MODULE 3: INVENTORIES 10.

Aman Company provided the following data:

Items counted in the bodega 4,000,000
REVIEW QUESTIONS Items included in the count specifically segregated per sale contract 100,000
Items in receiving department, returned by customer, in good condition 50,000
1. What is consigned inventory? Items ordered and in the receiving department 400,000
a) Goods that are shipped and title transfers to the consignee. Items ordered; invoice received but goods not received. Freight is on account of seller. 300,000
b) Goods that are sold but payment is not required until the goods are sold. Items shipped today, invoice mailed, FOB shipping point 250,000
c) Goods that are shipped but title remains with the consignor. Items shipped today, invoice mailed, FOB destination 150,000
d) Goods that have been segregated for shipment to a customer. Items currently being used for window display 200,000
Items on counter for sale 800,000
2. When activities involved production through natural growth or aging of biological assets, revenue is recognized as the plant or Items in receiving department, refused because of damage 180,000
living animal grows. This is known as what approach? Items included in count, damaged and unsalable 50,000
a) Completion of production basis Items in the shipping department 250,000
b) Fair value approach What is the correct amount of inventory?
c) Accretion approach a) 5,700,000
d) Cost recovery or zero profit approach b) 6,000,000
c) 5,800,000
3. For which of the following products is it appropriate to recognize revenue at the completion of production even though no sale has d) 5,150,000
been made?
a) Automobile 11. The Itsuki Company uses the lower of cost or net realizable value inventory. Data regarding its work-in-process inventory are
b) Large appliance presented below:
c) Residential unit Item A Item B
d) Precious metal Historical cost P24,000 P18,800
Selling price 36,000 21,800
4. In a period of rising prices, the inventory cost allocation method that tends to result in the highest reported net income is Estimated cost to complete 4,800 3,500
a) LIFO Estimated cost to sell 2,000 1,900
b) FIFO Replacement cost 20,800 16,800
c) Moving average Normal profit margin as a percentage of selling price 25% 25%
d) Weighted average What amount should be reported as ending inventory using the LCNRV individual approach?
a) 45,600
5. Which inventory cost flow assumption provides the best measure of earnings, where “best” means most appropriate for predicting b) 40,400
future earnings, when prices have been declining? c) 42,800
a) FIFO d) 48,000
b) Specific identification
c) LIFO 12. Clem Company provided the following for the current year:
d) Average cost Central warehouse Held by consignees
Beginning inventory 1,100,000 120,000
6. Which is the reason why the specific identification method may be considered ideal for assigning cost to inventory and cost of Purchases 4,800,000 600,000
goods sold? Freight in 100,000
a) The potential for manipulation of net income is reduced. Transportation to consignees 50,000
b) There is no arbitrary allocation of cost. Freight out 300,000 80,000
c) The cost flow matches the physical flow. Ending inventory 1,450,000 200,000
d) It is applicable to all types of inventory. What is the cost of goods sold for the current year?
a) 4,550,000
7. How should prompt payment discount be dealt with when valuing inventories at LCNRV? b) 4,850,000
a) Added to cost c) 5,070,000
b) Ignored d) 5,120,000
c) Deducted in arriving at NRV
d) Deducted from cost 13. During January 2023, Ororo Company recorded the following information pertaining to its inventory:
UNITS UNIT COST TOTAL COST
8. Commodity broker-traders Jan. 1 balance 20,000 P 10 P 200,000
a) Produce commodities such as rice or corns. Jan. 15 sales 15,000
b) Hold inventory primarily to sell in the near term and generate a profit from price fluctuation. Jan. 18 purchase 20,000 11 220,000
c) Measure inventory at LCNRV. Jan. 20 purchase 15,000 12 180,000
d) All of the choices are correct regarding broker-traders. Jan. 25 sales 24,000
Jan. 30 purchases 14,000 15 210,000
9. The inventories on hand at December 31, 2023 of Keno Inc. were valued at cost amounting to P700,000. Mark-up on sales is 25%. Jan. 31 sales 10,000
The following items were excluded from these inventories
a) Goods purchased FOB Destination. Invoice price was P30,000. Freight costs P3,000. Goods were received on December 13.1 Using FIFO method, how much is the cost of sale for January?
30. a. 528,000 b. 575,217 c. 518,000 d. 550,000
b) Purchased goods in-transit as of December 31, 2023. Invoice price P50,000. Freight costs P4,000. Freight term was FOB
Shipping Point. 13.2 Using the moving average method, how much is the cost of inventory on January 31?
c) Goods sold to Gino Company shipped FOB Destination on December 28, Sales price was P80,000. Freight costs P4,000. a. 240,000 b. 260,000 c. 280,000 d. 300,000
The goods were received by Gino Company on January 2 of the following year.
d) Goods sold to Madelyne Corp. shipped FOB Destination on December 30. Sales price was at P100,000.
e) Freight costs P5,000. The goods were received by Madelyne Corp. on December 31.
f) Goods out on consignment to Pryor Co., Sales price was P90,000. Freight costs to deliver the goods to consignee P5,000. - end of chapter 12 -
60% had been sold by the consignee. Freight cost to consignees customers P4,000.
g) Goods purchased costing P30,000, in transit “Free Along Side the Vessel” on December 31, and arrived in Kendo
Company’s premises on January 2. Cost to transfer goods from seller to the vessel, P1,000. Freight cost, P2,000.
h) Goods costing P15,000 from a supplier on Dec. 26, shipped “Cost, Insurance and Freight” on Dec. 28, but had not been
received by the end of December. Costs of insurance and freight were at P3,000.

