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    Consignment and Installment Sales Afar - 2024

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    Drie
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    Consignment and Installment Sales Afar - 2024

    Uploaded by

    Drie
    1 views8 pages
    Additional notes and problem solving

    Original Title

    consignment and installment sales afar_2024

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    © All Rights Reserved
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    Download as pdf or txt
    1 views8 pages

    Consignment and Installment Sales Afar - 2024

    Uploaded by

    Drie
    Additional notes and problem solving

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    INSTALLMENT SALE

    ✓ A financing arrangement in which the seller allows the buyer to make payments over an extended period of time
    ✓ The buyer receives the goods at the beginning of the installment period and makes payment over the installment
    period

    METHODS OF RECOGNIZING GROSS PROFIT

    ACCRUAL METHOD INSTALLMENT METHOD COST RECOVERY METHOD


    ✓ Collection of the ✓ Collection of the balance are NOT reasonably assured / ✓ Collections is very uncertain
    balance is reasonably possibility of cancellation of the installment sales contracts or highly speculative
    assured. ✓ Collections for a period of time & no reasonable basis for ✓ Cash price is determined by
    estimating degree of collectability future events

    T – ACCOUNTS

    Installment Accounts Receivable (IAR) Deferred Gross Profit (IAR x GP Rate)


    Beginning Balance XX XX Collections RGP XX XX Beginning Balance
    Installment Sales XX XX Defaults Defaults XX XX Installment Sales
    XX XX Write – Offs Write – Offs XX
    XX XX Ending Balance Ending Balance XX
    Total XX XX XX XX

    SOME IMPORTANT FORMULAS:

    GP Rates Unrecovered Costs


    a. Current Year = GPTY / I/S a. Installment Receivable Balance – Deferred Gross Profit Balance
    b. Prior year = DGP, beg / IAR, beg b. Installment Receivable Balance x Cost ratio
    c. Any Year = DGP, end/ IAR, end
    Deferred Gross Profit
    Trade In Value XX a. DGP, beg = IAR, beg. x GPR
    Less: Fair Market Value XX b. DGP, end = IAR, end x GPR
    Over (Under) XX c. DGP, end = DGP, beg. – DGP, end
    d. DGP on Repo IAR
    Estimated Selling Price XX
    Reconditioning Cost (XX) Realized Gross Profit
    Normal Profit on Resale (XX)
    a. Collection x GPR
    Cost to Sell/Dispose (XX)
    b. DGP, beg – DGP, end
    Fair Market Value XX
    Installment Accounts Receivables (IAR)
    Collections a. Current Year = IS – Collection
    a. IAR, beg – IAR, end – Repo or Written Off IAR b. Prior Year = DGP, beg/ GPR
    b. Cash Collections + FV of trade in c. IAR = DGP, end / GPR

    Fair Market Value XX


    Unrecovered Cost (XX)
    Gain/Loss on Repossession XX

    TRADE – INS
    1. Trade – In Value = Fair Value
    2. Trade – In Value > Fair Value: Over – Allowance
    3. Trade – In Value < Fair Value: Under – Allowance

    ACCOUNTING PROCEDURES FOR DEFAULTS AND REPOSSESSION


    1. The installment account receivable and the deferred gross profit are eliminated.
    2. The repossessed merchandise is recorded as used inventory at its net realizable value.
    3. Bad debt expense and a gain or loss on repossession are recognized.

    1
    Trumpet Co. consigned eight heavy machineries to Cold Breeze Co. Each Multiply by: No. of machines sold 5
    machine costs ₱1,000,000 and has a suggested retail price of ₱2,100,000. Cost of goods sold 5,125,000
    Trumpet paid ₱200,000 in transporting the machines to the consignee’s
    place of business. At the end of the period, Cold Breeze reported three The commission is computed as follows:
    (b)

    unsold machines and remitted the collections on sales during the period, We will use the following formula for bonus after bonus:
    after deducting the following:
    Commission (based on sales net of commission) 20% B = P – [P ÷ (1 + Br)]
    Finder’s fee (based on commission) 5%
    Delivery, installation and testing (on each unit sold) ₱50,000 Commission = Gross sales – [Gross sales ÷ (1 + Commission rate)]
    Commission = 10,500,000 – [10,500,000 ÷ (1 + 20%)]
    Materials generated from the testing were sold for ₱5,000 and included in Commission = 10,500,000 – 8,750,000
    Commission = 1,750,000
    the remittance to Trumpet Co.
    1. How much profit is earned by the consignor from the sale?
    a. 3,292,500 c. 1,025,000
    2. B
    b. 5,375,000 d. 3,412,500
    Solution:
    Total sales [2,100,000 x (8-3)] 10,500,000
    2. How much was the net remittance to the consignor?
    Commission (1,750,000)
    a. 9,182,500 c. 8,850,500
    Finder's fee (87,500)
    b. 8,417,500 d. 7,891,500 Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
    Net remittance 8,417,500
    3. How much is the cost of the unsold machines?
    a. 3,075,000 c. 1,025,000
    b. 2,987,000 d. 1,000,000
    3. A
    1. A Solution:
    Solution: Unit cost before freight 1,000,000
    Total sales [2,100,000 x (8-3)] 10,500,000 Freight per machine (200,000 ÷ 8) 25,000
    Cost of goods sold (a) (5,125,000) Total unit cost 1,025,000
    Gross profit 5,375,000 Multiply by: No. of unsold machines 3
    Commission (b) (1,750,000) Ending inventory 3,075,000
    Finder's fee (5% x 1,750,000) (87,500)
    Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
    Profit 3,292,500

    (a) Cost of goods sold is computed as follows:


    Unit cost 1,000,000
    Freight per machine (200,000 ÷ 8) 25,000
    Total unit cost 1,025,000

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