prac i- inventory,govt grant & borrowing cost

8/11/2019 Prac I- Inventory,Govt Grant & Borrowing Cost

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INVENTORIESPAS 2

School of Business and Management



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Inventories includes:

Assets held for sale in the ordinary course

of business

Assets in production process for sale inthe ordinary course of business

(Work in Process)

Materials and supplies that are consumedin production process or in the rendering

of services




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urchase Transaction

FOB Destination exclude)

FOB Shipping Point include)

Sale Transaction

FOB Destination include)

FOB Shipping Point exclude)




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ILLUSTRATIVE PROBLEMS

RECOGNITION & ITEMS CONSIDEREDINVENTORIES




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800,000

120,000

300,00080,000

50,000

350,000280,000

20,000

260,000

40,000

P 2.3M



Answer : A

A consignmentis a method

of marketing goods inwhich the owner called the

consignortransfers

physical possession ofcertain goods to an agent

called the consigneewho

sells them on the ownersbehalf

urchase Transaction



Sale Transaction




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What goods shall be included in inventory?

Rule:It is the ownershipthat determines

inventory inclusion or exclusion




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PROBLEM 1

School of Business and ManagementSchool of Business and Management


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Beg Inventory xx

Add: Net Purchases xx

Total GAS xx

Less: Ending MI xx

COGS xx


Merchandise Inventory xx

COGS xx

Purchases xx

Accounts Payable xx


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B. Merchandise Inventory 134,200

Cost of sales 134,200

C. Sales 128,000

Accounts Receivable 128,000

D. Purchases 156,300

Accounts Payable 156,300

E. Merchandise Inventory 85,400



urchase Transaction



Sale Transaction




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F. Cost of sales 104,380

Merchandise Inventory 104,380

G. Cost of sales 105,200


H. Sales return 25,000

A/R 25,000



Answer : D


urchase Transaction



Sale Transaction




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PROBLEM 2



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FOB Seller FOB Shipping Point

FOB Buyer FOB Destination

Unadjusted 4M

Adjustment c) 80T

Adjustment e) 50T


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Unadjusted Bal 4M

Adjustment (c) 80TAdjustment (e) 50T

4.13M

Answer: B


FOB Seller FOB Shipping Point

FOB Buyer FOB Destination


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PROBLEM 3

Answer: B



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PROBLEM 4



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Purchases P 70,560

Accounts Payable 70,560

Accounts Payable P 70,560

Cash 72,000

Answer: B


100,000 x .80 x .90 x .98



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PROBLEM 5



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Gross Method Net Method

Purchases` P 200,000 Purchases P 196,000Disc Taken 3,200 Multiply: 90%

Net Purchases 196,800

Multiply: 90%

COS P 177,120 COS P 176,400

Gross Method: Discount not taken ( capitalized )Net Method : Discount not taken ( other expense )

Answer: B


200,000x.98



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PROBLEM 6



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June 22 250 @ 3.50 = P 875

June 15 350 @ 3.40 = 1,190

End Inven P 2,065

Answer: C



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PROBLEM 7



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Ending Inventory = 600 @ P3.26

Answer: B


3250-2650 10,605/3250



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PROBLEM 8



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Beg. Inventory 393

Net Purchases 202TGAS 595

Unit sold 441

Ending Inv. 154


55+76+72-1

300+86+60-5



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Ending Inventory

( 154 units )

Dec. 26 72 @ 980 = P 70,560

Dec. 13 76 @ 960 = 72,960Dec. 09 6 @ 910 = 5,460

Ending 154 P 148,980

Inventory

Answer: A



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PROBLEM 9

Answer: B



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PROBLEM 10



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Inventory 6,000

Retained Earnings 4,200

Income Tax Payable 1,800

Answer: D



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PROBLEM 11


Beg Inventory xx

Add: Net purchases xx

TGAS xx

Less: Ending-MI xx)

COGS xx


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2010 2011 2012

2010 100,000 (100,000)

2011 150,000 (150,000)

2012 200,000P 50,000


Answer: D


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PROBLEM 12



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Subsequent measurement of Inventories

LOWER OF COST AND NRV


Estimated selling priceEstimated selling cost


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Item Date Units Unit Cost NRV/Unit Lower of cost and NRV

