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1 | P a g e I n s t a l l m e n t S a l e s
HANDOUT 1
A. Aguilar Corporation started operations on January 1, 2011 selling home appliances and furniture
sets both for cash and on instalment basis. Data on the instalment sales operations of the
company gathered for the years ending December 31, 2011 and 2012 were as follows:
2011 2012
Installment Sales 200,000 250,000
Cost of Installment Sales 120,000 175,000
Cash Collected on Installment Sales 2011 Installment Sales 2012 Installment Sales
105,000
75,000
150,000
Required:
1. Deferred Gross Profit on December 31, 2011
2. Realized Gross Profit on December 31, 2011
3. Realized Gross Profit on December 31, 2012 and 2011 Installment Sales
4. Realized Gross Profit on December 31, 2012 on 2012 Installment Sales
5. Deferred Gross Profit on December 31, 2012
(Assuming the problem stated Cost Recovery method is used.)
6. Deferred Gross Profit on December 31, 2011
7. Realized Gross Profit on December 31, 2012 on 2011 Installment Sales
(Assuming the problem stated Profit Realization method is used.)
8. Deferred Gross Profit on December 31, 2011
9. Realized Gross Profit on December 31, 2012
B. The Vetus Inc. sold a fitness equipment on instalment basis on October 1, 2011. The unit cost to
the company was 60,000 but the instalment selling price was set to 85,000. Terms of payment
included the acceptance of a used equipment given a trade-in value of 30,000. Cash of 5,000
was paid in addition to the added trade-in equipment with the balance to be pain in ten (10)
monthly instalments due at the end of each month of sale. It would require 1,250 to recondition
the used equipment so that it would be resold for 25,000. A 15% gross profit rate was usual
from the sale of used equipment.
10. Realized Gross Profit during 2011
C. The Ducut Furniture Company appropriately used the instalment sales method in accounting for
the following instalment sale. During 2008, Molino sold furniture to an individual for 3,000 at a
gross profit of 1,200. On June 1, 2008, this instalment account receivable had a balance of 2,200
and it was determined that no other collections would be made. Ducut, therefore, repossessed
the merchandise. When reacquired, the merchandise was appraised as being worth only for
1,000. In order to improve its salability, Bengal incurred costs of 100 for reconditioning. Normal
profit on resale is 200.
2 | P a g e I n s t a l l m e n t S a l e s
11. What should be the loss on repossession attributable to this merchandise?
D. Bartolome Company sells appliances on the instalment basis. Below are the information for the
past three years:
2008 2007 2006
Installment Sales 750,000 600,000 400,000
Cost of IS 450,000 375,000 260,000
Collections on 2008 IS 2007 IS 2006 IS
275,000 180,000 125,000
240,000 120,000
150,000
Repossessions on defaulted accounts included one made on a 2008 sale for which the unpaid
balance amounted to 5,000. The FMV after incurring a reconditioning cost of 500 is 5,500.
Required:
12. Realized Gross Profit in 2008 on collections of 2008 installment sales
13. Deferred Gross Profit, end on December 2008 installment sales
14. Loss on Repossession
LDMM, CPA. 2011. INSTALLMENT SALES [BASIC]
3 | P a g e I n s t a l l m e n t S a l e s
HANDOUT 2
INSTALLMENT SALES
A. The partial trial balance of Oribiana Products is presented below for December 31,2011:
Accounts Receivable ..............................................................P 34,000
Installment Accounts Receivable, 2011 .................................... 192,000
Installment Accounts Receivable, 2010 .................................... 90,000
Installment Accounts Receivable, 2009 .................................... 22,000
Merchandise Inventory ............................................................48,000
Purchases ............................................................................... 238,000
Freight In .................................................................................12,000
Repossessed Merchandise ....................................................... 14,000
Selling Expenses ...................................................................... 92,000
Loss on Repossession, 2011 ....................................................... 16,000
Loss on Repossession, 2009 ....................................................... 8,000
Doubtful Account Charge Sales .................................................. 1,000
Cash Sales ................................................................................. 60,000
Charge Sales .............................................................................. 120,000
Installment Sales ....................................................................... 300,000
Unrealized gross profit, 2010 ...................................................... 56,000
Unrealized gross profit, 2009 ...................................................... 32,000
Additional information:
a) Merchandise inventory on December 31, 2011 (including new and repossessed merchandise}
was P52,000.
b) Charge sales prices and installment sales prices were higher than cash sales prices by 20% and
25%, respectively.
c) Installment sales in 2009 and 2010 had gross profit rates of 40% and 35% respectively.
