FIN-ACC

DE LA SALLE LIPA
2ND SEM 2016-2017
 COURSE OUTLINE
What is Inventory?
Classes
Includible in Inventory
Inventory Terms
Consignment
Two System of Inventory
Two Methods of Recording
Discounts
Components of Cost of Inventory
 INVENTORY
Assets which are 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. (PAS 2)
Current Asset (Details shall be disclosed)
CLASSES
TRADING CONCERN
MANUFACTURING CONCERN
 MANUFACTURING CONCERN
RAW MATERIALS – goods that are used in the
production process ; physically incorporated
GOODS IN PROCESS – partially completed
products which require further process or work
before they can be sold
FINISHED GOODS – completed products which are
ready for sale
FACTORY OR MANUFACTURING SUPPLIES – Indirect
materials ; not physically incorporated
GOODS INCLUDIBLE IN THE INVENTORY

Goods owned and on Hand

Goods in transit and sold FOB destination
Goods in transit and purchased FOD shipping point
Goods out on consignment
Goods in the hands of salesmen or agents
Goods held by customer on approval or on trial
FREIGHT CHARGES
TERM OWNERSHIP OF GOODS

FOB DESTINATION SELLER

FOB SHIPPING POINT BUYER

FREIGHT CHARGE WAS PAID BY:

FREIGHT COLLECT BUYER

FREIGHT PREPAID SELLER

 MARITIME SHIPPING TERMS
 FAS – Free alongside
 Seller – Bear all expenses and risk involved in delivering the goods to the
dock next to or alongside the vessel on which the goods are to be
shipped
 Buyer – bears cost of loading and shipment ; title passes to buyer when
carrier takes possession of the goods

 CIF – COST, INSURANCE AND FREIGHT Seller – must pay for the
cost of loading
 BUYER – agrees to pay Goods, Insurance and Freight
 CF – COST AND FREIGHT TITLE – pass to BUYER
upon delivery of goods
 BUYER – agrees to pay Goods and Freight
to carrier
 EX-SHIP
 SELLER – bears all expenses and risk of loss until the goods are UNLOADED at which
title and risk of loss shall pass to the buyer
 ASSIGMENT #1
 YVO Co;s inventory at December 31, 2016 was P6M based on a physical
count of goods priced at cost and before any necessary year-end
adjustments relating to the following:
 Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2016. These goods had a cost of P125,000 and were picked up by the carrier
on January 7, 2017
 Goods shipped FOB shipping point on December 28, 2016 from a vendor to YVO were
received on January 4, 2017. The invoice cost was P300,000

 What amount should YVO report as inventory on December 31, 2016? (10
points)
Physical Count 6,000,000
FOB Shipping to YVON 300,000
TOTAL 6,300,000
 ASSIGNMENT #2
 Hyven Company’s inventory at December 31, 2016 was P7.5 M based on
physical count priced at cost and before any necessary adjustment for the
following:
 Merchandise costing P450,000, shipped FOB shipping point from a vendor on
December 30, 2016, was received and recorded on January 5, 2017
 Goods in the shipping area were excluded from inventory although shipment was not
made until January 4, 2017. The goods billed to the customer FOB shipping point on
December 30, 2016, had a cost of P600,000.

 What amount should Hyven report as inventory on December 31, 2016? (10
points)
Physical Count 7,500,000
Merchandise fr Vendor 450,000
Goods Shipped 600,000
TOTAL 8,550,000
 CONSIGNMENT
Method of marketing goods in which the owner
called the consignor transfers physical possession
of certain goods to an agent called the consignee
who sells them on the owner’s behalf.
Included in consignor’s inventory.
Freight and other handling charges on goods out
on consignment – part of the cost of goods
consigned
 ASSIGNMENT #4
 XYZ Co had the following consignment transactions during December
2016:
 Inventory shipped on consignment to Beta Co P1,800,000
 Freight paid by XYZ 90,000
 Inventory received on consignment from Alpha Co 1,200,000
 Freight paid by Alpha 50,000

 No sales of consigned goods were made through December 31, 2016.