C 7/16-31 30,000 8.00 6.48 P 194,400

7/1-15 15,000 6.50 6.48 97,20045,000 291,600

P 7/1-15 25,000 10.50 8.91 222,750

A 7/1-15 30,000 1.25 1.62 37,500

7/1 20,000 .90 1.62 18,00050,000 55,500

TOTAL P 569,850

Answer: B


8.00x.90x.90

11.00x.90x.90

2.00x.90x.90



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PROBLEM 13



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Item Total Cost Lower of cost or NRV Allowance for Inv W/D

C 337,500 291,600 45,900

P 262,500 222,750 39,750

A 55,500 55,500 -

Total 655,500 569,850 85,650

Less: Beg. Allowance 3,000

P 82,650

Answer: D



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Loss on Inventory write-down 82,650

Allowance for inventory 82,650

write-down


P&L

SFP (CA)


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PROBLEM 14



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Inventory, 7/1 P 658,500

Purchases 1,205,000

TGAS 1,863,500

Inventory, 7/31 ( 655,500)COS before loss on inv. W/D 1,208,000

COS after loss on inv. W/D 1,290,650

Loss on inventory W/D 82,650

Allowance for Inventory W/D 82,650

Answer: B


Loss on Inv. W/D 82,650


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PROBLEM 15



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Lower of Cost or NRV

A. P 2T

B. 9TC. 14T

25T

Allowance for Inv. Write-down 8,000

Gain on reversal 8,000

Answer: C


33,00025,000


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PROBLEM 16



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Total Cost P 58.8M

Multiply: 16/84

Allocated Cost 11.2MAdd: 1M

Total 12.2M

Answer: C



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PROBLEM 17



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What are purchase commitments?

- obligation of an entity to acquire certain goods

sometime in the future at a fixed price and fixed

quantity

- lock on the inventory purchase price in advance

Current loss recognition is not appropriate when:

1. Commitments can be cancelled

2. Commitments provide for price adjustment

3. Hedging transactions prevent losses, or

4. Declines do not suggest reductions in sales price

School of BusinePROBLEM 13ss andManagement School of Business and Management

COST > BENEFIT


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Journal Entry

Loss on purchase commitment 1,000,000

Estimated Liability for PC 1,000,000

Purchases 8,000,000

Estimated Liability for PC 1,000,000

Accounts Payable 8,000,000

Gain on Purchase Commitment 1,000,000


Answer: C

If , prior to delivery, the market increases,

the estimated loss on purchase commitments

account is reduced and a gain is recorded,

though such recovery can only berecognized to the extent of the original loss

recorded.


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-END-



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ESTIMATING INVENTORIES

PAS 2



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PROBLEM 1



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Beg Inventory P 200,000

Net Purchases 98,000

TGAS 298,000

COS 224,000Est. Ending Inventory 74,000

Show-room Merchandise ( 8,000)

Downtown Show Room Merch ( 20,000)

Est Merchandise destroyed by P 46,000

Fire

Answer: D


320,000 x 560/800


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PROBLEM 2



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2012

Beg Inventory P 1,020,000

Net purchases 3,137,000

TGAS 4,157,000Net Sales P 4,080,000

Cost ratio: 76% 3,100,800

Estimated ending MI 1,056,200

Undamaged merchandise (91,200)

Damaged merchandise (18,000)

Estimated loss on Fire P 947,000


2011

Cost Ratio = 3,049,400 / 3,860,000

= 79% `

4,300,000 - 230,600 - 1,020,000s

3,940,00080,000Answer: B


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PROBLEM 3


Accounts Receivable


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752,100 x .30

130,590 753,800

128,890

Beg

Sales

Collection

End88,140 487,500

122,850

Beg

Purchases

Payment

Accounts payable

143,850 526,470

522,210

Beg

Purchases

COGS

End

Merchandise Inventory

752,100

522,210

139,590


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Estimated MI-end P 139,590

Goods out on consignment (52,900)

Estimated Fire Loss P 86,690

Answer: C



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PROBLEM 4


60T + 200T + 30T120T


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Material Used xx

Direct Labor xx

Factory Overhead xxTotal manufacturing Cost xx

Add: Beg Work in Process xx

Total goods in process xx

Less: End Work in process xxTotal goods manufactured xx

Add: Beg Finished Goods xx

Total goods available for sale xx

Less:End Finished goods xxCost of Good sold xx

Answer: C


P 170,000

160,000

100,000

160,000 / 1.60

430,000

200,000

630,000

?