4 | P a g e I n s t a l l m e n t S a l e s
d) The following is the summary of the repossession account on December 31, 2011:
Year of Sale FMV of Mdse Loss Installment Contracts Receivable
2009 2,000 8,000 10,000
2011 12,000 16,000 28,000
14,000 24,000 38,000
e) The unrealized gross profit balances shown above were the amounts as of January 1, 201 1 and
were not adjusted during the year.
Required:
1. Total Sales for 2011, if all sales were on cash basis
2. The cost of goods sold on instalment sales for 2011 should be:
3. The total realized gross profit
4. The net income (loss) for the year 2011
5. The cash collections in instalment sales for the year 2011
B. On September 30,2011, Melencio Instruments. Inc. sold for P32,000 a piano costing P20,000, The
downpayment was P3,200, and the balance was to be paid on 12 installments at the end of each
succeeding month using present value. Interest at 1% a month was charged on the unpaid balance of
the contract, with payments applying first to accrued interest and the balance to principal. After three
instalment payments, the customer defaulted. The piano was repossessed in March 1, 2012. It was
estimated that the piano had a fair value of 11,500 after reconditioning costs of P300. The present value
factors are:
Present Value of P1 at 1% for 12 periods ........................ 0.8874
Present Value of P1 at 1% Tor 12 periods ........................ 1 1.2551
Required:
6. Total collections as to interest for the year 2011
7. Total collections as to principal for the year 2011
8. The realized gross profit on instalment sales for the year 2011
9. The gain (loss) on repossession in March 1, 2012
LDMM, CPA. 2011. INSTALLMENT SALES [SPECIAL]
5 | P a g e I n s t a l l m e n t S a l e s
Installment Sales – series of payments over a long period of time.
1) Conditional Sales – pag fully paid ka na, saka mo lang makukuha ang title.
2) Custodial Sales – sa 3rd
party mo kukunin ang title.
3) Lien Arrangement – mortgage, pag nagdefault ka sa payments, babawiin ng seller.
Recognition of Gross Profit
1) Time of Sale – may “reasonably assured” na phrase. Parang sa cash sale ang treatment.
Installment Sales
(Cost of Installment Sales)
Gross Profit on Installment Sales
2) Time of Collection – kung kalian lang nacollect saka ka lang magrerealize ng gross profit.
a. Cost Recovery Method – tinatawag ding “hybrid approach” or “zero profit approach”. Dito, pag
nagkaroon ka ng collection, iuubos mo munang ilagay sa pagrerecover ng cost, (collection –
recovered cost = gross profit) kung may sobra, may realized gross profit ka na, kung wala, zero.
b. Profit Realization Method – iuubos mo muna yung collection mo sa dapat na profit na
matatanggap mo, (collection – gross profit = recovered cost) kung may sobra, ilalagay mo yun sa
cost, kung wala, zero ang cost mo na irerecognize.
c. Installment Method – dito naman, kukunin mo yung ratio ng gross profit mo para makapagrealize
na ng profit, yung sobra sa cost mo ilalagay. Parehong may value na makukuha yung profit at cost
of installment sales mo. Ito ang gagamitin kapag silent ang problem.
Installment Sales
(Cost of Installment Sales)
Gross Profit on Installment Sales
Gross Profit on Installment Sales ÷ Installment Sales = Gross Profit Rate
(Gross Profit Rate) * (Collection) = Realized Gross Profit
Collection – Realized Gross Profit = Recovered Cost
Generally, deferred talaga ang GP sa IS.
Ang normal balance ng:
a. IS – credit
b. CGS – debit
COIS = SOIS when it comes to their amounts.