How much consigned inventory should be included in XYZ’s December
31, 2016 statement of Financial position? (10 points)
Inventory on Consignment to Beta 1,800,000
Freight paid by XYZ 90,000
Total 1,890,000
 Two Systems
PERIODIC SYSTEM
Physical counting of goods on hand at end of the accounting
period
Individual Inty turn over rapidly
Small peso investment
PERPETUAL SYSTEM
Maintenance of Stock Cards (inflow and outflow of stocks)
Relatively large amount of investment
Physical Count - At least once a year (confirm inventory)
TWO SYSTEMS
TWO SYSTEMS
 DISCOUNTS
TRADE DISCOUNTS- deduction from the list price in order
to arrive at the invoice price which is the amount actually
charged to buyer ; not recorded

CASH DISCOUNTS – deduction from the invoice price

when payment is made within the discount period ;
purpose is for prompt payment ; recorded (purchase
discount)
 ASSIGNMENT #5
Oliver Sportswear regularly buys sweaters from Mill Co and is
allowed trade discounts of 20% and 10% from the list price.
Oliver made a purchase on March 20, 2017 and received an
invoice with a list price of P600,000, a freight charge of
P15,000 and payment terms of 2/10, n/30. Oliver should
record purchase at what amount? (10 points)
List Price 600,000
Trade Discount(20% x 600,000) (120,000
480,000
(10% X 480,000) (48,000)
Invoice Price 432,000
Freight Charge 15,000
Total 447,000
 METHODS OF RECORDING
GROSS METHOD – Purchases and accounts
payable are recorded at gross
Violates matching principle

NET METHOD - Purchases and accounts payable

are recorded at net
Represents the cash equivalent on the date of
payment therefore theoretically correct historical cost
 METHODS OF RECORDING
TRANSACTION GROSS METHOD NET METHOD

Purchase on Account Purchases 200,000 Purchases 196,000

Accounts Payable 200,000 Accounts Payable 196,000
P200,000, 2/10,n/30
(200,000 x 98%=196,000)
Assume payment is Accounts Payable 200,000 Accounts Payable 196,000
Cash 196,000 Cash 196,000
within discount period Purchase Discount 4,000
Assume payment is beyond Accounts Payable 200,000 Accounts Payable 196,000
discount period Cash 200,000 Purchase Disc Lost 4,000
Cash 200,000
Assume it is end of Purchase Disc Lost 4,000
accounting period, no Accounts Payable 4,000
payment is made and the
discount period has expired
 COMPONENTS COST OF INVENTORIES

 Comprise :
 Cost of purchase
Purchase price, import duties, irrevocable taxes, freight, handling and other
cost directly attributable to the acquisition of Finished Goods, materials and
services
Trade Discounts, rebates and other similar items - deducted
 Cost of Conversion
Cost directly related to units production, Direct Labor, Fixed and Variable Prod
Overhead
 Other cost incurred in bringing the inventories to their present location and
condition
 COMPONENTS COST OF INVENTORIES
 EXCLUDED
 Abnormal amounts of wasted materials, labor and other production costs
 Storage costs, unless these costs are necessary in the production process
prior to a further production stage
 Administrative Overheads that do not contribute to bringing inventories to
their present location and condition
 Distribution or selling costs

 SERVICE PROVIDER
 Consists of labor and other costs of personnel directly engaged in
providing services
 Labor and Other costs relating to sales and general administrative
personnel – not included but expense
 ASSIGNMENT #3
 The following information applied to Charlie Company for the current year:
 Merchandise purchase for resale P4,000,000
 Freight In 100,000
 Freight Out 50,000
 Purchase Returns 20,000
 Interest on Inventory loan 200,000

 How much is Charlie’s inventoriable cost ? (10 points)

Purchased 4,000,000
Freight In 100,000
Purchase Return (20,000)
Inventoriable Cost 4,080,000