Reference no: EM132806077

Question - On November 30, 2017, a flash flood caused severe damage to the warehouse of the company. The company's merchandise inventory was not covered by any insurance, and thus, it suffered a significant loss on its merchandise inventory from this flood. The following information was available from the accounting records of the company.

1/1 to 11/30/17 2016

Merchandise inventory, beginning P 400,000 P -

Purchases (net of returns) 2,320,000 2,200,000

Sales 3,120,000 2,400,000

Selling expenses 420,000 390,000

General and administrative expenses 510,000 425,000

Other income 50,000 20,000

Interest expense 28,000 32,000

At the beginning of 2017, the company changed its policy on the selling prices of the merchandise in order to produce a gross profit rate of 5% greater than the gross profit rate in 2016. Undamaged merchandise marked to sell at P100,000 were salvaged. Damaged merchandise originally marked to sell at P30,000 had an estimated realizable value of P8,000.

Required -

a. What are the gross profit rates in 2016 and 2017?

b. How much is the estimated inventory loss from the flood?

c. Assuming that the damaged merchandise originally marked to sell at P30,000 were only slightly damaged and had an estimated realizable value of P25,000. What is the estimated inventory loss from the flood on November 30?