DGP – Deferred Gross Profit
RGP – Realized Gross Profit
Cash Collection Components
1) Cash
a. Down Payment
6 | P a g e I n s t a l l m e n t S a l e s
b. Installment Payment
2) Actual Value of Merchandise
IAR, beginning
(GPR) DGP, beginning
(IAR, defaulted) (DGP on IAR, defaulted)
(IAR, written-off) (DGP on IAR, written-off)
IAR, unadjusted DGP, unadjusted
(Collections) (RGP)
IAR, end DGP, end
Beginning Inventory
Net Purchases
Freight-in
Total Goods Available for Sale (Regular and Installment)
(COIS)
Total Goods Available for Sale (Regular)
▂ ▃ ▅ ▆ █ EXAMPLE █ ▆ ▅ ▃ ▂
Installment Sales P 1,000,000
Shipment on Installment Sales 600,000
Collections:
Year 1 300,000
Year 2 400,000
1. Realized Gross Profit, Recovered Cost on Year 1 and Year 2 using Cost Recovery Method
2. Realized Gross Profit, Recovered Cost on Year 1 and Year 2 using Profit Realization Method
3. Realized Gross Profit, Recovered Cost on Year 1 and Year 2 using Installment Method
Cost Recovery Method
Ang sabi, magrerecover ka muna ng cost bago ka magrealize ng profit. Sa Year 1, ang collection mo ay
300,000 ang dapat mong cost ay 600,000.
300,000 collection1 – 600,000 cost = (300,000) balance sa cost
Since hindi mo pa narerecover yung remaining 300,000 cost sa Year 1, wala ka pang irerecognize na
profit, defaulted muna yung 400,000 profit mo.
Sa Year 2, nakacollect ka ng 400,000, since may babawiin ka pang balance sa cost na 300,000,
7 | P a g e I n s t a l l m e n t S a l e s
400,000 collection2 – 300,000 unrecovered cost1 = 100,000 ang realized profit mo.
Ngayong nabawi mo na lahat ng cost mo, pwede ka nang magrecognize ng profit.
Year 1 Year 2
Realized Gross Profit 0 100,000
Recovered Cost 300,000 300,000
Profit Realization Method
Magrerealize ka muna ng gross profit mo bago ka magrecover ng cost. Kung ang collection mo ay
300,000 sa Year 1, lahat yun ilalagay mo as profit at yung natitirang balance, irerealize mo naman next
year.
Year 1 Year 2
Realized Gross Profit 300,000 100,000
Recovered Cost 0 300,000
8 | P a g e I n s t a l l m e n t S a l e s
Installment Method
Iapply mo muna yung formula sa pagkuha ng gross profit rate.
IS – COIS = GP ÷ IS = GPR
1,000,000 – 600,000 = 400,000 ÷ 1,000,000 = 40%
Next, aalamin mo kung magkano ang nakolekta mo sa year na tinatanong saka mo imumultiply sa GPR.
300,000 collection1 * 40% GPR1 = 120,000 ang allocated amount para sa gross profit realization para sa
Year 1. On the other hand,
300,000 collection1 – 120,000 profit1 = 180,000 ang allocated sa cost on installment sales mo.
For Year 2:
400,000 collection2 * 40% GPR1 = 160,000 allocated profit
400,000 collection2 – 160,000 profit2 = 240,000 allocated cost
Year 1 Year 2
Realized Gross Profit 120,000 160,000
Recovered Cost 180,000 240,000
▂ ▃ ▅ ▆ █ HANDOUT #1 █ ▆ ▅ ▃ ▂
Problem A
2011 2012
Installment Sales 200,000 250,000
Cost of Installment Sales 120,000 175,000
Cash Collected
a. 2011 Installment Sales
b. 2012 Installment Sales
105,000
75,000
150,000
1. Deferred Gross Profit on December 31, 2011
RGP = Collections * GPR
DGP = GP – RGP
GPR = (IS – COIS = GP ÷ IS)
GPR: 200T – 120T = 80T ÷ 200T = 40%
RGP: 105T * 40% = 42T
DGP: 80T – 42T = 38T
9 | P a g e I n s t a l l m e n t S a l e s
2. Realized Gross Profit on December 31, 2011
RGP = 42T
3. Realized Gross Profit on December 31, 2012 on 2011 Installment Sales
RGP on 12/31/12 on 2011 IS = yung collection mo nung 2012 sa sales mo ng 2011, in this case, yung
75,000 yung nacollect mo noong 2012 para sa sales ng 2011. Kung para sa IS ng isang year, yung
GPR ng corresponding year na yun ang gagamitin mo. Kung on 2011 IS, GPR ng 2011 ang gagamitin
mo sa 75,000. Kung on 2012 IS, GPR naman ng 2012 ang iaapply mo.
