Consignment and Installment
Sales
BY: Atty. Ivan Yannick S. Bagayao CPA, MBA
AFAR QUICKNOTES AUTHOR
Types of Collectability
Method Formula
Sales of Balance
Sales Revenue xx
1 Cash Sales - - Cost of Goods Sold (xx)
Accrual Basis Realized Gross Profit xx
Reasonably
Assured
Cost Cost Ratio x
Recovery Principal Collection
Method Recovered Cost
Installment
2 Not
Sales GPRs x
Reasonably Profit
Principal Collection
Assured Recovery
RGP-PR
Method
GPRs x
Installment
Principal Collection
Sales Method
RGP-IS
I. Important Considerations for Installment Sales Method:
1. Gross Profit Rate on Sales (GPRS)
2. Installment Accounts Receivable Balance (IAR bal.)
3. Principal Collection([Link])
4. Realized Gross Profit on Installment Sales (RGP-IS)
5. Deferred Gross Profit (DGP)
6. Repossession of Merchandise(RM)
7. Trade-in of Merchandise(TIM)
1. GPRS Computation:
GPRs= Installment Sales – COIS
Installment Sales
If GPR on Cost is given:
GPRc
100% + GPRc
1. IAR Bal and DGP and RGP
Computation:
%
IAR, Bal (1) X GPRs (2) DGP/UGP
Beg Balance Collection* RGP DGP, Beg
Installment Sales Default Default
Write-off Write-off
End Balance DGP, End
v Collection* must be Principal, thus it excludes interest collection
v Recovered Cost = Collection* x Cost Ratio
v RGP-IS = Collection* x GPRs
PROBLEM A: The Japan Homes Corporation started operations on January 1, 2017 selling home appliance and
furniture sets both for cash and on installment basis. Data on the installment sales operations of the company gathered
for the years ending December 31, 2017 and 2018 were as follows:
2017 2018
Installment Sales --------------------- P 1,200,000 P 1,500,000
Cost of Installment Sales ----------------- P 720,000 P 1,050,000
Cash collected on installment sales
2017 installment contracts P 630,000 P 450,000
2018 installment sales P 900,000
On January 6, 2018 an installment sale in 2017 was defaulted and the merchandise was repossessed. The
fair market value of the merchandise after reconditioning costs amounted to P 15,000. There is a 10% normal profit
based on estimated resale value, the corporation incurred P 3,000 disposal costs and P 5,000 reconditioning cost.
Related installment receivable balance on January 6, 2018 was P 17,000. The operating expenses incurred in 2017
and 2018 amounted to P50,000 and P100,000, respectively.
1. What is the gross profit rate 2017 and 2018, respectively?
a. 30% and 30%
b. 30% and 40%
c. 40% and 30%
d. 40% and 40%
2. What is the Deferred Gross Profit as of 2018 from 2017 sales?
a. P30,900
b. P41,200
c. P72,100
d. P75,000
3. How much is the amount of estimated resale value?
a. P18,000
b. P 19,000
c. P 20,000
d. P 21,000
4. What is the amount to be debited as the value of Repossessed
Merchandise at time of repossession?
a. P 10,000
b. P 10,200
c. P 11,900
d. P 15,000
5. How much is the gain / (loss) on repossession?
a. P 200 gain
b. P 1,900 gain
c. P 200 loss
d. P 1,900 loss
6. How much is the RGP after gain or (loss) on repossession in
December 31, 2017?
a. P 221,200
b. P 228,000
c. P 252,000
d. P432,200
7. How much is the RGP after gain or (loss) on repossession in
December 31, 2018?
a. P 243,300
b. P 245,000
c. P 443,200
d. P 449,800
PROBLEM B: SUN CELL Company sold Cellphones on installment basis on July 1, 2018. The Unit cost to the company
was P 388,800, but the installment selling price was set at P 550,800. Terms of payment included the acceptance of
used Cellphones with trade in allowance of P 194,400. Cash of P 32,400 was paid in addition to the traded in
Cellphones with the balance to be paid in ten monthly installments due at the end of each month commencing the
month after the month of sale. It would require P 8,100 to recondition the used Cellphones so that it could be resold for
P 162,000. A 15% gross profit was usual from the sale of used cellphones.
9. How much is the fair value traded in merchandise?
a. P 129,600
b. P 137,700
c. P 153,900
d. P 162,000
10. How much is the under / (over) allowance in trade in?
a. P 56,700 over
b. P 64,800 over
c. P 56,700 under
d. P 64,800 under
11. What is the Gross Profit rate?
a. 15%
b. 20%
c. 29.41%
d. 36.84%
12. How much is the monthly payment?
a. P 32,400
b. P 40,000
c. P 48,600
d. P 51,840
13. How much is the total Realized Gross Profit in 2018?
a. P 32,400
b. P 58,320
c. P 64,800
d. P 71,280
PROBLEM C: Plasma Co. appropriately uses the installment method of revenue recognition to account for its credit sales. The
following information was abstracted from Plasma's December 31, Year 2, financial statements:
Year 2 Year 1
Sales P1,500,000 P1,000,000
Accounts receivable:
2017 sales 900,000
2016 sales 540,000 600,000
Deferred gross profit:
2017 sales 252,000
2016 sales 108,000 120,000
14. What was Plasma's gross profit percentage for Year 2 sales?
a. 20%
b. 22%
c. 28%
d. 30%
CONSIGNMENT SALES:
PROBLEM D: On October 20,2016, Abraham Company consigned 40 freezers to Holden Company costing P14,000 each for
sale at P20,000 each and paid P16,000 in transportation costs. On December 30, 2016, Holden reported the sale of 10
freezers and remitted P170,000. The remittance was net of the agreed 15% commission.
15. What amount should Grimm recognize as consignment sales revenue for 2016?
a. P 150,000
b. P 175,000
c. P 200,000
d. P 400,000
PROBLEM E: The following information was derived from the 2016 accounting records of SHARK Co.:
SHARK’s Central SHARK’s Goods Held
Warehouse by Consignees
Beginning inventory P55,000 P6,000
Purchases 240,000 30,000
Freight-in 5,000
Transportation to consignees 2,500
Freight-out 15,000 4,000
Ending inventory 72,500 10,000
16. SHARK’s 2016 cost of sales was
a. P28,500
b. P227,500
c. P256,000
d. P512,000 AICPA-adapted
PROBLEM F: Bulldog Manufacturing Corp. consigned ten refrigerators to Poodle Sales Co. These refrigerators had
a cost of P180 each. Freight on the shipment was paid by Bulldog in the amount of P120.
Poodle Sales Co. submitted an account sales stating that it had sold six refrigerators and remitted the P1,365 balance
due Bulldog after the following deductions from the selling price of the refrigerators:
Commission 15% of selling price
Marketing expenses P90
Delivery and installation of items sold P60
Cartage cost paid upon receipt of consignment P15
17. The consignee sold the 6 refrigerators for a total of
a. P1,080
b. P1,152
c. P1,530
d. P1,800
18. The commission earned on the sale of the 6 refrigerators by Central Sales Co. was
a. P162
b. P180
c. P250
d. P270
19. The consignor’s net profit from the sale of the consigned goods was
a. P219
b. P285
c. P600
d. P800
THE END!