How much is the correct cost of inventories to be reported in Kendo Company’s SFP as of December 31?
MODULE 4: PROPERTY, PLANT, AND EQUIPMENT d) The accumulated depreciation balance is not adjusted but the remaining book value is allocated over the original life using
the straight-line method
REVIEW QUESTIONS
12. Under PAS 16, the useful life of an item of PPE should be reviewed periodically and if estimates are materially different from
1. Which among the following is not to be classified as Property, plant and equipment? previous estimates, the depreciation charges should be adjusted for the
a) Property not subject to depreciation or depletion, such as land used for plant site a) Prior periods only
b) Property subject to depreciation, such as building used for administrative purposes b) Future periods only
c) Property subject to amortization, such as franchise acquired to obtain rights c) Current period only
d) Property subject to depletion, such as timber, oil and mining lands d) Current and, if affected, future periods
2. Which is not chargeable to LAND? 13. Tower Company made the following acquisitions during the year:
a) Attorney’s fee and any other expenditure for establishing clean title - Purchased for P5,400,000, including appraiser fee of P50,000, a warehouse building and the land on which it is located.
b) Broker’s commission and fees for the title transfer The land had an appraised value of P2,000,000 and original cost of P1,400,000. The building had an appraised value of
c) Cost of survey by engineers P3,000,000 and original cost of P2,800,000.
d) Expenditure for fence, water system, sidewalk and pavement
- Purchased an office building and the land on which it is located for P7,500,000 cash and assumed an existing P2,500,000
3. The following charges are capitalizable to land account, EXCEPT mortgage.
a) Payments to tenants to induce them to vacate the premises to pave the way for the construction of a new building For realty tax purposes, the property is assessed at P9,600,000, 60% of which is allocated to the building.
b) Buyer-assumed mortgages and encumbrances like property taxes What is the total cost of land?
c) Special assessments for local improvement which benefit the property a) 6,160,000
d) Costs of clearing, grading and filling b) 5,840,000
c) 6,000,000
4. Donation of PPE made by a shareholder should be recorded at fair value and a corresponding credit to d) 5,000,000
a) Income account taken to profit or loss
b) Donated capital taken to equity What is the total cost of building?
c) Unearned income from government grant a) 8,760,000
d) Retained earnings unappropriated b) 9,240,000
c) 9,000,000
5. For assets acquired on credit or by installment, the cost or fair value is equal to d) 7,760,000
a) Cash purchase price
b) Installment price 14. Bamco Company purchased a new machine on a deferred payment basis.
c) Invoice price - A down payment of P100,000 was made and 4 monthly installments of P250,000 are to be made at the end of each month.
d) List price - The cash equivalent price of the machine was P950,000. The entity incurred and paid installation costs amounting to
P30,000.
6. If the non-monetary exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset What is the amount to be capitalized as cost of the machine?
given up is not reliably measurable, its cost is measured at a) 950,000
a) Net realizable value b) 980,000
b) Fair value c) 1,100,000
c) Carrying amount of the asset given up d) 1,130,000
d) Future value
15. Josey Company entered into a contract to acquire a new machine which had a cash price of P2,000,000.
7. Statement I: Borrowing costs incurred in acquiring, producing or constructing a qualifying asset are capitalized as part of the Down payment 400,000
qualifying asset Note payable in 3 equal annual installments 1,200,000