GPR 2011: = 40%
RGP: 75T * 40% = 30T
4. Realized Gross Profit on December 31, 2012 on 2012 Installment Sales
Katulad ng nasa #3, ang pagkakaiba lang, yung 150,000 yung collection na gagamitin mo, kasi yun
yung amount na nacollect mo para sa 2012 IS mo. In this scenario, yung GPR mo na iaapply ay yung
GPR mo sa 2012.
GPR 2012: 250T – 175T = 75T ÷ 250T = 30%
RGP 2012 on 2012: 150T * 30% = 45T
5. Deferred Gross Profit on December 31, 2012 related to 2011 and 2012 Installment Sales
Pwede rin iaapply ang question na ito kung hindi sinabi kung anong year ang hinahanapan ng DGP
(walang “on XX Installment Sales”), iaassume mo na DGP for 2011 and 2012 ang tinatanong.
Hanapin mo muna ang IAR, Beg 2011; Collections 2011. Kadalasan ang IAR, Beg ay ang amount ng
IS para sa unang year ng operations. So dito,yung IAR, Beg 2011 mo ay 200,000; Collections 2011 ay
105,000.
IAR, End 2011 = IAR, Beg 2011 – Collections 2011 – Collections 2012
IAR, End 2011 = IAR, Beg 2012
IAR, End 2012 = IAR, Beg 2012 – Collections 2012
RGP 2012 related to 2011 and 2012 = RGP related to 2011 + RGP related to 2012
IAR, End 2011: 200T – 105T – 75T = 20T
RGP r2011: 20T * 40% = 8T
IAR, Beg 2012: = 20T
IAR, End 2012: 250T – 150T = 100T
RGP r2012: 100T * 30% = 30T
RGP r2011-2012: 8T + 30T = 38T
Assuming that Cost Recovery Method is used:
6. Deferred Gross Profit on December 31, 2011
DGP 2011 CRM = yung di mo lang nacollect na GP after mong iexhaust yung cost sa stated na year.
DGP 2012 = Collections 2012 – COIS; pag negative, GP = DGP lang
DGP 2012: 105T – 120T = (15T) = 80T
7. Realized Gross Profit on December 31, 2012 on 2011 Installment Sales
RGP 2012 on 2011 CRM = kung ano ang amount ng collections after deducting COIS.
10 | P a g e I n s t a l l m e n t S a l e s
RGP 2012 on 2011: 105T – 120T = (15T) + 75T = 60T
Assuming that Profit Realization Method is used:
8. Deferred Gross Profit on December 31, 2011
DGP 2011 PRM = yung nacollect mo as GP out of your collections sa year stated.
DGP 2011 PRM = Collections 2011 – GP = kung negative ang sagot, yun ang DGP 2011 PRM pag
positive, zero ang sagot.
DGP 2011 PRM: 105T – 80T = 25T = 0
9. Realized Gross Profit on December 31, 2012
Yung RGP 2012 PRM naman, ieexhaust mo yung profit bago mag exhaust ng cost, kapag collections >
profit, 100% mong nakuha yung profit mo, so irerealize mo yung computed GP mo 100%, kung
collections < profit, kung ano ang amount ng collection mo, yun ang sagot mo sa RGP 2012 PRM.
RGP 2012 PRM: 250T – 175T = 75T – 150T = (75T) = 75T
11 | P a g e I n s t a l l m e n t S a l e s
Repossession – dadating yung time na hindi na makakabayad yung buyer mo, kaya ang gagawin mo,
babawiin mo yung nabili nya sayo. Ang kadalasang tanong dito ay “How much is the loss on
repossession?” kasi madalas loss ang makukuha mo, pero take note, hindi palagi, may instances na gain
ang masosolve mo.