?

280,000

?

240,000

?

SALES 135% 546,750

MULTIPLY: 100% 100/135E.COGS 405,000405,000

645,000

365,000

265,000


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PROBLEM 5 - 7


A B A C


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Cost Retail

Beg Inventory 1,300,000 2,600,000

Net Purchases 17,500,000 28,200,000

Departmental T/I 400,000 600,000TGAS 19,200,000 31,400,000

Net Markup 600,000

Net Markdown (2,000,000)

Total 30,000,000

Less: Net salesMIending @ retail 5,000,000

Conservative = 19.2M/32T

= 60%

Average = 19.2M/30M

= 64%

FIFO = 17.9M/27.4M

= 65%


SALES P24,700,000

SALES RETURN (350,000)

SALES DISCOUNT (200,000)

EMPLOYEE DISCOUNT 600,000LOSS ON BREAKAGE 50,000

NET SALES P25,000,000

25,000,000

5M x .60 = 3M

5M x .64 = 3.2M

5M x .65 = 3.25M

Answer : B,A,C


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PROBLEM 8


SALES


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500,000 ?

6,500,000

100,000

Sales Return

Sales Allow

Sales

Net Sales

Employee

discounts

Theft &other losses

200,000

100,000

SALES

6.9M


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TGAS P 4.8M

COS 4.416MESTIMATED MIEND P 384,000

COST RATIO = 4.8M/7.5M

= 64%

Answer: B


6.9M X .64


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-END-



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BIOLOGICAL ASSETS

&

AGRICULTURAL PRODUCE

PAS 41



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Biological asset are living animals & living

plants

Agricultural Produce is the harvested

product of an entitys biological asset



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PROBLEM 1



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Only the freestanding trees shall be classified as biologicalassets.

The land under trees and road in forests shall be included in

property, plant and equipment.

Answer: B



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PROBLEM 12

4

Joan Company



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Requirements 1

1.Biological asset 600,000

Cash 600,000

2. Biological asset 700,00

Gain from change in FV 700,000

3. Biological Asset 100,00

Gain from change in FV 100,000

4. Loss from change in FV 90,000

Biological asset 90,000

5. Cash 400,000

Biological asset 400,000

Requirements 2

Acquisition cost

1/1/2010 P 600,000

Increase in FV on initial recognition 700,000

Increase in FV due to growth and price 100,000

Decrease in FV due to harvest 90,000)

Decrease due to sale 400,000)

Carrying amount

12/31/2010 P 910,000



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PROBLEM 12

7

Farmland Company



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1. Fair value of biological assets on January 1, 2011:

2 yrs old cows on 1-1-11 8,400,000

1 yr old heifers-purchased on 1-1-11 900,000

2. Fair value of heifers which are 1 yr old purchased on

07-01-11

2,250,000

3. Fair value of biological assets

on Dec 31, 2011

Cows w/c are now 3 yrs old 10,500,000

Heifers w/c are now 2 yrs old 1,350,000

Heifers w/c are now 1.5 yrs old 2,700,000

14,550,000



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4. FV12/31/2011 14,550,000

FV1/1/2011 (9,300,000)

FV7/1/2011 (2,250,000)

Increase in FV 3,000,000

Increase due to price change

2,100 x (4,5004,000) 1,050,000

300 x (3,2003,000) 60,000

750 x ( 3,200 - 3,000) 150,000 1,260,000

Increase due to price change

2,100 x (5,0004,500) 1,050,000

300 x (4,5003,200) 390,000

750 x ( 3,6003,200) 300,000 1,740,000

5. Lower of cost and NRV



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PROBLEM 12

8Forester Company



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Freestanding trees P 5,100,000

Land under trees 600,000

Roads in forest 300,000

Answer: A



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PROBLEM 12

10Colombia Company


Fair value measurement stops at the point of harvestand


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For the purpose of applying PAS 2, the

