ABC Corp. lost considerable part of its inventory on a fire on October 31. As the auditor, you were

requested to make an estimate as to the total damages in inventories caused by the fire. Upon

inquiry and inspection of records you ascertained the following:

Merchandise inventory, January 1 P120,000

Cash Payments to suppliers from January 1 to October 31 900,000

Purchases returns and allowances (all on account) 46,000

Transportation in 20,000

Customer collections from January 1 to October 31 946,000

Sales returns (all on account) 40,000

Sales allowance (all on account) 20,000

Sales discount (customer cash discounts) 50,000

Special discounts (employee discounts) 24,000

Merchandise not damaged by fire on October 31 48,000

Net realizable value of inventories damaged by fire 4,000

Accounts payable, January 1 130,000

Accounts payable, October 31 60,000

Accounts receivable, January 1 150,000

Accounts receivable, October 31 190,000

Requirements:

1. Using the gross profit test, what was the estimated loss in inventory due to the fire

assuming that the gross profit rate is 30% based on sales?

2. Using the gross profit test, what was the estimated loss in inventory due to the fire

assuming that the gross profit rate is 25% based on cost?