On September 30, 2020, a fire at Cherimoya Company’s warehouse caused severe damage to its entire inventory. Based on recent history, Cherimoya has a gross profit of 30% of net sales. A physical inventory disclosed usable damaged goods which Cherimoya estimates can be sold to a jobber for P50,000. The following information is available from Cherimoya’s records for the nine months ended September 30, 2020. Inventory, Jan. 1 - P550,000 Total purchases recorded, Jan. 1 – Sept. 30 (includes P120,000 of goods still in transit, shipped Sept. 29, FOB shipping point) - P3,120,000 Freight in - P60,000 Purchase returns - P200,000 Purchase discounts - P80,000 Total sales delivered and recorded, Jan. 1 – Sept. 30 - P3,900,000 Sales returns - P160,000 Sales discounts - P40,000 Using the gross profit method, how much is the inventory loss? a. P602,000 b. P662,000 c. P782,000 d. P832,000

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.