Fair value less cost to sell of P 3,500,000

at the point of harvest is the initial cost

of coffee beans inventory

Answer: C


PAS 2 on inventory applies after such date

( Lower of cost and NRV )


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Answer: A



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-END-



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PROPERTY, PLANT & EQUIPMENT

(Acquisition & Subsequent Expenditure)PAS 16



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PAS 16 par. 6 defines Property, plant &

equipment as tangible items that are:

i. held for use in the production or supply of

goods or services, for rental to others, or for

administrative purposes; and

ii. expected to be used during more than one

period



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Recognition

Future economic benefits associated with

the asset will flow to the enterprise; and

The cost of the asset can be measured

reliably

Initial Measurement

at cost

Subsequent Measurement

Cost model or Revaluation model



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PROBLEM 1



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Cost of PPE

a. Its purchase price, including import duties and non-refundable purchase taxes, after deducting tradediscounts and rebate

b. Cost directly attributable to bringing the asset to itsintended use

c. Initial estimate of the cost of dismantling andremoving the item (Provision)

Answer: C

School of Busivness and Management


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PROBLEM 2



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Purchase Price P 4,410,000Delivery cost 80,000

Installation &Testing 310,000

Total 4,800,000

Answer: B


4,500,000x.98


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PROBLEM 3


Installment/Deferred payment


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p y

Interest bearing:

i. Realistic/market rate = Face Value

ii. Unrealistic/below market value

1) Cash Price

2) PV of payments

Non-interest bearing:

1) Cash Price2) PV of payments

School of Business anvd Management


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Purchase price P 240,000

Reconditioning cost 10,000

Installation cost 4,000

Testing cost 1,800

Delivery cost 5,000

Safety devices 12,000

Total 272,800

Answer: C



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PROBLEM 4


1 [1 12(-3)] x 1 12


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P1,000,000 x 2.69 = P 2,690,000

3,000,000 x .71 = 2,130,000

P 4,820,000

Answer: A


1[1.12 (-3)] x 1.12

.12

1.12(-3)ALTERNATIVE SOLUTION:

1,000,000 X 1.69 = P 1,690,000

1,000,000 X 1.00 = 1,000,000P 2,690,000


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PROBLEM 5


EXCHANGE WITH BOOT


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EXCHANGE WITH BOOT

With commercial substancePayor = FV of AGU + cash paid = FV of AR

Recipient = FV of AGU - cash received = FV of AR

Without commercial substancePayor = CA of AGU + cash paid = FV of AR

Recipient = CA of AGU - cash received = FV of AR

1. FV of asset given up ( AGU )

2. FV of asset received (AR )

3. Carrying amount of asset given up

P 35,000 P 10,000 P 45,000

Answer: A

P 39,000P 10,000

P 49,000MACHINERYNEW 45,000

LOSS ON EXCHANGE 4,000

MACHINERYOLD 39,000

CASH 10,000


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PROBLEM 6



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Without commercial substance

Payor = CA of AGU + cash paid = FV of AR

Recipient = CA of AGU - cash received = FV of AR

Answer: B


TRUCKNEW 1,880,000

LOSS ON TRADE IN 80,000

TRADE-IN 320,000ACCUMULATED DEP 1,200,000

TRUCK-OLD 1,600,000

CASH 1,560,000


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PROBLEM 7



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Without commercial substance

Payor = FV of AGU + cash paid = FV of AR

Recipient = FV of AGU - cash received = FV of AR

Answer: C


1,560,000 320,000 1,880,000

TRUCKNEW 1,880,000

LOSS ON TRADE IN 80,000ACCUMULATED DEP 1,200,000

TRUCK-OLD 1,600,000

CASH 1,560,000


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PROBLEM 8



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Cost of dismantling P 14,480

Cash proceeds from sale 12,000

Raw material used 76,000

Labor on construction 49,000

Cost of installation 11,200

Materials spoiled in machine

trial runs 2,400Profit on construction 24,000

Purchase of machine tools 13,000

Purchase discount ( 3,000 )

FOH 16,900

P 152,500

Answer: D



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PROBLEM 9



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LAND 280/800 P 241,500WAREHOUSE 320/800 276,000

