The Dragonstone Corporation\'s inventory cost at December 31, 2012, was $36,000

Question

The Dragonstone Corporation's inventory cost at December 31, 2012, was $36,000 bsed on a physical count of goods in its warehouse, and before any necessary adjustment for the following:

* Good costing $8,000, shipped f.o.b. shipping point from a supplier on December 30, 2012 was received on January 5, 2013.

* Good costing $15,000, shipped f.o.b. destination from a supplier on December 28, 2012 was received on January 3, 2013.

* Good costing $20,000 sold to a customer f.o.b destination on December 24, 2012 was received by the customer on January 10, 2013.

* Good costing $25,000 sold to a customer f.o.b shipping point on December 29, 2012 was received by the customer on January 2, 2013.

* Good were sent on consignment to Kaleesi Company on November 15, 2012 and about $12,000 worth of inventory still remained with Kaleesi as at December 31, 2012.

What amount should Dragonstone Corporation report as inventory in its December 31, 2012 , balance sheet:

a) $76,000

b) $83,000

c) $64,000

d) $81,000

Explanation / Answer

Correct answer is $76000

Explanation below:-

Concept of FOB Destination, FOB Shipping Point and Consignment basis

Fob Shipping Point = Ownership of goods is transferred to buyer when goods are shipped in carrier. Hence seller will not be the owner at this point and will not include the goods in his books as inventory since the ownership of goods is transferred to buyer and seller bears no risks and rewards related to goods. Even the buyer bear the costs of transportation

Fob Destination = Ownership of goods is transferred to buyer when goods reach its destination i.e. buyer place. In such cases transportation costs is borne by seller. Such goods form part of seller inventory until such goods reach its destination. till goods reach its destination, risks and reward related to goods is borne by seller.

Consignment basis = Consignmnet occur when goods are sent by consignor to consignee, who sells the goods ultimately on commission basis. Until the goods are sold, consignor continue to own the inventory and will continue to appear in the books of consignor as inventory.

Good costing $8,000, shipped f.o.b. shipping point from a supplier on December 30, 2012 was received on January 5, 2013.

(Since it is shipping point, ownership of goods is transferred to dragonstone on 30 december which is shipping date. This goods will be part of Inventory while in tr

Good costing $15,000, shipped f.o.b. destination from a supplier on December 28, 2012 was received on January 3, 2013.

(Ownership of goods is still with seller hence cost of goods will be included in inventory)

Good costing $20,000 sold to a customer f.o.b destination on December 24, 2012 was received by the customer on January 10, 2013

(Ownership of goods will be transferred when goods will reach the destination hence goods will be included in dragonstone inventory)

Good costing $25,000 sold to a customer f.o.b shipping point on December 29, 2012 was received by the customer on January 2, 2013.

(Ownership will be transferred to at shipping point. Goods will be treated as sold in books of dragonstone hence such goods will not be included in inventory

Good were sent on consignment to Kaleesi Company on November 15, 2012 and about $12,000 worth of inventory still remained with Kaleesi as at December 31, 2012.

(Since goods are still lying with consignee. such goods are not sold and hence will be included in dragonstone inventory

Particulars Amount Inventory as on 31st December 2013 (before below adjustments) $36000

Good costing $8,000, shipped f.o.b. shipping point from a supplier on December 30, 2012 was received on January 5, 2013.

(Since it is shipping point, ownership of goods is transferred to dragonstone on 30 december which is shipping date. This goods will be part of Inventory while in tr

$8000

Good costing $15,000, shipped f.o.b. destination from a supplier on December 28, 2012 was received on January 3, 2013.

(Ownership of goods is still with seller hence cost of goods will be included in inventory)

Nil

Good costing $20,000 sold to a customer f.o.b destination on December 24, 2012 was received by the customer on January 10, 2013

(Ownership of goods will be transferred when goods will reach the destination hence goods will be included in dragonstone inventory)

$20000

Good costing $25,000 sold to a customer f.o.b shipping point on December 29, 2012 was received by the customer on January 2, 2013.

(Ownership will be transferred to at shipping point. Goods will be treated as sold in books of dragonstone hence such goods will not be included in inventory

Nil

Good were sent on consignment to Kaleesi Company on November 15, 2012 and about $12,000 worth of inventory still remained with Kaleesi as at December 31, 2012.

(Since goods are still lying with consignee. such goods are not sold and hence will be included in dragonstone inventory

$12000 Total Inventory of dragonstone as on 31st december 2013 $76000

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