[Anonymous]

Hi guys! Badly need your help with this one.

The merchandise inventory on December 31, 2017 did not include merchandise having a cost of ₱7,000 which
was stored in a public warehouse. This inventory was received from WAGSUKO Inc. on December 29, 2017 with
an agreement that WAGSUKO will repurchase the said inventory on January 29, 2018. Merchandise having a
cost of ₱3,000 was erroneously counted twice in the merchandise inventory on December 31, 2017. LABAN uses
a periodic inventory system.

What is the net effect to net income of the related errors in inventory?

[SONA]

Looks like 2 separate events to me.
1. 7000 inventory not included becoz it has repurchase commitment/agreement. Ending inventory is lower, cogs is higher and therefore NI is lower. (Here the question is should we count this inventory which has been committed to repurchase)

2. 3000 counted in ending inventory as 6000 therefore if ending inventory is higher; cogs will be lower and net income will be higher. (net effect on net income)

Not sure about the 1st event.

[Author]

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