SAMPLE PROBLEMS

PURCHASE COMMITMENTS
On November 15, 2014 Diamond Company entered into a commitment to purchase 10,000 ounces of gold
on February, 15, 2015 at a price of 310/ ounce.
On December 31, 2014, the market price of gold is 270/ounce and on February 15, 2015, the price of
gold is 300/ounce.
What is the gain on purchase commitment to be recognized on February 15, 2015?
DETERMINING COST OF INVENTORIES
During January of the current year, Metro Company which maintains a perpetual inventory system,
recorded the following information pertaining to its inventory:

1. Under the MAM, what amount should Metro report as inventory at January 31?
2. Under the FIFO- perpetual method, what amount should Metro report as inventory at January 31?
INVENTORY WRITEDOWN

Cost
Lower of cost and NRV

12/31/2013

12/31/2012

12/31/2011

600,000
575,000

520,000
490,000

500,000
480,000

GROSS PROFIT METHOD

The following information appears in Olivia Companys records for the year ended December 31, 2015.
Inventory, Jan 1
Purchases
Purchase returns
Freight in
Sales
Sales discount
Sales returns

650,000
2,300,000
80,000
60,000
3,400,000
20,000
30,000

On December 31, 2009, a physical inventory revealed that the ending inventory was only P420,000. The
gross profit on sales has remained constant at 3o% in recent years. Olivia suspects that some inventory
may have been pilfered by one of the entitys employees. At December 31, 2009,what is the estimated
cost of missing inventory?
SOLUTION

PURCHASE COMMITMENT
Entry on December 31, 2014
Loss on purchase commitment
Estimated liability for purchase

400,000
400,000

Entry on February 15, 2015

Purchases
Estimated Liability for purchase commitment
Accounts Payable
Gain on purchase commitment

3,000,000
400,000
3,100,000
300,000

DETERMINING COST OF INVENTORIES

A. MAM

B. FIFO- PERPETUAL

COGS (9,000x100)

900,000
C. FIFO- PERIODIC

Inventory January 1
Purchases (1,800,000+2,000,000)
TGAS
Inventory January 31
COGS
Cost of ending inventory

1,000,000
3,800,000
4,800,000
(3,900,000)
900,000
D. WAM

TGAS/ Total units available for sale

4,800,000/ 20,000units = 240/unit

240*11,000 units on hand = 2,640,000

COGS
TGAS
Cost of ending inventory

GROSS PROFIT METHOD

Sales
Sales Returns
Net sales

3,400,000
(30,000)
3,370,000

Inventory Jan 1
Purchases
Purchase Returns
Freight in
TGAS
COGS (70%x 3,370,000)
Inventory Dec 31
Physical Inventory Dec 31
Cost of missing inventory

650,000
2,300,000
(80,000)
60,000
2,930,000
(2,359,000)
571,000
(420,000)
151,000

4,800,000
(2,640,000)
2,160,000