, and believes these parts can be
sold as scrap for P2 per unit. What amount of probable loss from the purchase commitment should Jelly report in its 2016 profit or loss?
a. P2,400.000 c. P1,600,000
b. P2,000,000 d. P 800,000