Statement II: A qualifying asset is an asset that necessarily takes substantial period of time to get ready for its intended USE or 20,000 ordinary shares with a par value of
SALE. P25 and fair value of P40 per share 800,000
a) True, true 2,400,000
b) False, true Prior to use, installation cost of P50,000 was incurred. The machine has an estimated residual value of P100,000.
c) True, false What is the initial cost of the machine?
d) False, false a) 2,000,000
b) 2,400,000
8. If the qualifying asset is financed by GENERAL borrowings, the capitalizable borrowing cost is equal to c) 2,050,000
a) Actual borrowing costs incurred d) 2,450,000
b) Total expenditures on the asset multiplied by a capitalization rate 16. Anxious Company acquired two items of machinery.
c) Average expenditures on the asset multiplied by a capitalization rate or actual borrowing costs, whichever is higher - On December 31, 2019, Anxious Company purchased a machine in exchange for a noninterest bearing note requiring ten
d) Average expenditures on the asset multiplied by a capitalization rate or actual borrowing costs, whichever is lower payments of P500,000.
9. The depreciation method used where the usage of the asset varies considerably from period to period and the service life is more of The first payment was made on December 31, 2020, and the others are due annually on December 31.
a function of use than passage of time
a) Straight-line method The prevailing rate of interest for this type of note at date of issuance was 12%.
b) Sum of years’ digits method
c) Units of production method The present value of an ordinary annuity of 1 at 12% is 5.33 for nine periods and 5.65 for ten periods.
d) Declining balance method
- On December 31, 2019, Anxious Company acquired used machinery by issuing the seller a two-year, noninterest-bearing
10. A depreciation method that provides higher depreciation expense during the early years of the asset life note for P3,000,000.
a) Sum of years’ digits method
b) Service hours method In recent borrowing, the entity has paid a 12% interest for this type of note. The present value of 1 at 12% for 2 years is .80
c) Straight-line method and the present value of an ordinary annuity of 1 at 12% for 2 years is 1.69
d) Units of production method
What is the total cost of the machinery?
11. If there is a change from sum of years’ digits to straight line method a) 5,065,000
a) The accumulated depreciation is adjusted to its appropriate balance through retained earnings based on the straight-line b) 5,225,000
method c) 5,565,000
b) The accumulated depreciation is adjusted to its appropriate balance through net income based on the straight-line method d) 8,235,000
c) The accumulated depreciation balance is not adjusted but the remaining book value is allocated over the remaining life
using the straight-line method
17. Precious Company had the following property acquisitions during the current year: 21. Poe Company disclosed that the following depreciation policy on machinery:
- Acquired a tract of land in exchange for 50,000 shares of Precious Company with P100 par value that had a market price of - A full year depreciation is taken in the year of acquisition.
P120 per share on the date of acquisition. The last property tax bill indicated assessed value of P2,400,000 for the land. - No depreciation is taken in the year of disposition.
- Received land from a major shareholder as an inducement to locate a plant in the city. No payment was required but the - The estimated useful life is five years.
entity paid P50,000 for legal expenses for land transfer. The land is fairly valued at P1,200,000. - The straight line method is used.
What is the total increase in land as a result of the acquisitions? - On June 30, 2020, the entity sold for P2,300,000 a machine acquired in 2017 for P4,200,000. The residual value was
a) 7,200,000 P600,000.
b) 6,000,000 What amount of gain on the disposal should be recorded in 2020?