OFFICE BUILDING 200/800 172,500

P 690,000

Answer: C



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PROBLEM 10



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Purchase price P 1,000,000

Demolition cost 40,000

Salvage materials from demo (5,400)

Legal fees 3,480

Title insurance cost 2,400

Special assessment 6,400

P 1,046,880

Answer: C



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PROBLEM 11


Purchase through issuance of own securities


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LAND BLDG

Purchase Price

Repairs made to Bldg

Special tax assessment

Remodeling

Landdonation

Answer: B


1. FV of consideration received

2. FV of shares issued

3. Par value of shares issued

LANDDONATED 1,500,000

MISC INCOME 1,500,000

P 2M P 6M

50T

400T1.5M

P 3.55M P 6.7M

300T

P 2.25M P 6.75M

P 3.8M P 7.45M


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PROBLEM 12


Are subsequent expenditures to be


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capitalized?

Generally, No( outright expense )

Except when;

1. extension of useful life

2. Increase in production capacity

3. Improvement in efficiency



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Purchase price P 5M

Installation cost 400TParts addedSC 2.M

Labor & OverheadSC 600T

Total cost of Machinery P 8M

Answer: A



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GOVERNMENT GRANT

&

ASSISTANCEPAS 20



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Government GrantsGovernment grants are assistance by

government in the form of transfer of

resources to an entity in return for past or

future compliance with certain conditionsrelating to the operating activities of the

entity

Types of government grant

Grants related to assets

Grants related to income


Primary condition is that

an entity qualifying for

them should purchase,

construct or otherwise

acquire long-term

assets

Recognition of government grants


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The enterprise will comply with any

conditions attached to the grant

Grant will be received

Grant is recognized as income over

the period necessary to match themwith the related costs on a

systematic basis and should not to be

credited directly to equity

( even if there are no condition

attached )


PAS 20 provides that grants related to

d i bl t ll i d


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depreciable assets are usually recognized

as income over the periods and in

proportion to the depreciation of therelated assets

PAS 20 provides that a government grant

that becomes receivable for expenses

already incurredor for the purpose of

giving financial support to the entity with

no related future costs is recognized as

income of the period in which it becomesreceivable or when received



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A grant receivable as compensation for

costs already incurred or for immediate

financial support, with no future related

cost should be recognized as income in

the period in which it is receivable



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Presentation of Government Grants

A grant relating to assets may be

presented in one of two ways:

1. as deferred income, or2. By deducting the grant from the assets

carrying amount

A grant relating to income may be

reported separately as other income ordeducted from the related expense



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Grant that becomes repayable (change in acctg estimate)

Original grant related to income

Original grant related to an asset


The repayment should be appliedfirst against any related

unamortized deferred credit and

any excess should be dealt with as

an expense

Repayment should be treated as

increasing the carrying amount ofthe asset or reducing the deferred

income balance


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BORROWING COST

PAS 23


Borrowing costs are interest and other

costs that an entity incurs in connection


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costs that an entity incurs in connection

with the borrowing of funds

Borrowing cost may include

Interest expense calculated using

effective interest rate method

Finance charges in respect of finance

leases

Exchange differences arising from foreign

currency borrowings to he extent thatthey are regarded as an adjustment to

interest cost



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Accounting treatmentDirectly attributable to theacquisition, construction orproduction of a qualifying asset

Other borrowing cost

Capitalized

Expense


An asset that takes a substantial

period of time to get ready for its

intended use

Borrowing costs eligible for capitalization

S ifi b i


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1. Specific borrowings

2. General borrowings

Commencement of capitalization

Commences when expenditures are being incurred

( activities necessary to prepare the asset )Suspension and cessation of capitalization

Suspension

Cessation


Actual costany income earned

on the temporary investment

Where funds are part of a

general pool, the eligible

amount is determined by

applying a capitalization rate

to the expenditure on that

asset

Active development is interrupted

Substantially all of the activities

necessary to prepare the asset

for its intended use or sale are

completed

PAS 23 provides that the amount of

borrowing cost capitalized during a period


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borrowing cost capitalized during a period

shall not exceed the amount of borrowing

cost incurred during that period

PAS 23 provides that the average

expenditures during a period shall include

the borrowing costs of previouslycapitalized

prac i- inventory,govt grant & borrowing cost

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