In determining the whether the freight costs are to be included in the inventory, always check the terms of shipment. If you are buying goods with: Shipment terms of FOB Destination, you should NOT INCLUDE THE INVENTORIABLE TRANSPORTATION COSTS (e.g. freight in) IN THE COST OF INVENTORY. Shipment terms of FOB Shipping Point, you should INCLUDE THE INVENTORIABLE TRANSPORTATION COSTS (e.g. freight in) IN THE COST OF INVENTORY

Problem 716: (Inventoriable Cost)On December 28, 2O14, Lancelot Company purchased goods costing P1,000,000, The terms wore FOB Destination.

The following costs were incurred in connection with the sale arid delivery of the goods:

Packaging for shipment20,000Shipping 30,000Special handling charges 40,000

The goods were received on December 31, 2014.

In Lancelots December 31, 2014 statement of financial position, how much of these goods should be included in inventory?

a) P1,000,000 c) P1,070,000b) P1,040,000 d) P1.090,000

Answer: AUnder FOB Destination terms of shipment, all costs incurred in transporting the goods to the buyers place shall be borne by the seller. Hence, only the invoice price of P1,000,000 shall be paid by the buyer which shall be the basis of the inventory cost.