c) 7,050,000 a) 140,000
d) 6,100,000 b) 260,000
c) 620,000
18. Altitude Company purchased a plot of land for P2,000,000 as a plant site. There was a small office building on the plot with fair d) 980,000
value of P700,000 which the entity will continue to use with some modification and renovation. the entity decided to construct a
factory building and incurred the following costs: 22. Lester Company provided the following:
Materials and Supplies 3,000,000 Total cost Residual value Estimated life
Excavation 100,000
Labor on Construction 2,500,000 Machine A 5,500,000 500,000 20
Cost remodeling office building 300,000 Machine B 2,000,000 200,000 15
Legal cost of conveying land 50,000 Machine C 400,000 5
Cash discounts on material purchased 60,000 The entity computed depreciation on the straight line method.
What is the composite life of the assets?
Supervision by management 70,000 a) 13.3
Compensation insurance premium for workers 20,000 b) 16.0
Clerical and other expenses related to construction 30,000 c) 18.0
Plans and specifications 340,000 d) 19.8
Payment for claim for injuries not covered by insurance 25,000
Legal cost of injury claim 15,000 What is the composite rate of the depreciation?
What amount should be recorded as cost of land? a) 6.25%
a) 1,350,000 b) 5.70%
b) 1,300,000 c) 2.50%
c) 1,450,000 d) 7.50%
d) 1,410,000
23. On April 1, 2019, Kew Company purchased new machinery for P3,300,000. The machinery to be used in the manufacturing
What amount should be recorded as cost of office building? operations had an estimated useful life of five years with residual value of P300,000. Depreciation is computed under the sum of years’
a) 1,050,000 digits method.
b) 1,000,000 What amount should be recorded as depreciation for 2019?
c) 700,000 a) 500,000
d) 850,000 b) 750,000
c) 900,000
What amount should be recorded as cost of factory building? d) 800,000
a) 5,920,000
b) 6,120,000 What amount should be recorded as depreciation for 2020?
c) 6,000,000 a) 1,600,000
d) 5,800,000 b) 1,800,000
c) 850,000
19. Biliran Company incurred the following costs at the beginning of the current year: d) 600,000
Purchase price of land 1,000,000
Purchase price of building 4,000,000 24. Canada Company purchased a machine at an invoice price of P4,500,000 with terms 2/10, n/30. The entity paid the required
Remodeling and repairs prior to occupancy 500,000 amount for the machine beyond the discount period.
Escrow fee 100,000 - The entity paid P80,000 for delivery of the machine and P310,000 for installation and testing. The machine was ready for use on
Clearing, leveling and landfill 250,000 January 1, 2019.
Property tax for period prior to acquisition 150,000 - It was estimated that the machine would have a useful life of 5 years and a residual value of P800,000.
Real estate commission 300,000 - Engineering estimate indicated that the useful life in productive units was 200,000.
What amount should be capitalized as cost of building? - Units actually produced during the first two years were 30,000 in 2019 and 48,000 in 2020. The entity decided to use the output
a) 4,500,000 method of depreciation.
b) 4,740,000 What is the accumulated depreciation of the machine on December 31, 2020?
c) 4,800,000 a) 1,560,000
d) 4,940,000 b) 1,600,000
c) 960,000
20. Rona Company provided the following charges to the “repair and maintenance account”. d) 600,000
Service contract on office equipment 100,000
Initial design fee for proposed extension of office building 150,000 25. Which statement provides the best theoretical support for accelerated depreciation?
New condenser for central air conditioning unit 10,000 a) Assets are more efficient in early years and initially generate more revenue.
Purchase of executive chairs and desks 200,000 b) Expenses should be allocated in a manner that “smooths” earnings.
