CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
BATCH 93 – MAY 2023 CPALE
INVENTORY COST FLOW AND LCNRV
1. An entity provided the following data relating to an inventory item:
Units Unit cost Total cost
Jan. 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase return 5,000 150 750,000
1. What is the cost of inventory on January 31 using FIFO approach?
a. 2,250,000
b. 2,650,000
c. 3,000,000
d. 3,750,000
2. What is the cost of inventory on January 31 using weighted average approach?
a. 3,000,000
b. 2,785,650
c. 3,321,450
d. 3,375,000
3. What amount should be reported as inventory on January 31 using moving average approach?
a. 2,550,000
b. 2,475,000
c. 2,250,000
d. 3,375,000
2. An entity has two products in the inventory.
Product Aye Product Bee
Selling price 2,000,000 3,000,000
Materials and conversion costs 1,500,000 1,800,000
General administration costs 300,000 800,000
Estimated selling costs 600,000 700,000
What amount should be reported as inventory under LCNRV?
a. 3,700,000
b. 3,200,000
c. 3,800,000
d. 3,300,000
3. On December 31, 2023, an entity experienced a decline in the value of inventory resulting in a writedown
from P4,000,000 cost to P3,200,000 net realizable value. The entity used the allowance method to record
the necessary adjustment. In 2024, market conditions have improved dramatically. On December 31,
2024, the inventory had a cost of P5,000,000 and net realizable value of P4,400,000. The entity made
purchases of P25,000,000 in 2024?
1. What amount should be recognized as gain on reversal of inventory writedown in 2024?
a. 200,000
b. 800,000
c. 600,000
d. 0
2. What amount should be reported as cost of goods sold in 2024?
a. 23,800,000
b. 24,200,000
c. 24,600,000
d. 24,000,000
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4. An entity reported the following information about inventory:
Cost NRV LCNRV
Category 1:
A 2,500,000 2,800,000 2,500,000
B 1,700,000 1,500,000 1,500,000
Category 2:
C 2,000,000 1,600,000 1,600,000
D 1,900,000 1,800,000 1,800,000
1. What is the inventory measurement under LCNRV individual approach?
a. 7,600,000
b. 8,100,000
c. 7,700,000
d. 7,400,000
2. What is the inventory measurement under the LCNRV total approach?
a. 8,100,000
b. 7,600,000
c. 7,400,000
d. 7,700,000
3. What is the inventory measurement under the LCNRV category approach?
a. 7,400,000
b. 7,700,000
c. 8,100,000
d. 7,600,000
5. On December 1, 2023, an entity entered into a commitment to purchase 100,000 barrels of aviation fuel
for P55 per barrel on March 31, 2024. The entity entered into this purchase commitment to protect itself
against the volatility in the aviation fuel market. By December 31, 2023, the purchase price of aviation
fuel had fallen to P50 per barrel. However, by March 31, 2024 when the entity took delivery of the
100,000 barrels the price of aviation fuel had risen to P53 per barrel.
1. What amount should be recognized as loss on purchase commitment in 2023?
a. 500,000
b. 200,000
c. 300,000
d. 0
2. What amount should be recognized as gain on purchase commitment for 2024?
a. 500,000
b. 300,000
c. 800,000
d. 0
3. What amount should be debited to purchases on March 31, 2024?
a. 5,500,000
b. 5,300,000
c. 5,000,000
d. 4,700,000
6. During the current year, a real estate developer purchased a tract of land for P90,000,000. Additional cost
of P15,000,000 was incurred in subdividing the land during the year. Of the tract acreage, 70% was
subdivided into residential lots and 30% was conveyed to the city for road and a park. The subdivided
lots were classified into 100 Class A with sale price of P1,200,000 per lot, 100 Class B with sale price of
P800,000 per lot and 200 Class C with sale price of P500,000 per lot. What amount should be allocated
to Class A lots?
a. 42,000,000
b. 36,000,000
c. 22,500,000
d. 26,250,000
End
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