You are on page 1of 9

Problem:

King's beginning inventory was P350,000, purchases were P1,460,000.00 and sa


With a normal gross margin rate of 35%, how much is ending inventory?

Solution:
4. Kings

Beginning Inventory P
Purchases
Goods Available for sale P
Less: Cost of Sales
Net Sales P 2,400,000.00
Multiply by Cost ratio 65%
Ending Inventory P

Problem:
Glen Retail Store has a beginning inventory of P200,000 at cost and P400,000 a
Sales were 2,000,000, How much is ending inventory at cost and at retail?

Solution:
3. Gien Retail Store

Beginning Inventory P
Purchases
Goods Available for sale P
Less: Cost of Sales (1,400,000/2,500,000=56%)
Net Sales P 2,000,000.00
Multiply by Cost ratio 56%
Ending Inventory P

Problem:
Amsterdam Hospital supply Corporation reported using the LIFO inventory meth
amount was P490.5 million.
Required:
a. Supposed that during the period covered by this report, the compan
that understated its inventory by P15million, What effect would this er
sold and gross margin of the period? On cost of goods sold and gross m
On total gross margin or both periods combined?
b. When amsterdam Hospital Supply reported the above amount for in
Would FIFO or LIFO have shown a higher gross margin? Why?

Solution:
2. Amsterdam Hospital Supply Corporation

a.) E F F E
Current Period
Cost of Goods Sold Overstated 15m
Gross Margin Understated 15m

b.) Under the FIFO method during period of inflation or rising prices FIFO me
to the higher net income because the ending inventory is expressed in te
prices thus resulting to lower cost of good sold which is expressed at old
higher profit margin.

However under the LIFO method approach during inflation or rising prices
result to lower net income because the inventory is expressed in terms o
a higher cost of goods sold which is expressed at recent or new prices th
profit margin.

Probem:
Octagon Data Computer Corporation reported a net loss for the year. In its finan
company noted:

Balance Sheet:
Current Assets:
Inventories (Note 1c and 2).P48,051,000.00

Note 1C: Inventories are stated at the lower of cost or market. Cost is determin
first-out (FIFO) basis.

Note 2: Declining..market conditions during the fiscal year adversely affected


sales of the Company's older printing products; Accordingly, the statement of lo
includes a (debit) of 9,600,000.

Required:

a. At which amount did Octagon report its inventory, cost or market value? How
b. If the reported inventory of P48,051,000 represents market value, what was t

Solution:
1. Octagon Data nComputer Corporation

a.) Octagon reported its inventory at market value, because at declining stag
result to the lowest income or possible loss, and because its a period of in
used the market value approach in valuing inventory it would clearly resu

b.)
es were P1,460,000.00 and sales totasled to P2,400,000
h is ending inventory?

350,000.00
1,460,000.00
1,810,000.00

1,560,000.00 Cost ratio: 100%-35%=65%


250,000.00

0,000 at cost and P400,000 at retail, Purchases were 1,200,000 at cost and 2,100,000 a
ory at cost and at retail?

Cost Retail

200,000.00 P 400,000.00
1,200,000.00 2,100,000.00
1,400,000.00 P 2,500,000.00

1,120,000.00 2,000,000.00
280,000.00 P 500,000.00

sing the LIFO inventory method. Its inventory

by this report, the company made an error


What effect would this error have on cost of goods
of goods sold and gross margin of the foll.period?

d the above amount for inventory, prices were rising.


ss margin? Why?

E F F E C T
Following Period Period Combined
Understated 15m -
Overstated 15m Counter balancing
on Total Gross
Margin, No effect

ation or rising prices FIFO method would result


g inventory is expressed in terms of recent or new
old which is expressed at old prices thus giving a

during inflation or rising prices LIFO method would


ntory is expressed in terms of old prices thus giving
ed at recent or new prices thust resulting to a lower

t loss for the year. In its financial statements, the

.P48,051,000.00

t or market. Cost is determined on a first-in,


fiscal year adversely affected anticipated
cordingly, the statement of loss..

y, cost or market value? How can you tell?


nts market value, what was the cost of inventory?

lue, because at declining stage, FIFO method would


and because its a period of inflation, when the company
nventory it would clearly resulted to net loss.
cost and 2,100,000 at retail

You might also like