Purchase of storm windows and screens and their installation in all office windows 500,000 c) Repairs and maintenance costs probably would increase in later periods so depreciation should decrease.
Sealing of roof leaks in production area 80,000 d) Accelerated depreciation provides easier replacement because of the time value of money.
Replacements of door to production area 50,000
Installation of automatic door-opening system 200,000 - end of chapter 13 -
OH crane for assembly department to speed up production 350,000
Replacement of broken gear on machine 60,000
What total amount of the expenditures should be capitalized?
a) 1,400,000
b) 1,200,000
c) 1,300,000
d) 1,410,000
26. Molave Company had the following outstanding loans during 2019 and 2020. 29. Surreal Company accounted for noncurrent assets using the revaluation model. On October 1, 2019, the entity classified a land as
Specific construction loan 3,000,000 10% held for sale. At that date. the carrying amount of the land was P5,000,000 and the balance in the revaluation surplus was P1,500,000.
General loan 25,000,000 12% - At same date, the fair value of the land was estimated at P5,500,000 and the cost of disposal at P100,000.
The entity began the self-construction of a new building on January 1, 2019 and the building was completed on June 30, 2020. - On December 31 ,2019, the fair value less cost of disposal of the land did not change. The land was sold on January 31,
The following expenditures were made in 2019 and 2020: 2020 for P6,000,000.
January 1, 2019 4,000,000 What amount should be recognized as impairment loss in 2019?
April 1, 2019 5,000,000 a) 100,000
December 1, 2019 3,000,000 b) 500,000
March 1, 2020 6,000,000 c) 400,000
What is the cost of the new building on December 31, 2019? d) 0
a) 12,000,000
b) 12,900,000 What is the adjusted carrying amount of the land on December 31, 2019?
c) 12,300,000 a) 5,000,000
d) 12,600,000 b) 5,500,000
c) 5,400,000
What is the cost of the new building on June 30, 2020? d) 3,500,000
a) 18,000,000
b) 19,884,000 What amount should be reported as gain on disposal of land in 2020?
c) 20,868,000 a) 1,000,000
d) 19,377,000 b) 2,600,000
c) 500,000
What amount should be reported as interest expense for 2020? d) 600,000
a) 2,316,000
b) 2,166,000 What amount of OCI is reclassified to retained earnings in 2020?
c) 2,016,000 a) 1,500,000
d) 1,500,000 b) 2,600,000
c) 500,000
d) 0
- end of chapter 14 -
- end of chapter 15 -
27. Arlene Company accounted for noncurrent assets using cost model. On October 30, 2019, the entity classified a noncurrent asset
as held for sale.
- At that date, the carrying amount was P1,500,000, the fair value was estimated at P1,100,000 and the cost at P150,000.
- On December 31, 2019, the asset was sold for net proceeds of P800,000.
What amount should be reported as impairment loss for 2019?
a) 550,000
b) 400,000
c) 700,000
d) 0

What amount should be recognized as loss on disposal for 2019?

a) 550,000
b) 700,000
c) 150,000
d) 0

28. On January 1, 2019, Racelle Company purchased land at a cost of P6,000,000. The entity used the revaluation model for this asset.
- The fair value of the land was P7,000,000 on December 31, 2019 and P8,500,000 on December 31, 2020.
- On July I, 2021, the entity decided to sell the land and therefore classified the asset as held for sale.
- The fair value of the land on this date is P7,600,000. The estimated cost of disposal is very minimal.
- On December 31, 2021, the land was sold for P8,000,000.
What amount in OCI should be recognized in the statement of comprehensive income for the year ended December 31, 2020?
a) 2,500,000
b) 1,500,000
c) 400,000
d) 900,000

What amount should be recognized as gain or loss on sale of land in 2021?

a) 2,000,000 gain
b) 1,000,000 gain
c) 400,000 gain
d) 500,000 loss

What amount of OCI is recycled to retained earnings in 2021?

a) 1,000,000
b) 1,600,000
c) 2,500,000
d) 2,000,000