Resale Value
(Reconditioning Cost)
(Normal Profit)
(Disposal Cost)
Fair Market Value of Repossessed Merchandise/Appraised Value/Net Realizable Value/True
Worth/Wholesale Value
Compare:
FMV of Repossessed Merchandise = Unrecovered Cost
FMV of Repossessed Merchandise > Unrecovered Cost
FMV of Repossessed Merchandise < Unrecovered Cost
NO Gain (Loss)
Gain
Loss
Unrecovered Cost = IAR, defaulted * Cost Ratio
Cost Ratio = 100% – GPR
If the question is:
a) How much is the loss on repossession? Ans: Computed Loss; 0 if Gain
b) How much is the loss on repossession to be recognized? Ans: Computed Loss; 0 if Gain
c) How much is the gain on repossession? Ans: Computed Gain; 0 if Loss
d) How much is the gain on repossession to be recognized? Ans: 0 if Gain (Loss)
e) Assuming that the merchandise is sold to an outsider, how much is the gain on repossession to be
recognized? Ans: Computed Gain; 0 if Loss
▂ ▃ ▅ ▆ █ HANDOUT #1 █ ▆ ▅ ▃ ▂
Problem C
Selling Price P 3,000
Gross Profit 1,200
IAR Balance 2,200
Appraised Value 1,000
Reconditioning Cost 100
Normal Profit 200
1. Loss on Repossession
12 | P a g e I n s t a l l m e n t S a l e s
Kapag ang tanong ay Repossession, kunin mo muna ang FMV of Repossessed Merchandise, sa
problem, given na 1,000. Ang problema, hindi given ang Unrecovered Cost, so hahanapin mo.
URC = IAR, defaulted * CR
CR = 100% – GPR
CR: 3T – 1.2T = 1.8T ÷ 3T = 60%
URC: 2.2T * 60% = 1.32T
1T FMV < 1.32T UC: 1T – 1.32T = (320)
How much is the loss on repossession? 320
How much is the loss on repossession to be recognized? 320
Assuming that FMV > UC
How much is the gain on repossession? 320
How much is the gain on repossession to be recognized? 0
Assuming that the merchandise is sold to an outsider
How much is the gain on repossession to be recognized? 320
Problem D
Installment Sales 2008 2007 2006
Cost of Installment Sales 750,000 600,000 400,000
Collections 450,000 375,000 260,000
2008
2007
2006
275,000
180,000 240,000
125,000 120,000 150,000
Repossession 2008:
Unpaid Balance 5,000
Resale Value 5,500
Reconditioning Cost 500
1. Realized Gross Profit in 2008 on collections of 2008 Installment Sales
Sa RGP, kukunin mo muna yung collections mo at GPR para macompute yung RGP.
GPR: 750T – 450T = 300T ÷ 750T = 40%
RGP: 275T * 40% = 110T
2. DGP, End in December 31, 2008 Installment Sales
Sa DGP, End, hahanapin mo muna yung IAR, End bago mo imultiply sa GPR.
GPR: = 40%
IAR, End: 750T – 5T – 275T = 470T
DGP, End: 470T * 40% = 188T
3. Loss on Repossession
Loss on Repossession ang tanong kaya kukunin mo yung FMV of RM gamit yung RV-RC-DC-NP =
FMV of RM. Then icocompare mo sa Unrecovered Cost nya which is IAR, defaulted * CR = UC. Since
kasama sa sentence nung sinabi yung 5,500 na FMV yung 500 RC, idededuct mo yung RC.
13 | P a g e I n s t a l l m e n t S a l e s
FMV of RM: 5.5T – 500 = 5T
CR: 100% – 40% = 60%
UC: 5T * 60% = 3T
FMV > UC = 2T Gain; 0 Loss
Special Cases in Collections
1. Total Collection is 1,000.
Kapag hahanapin mo ang TC sa ganitong given, 1,000 agad ang isasagot mo, kasi sinabi na directly
na 1,000 yung TC mo.
2. Total Cash Collection is 1,000.
Kapag hahanapin mo ang TC sa ganitong given, titingnan mo kung may iba pa bang collection sa
problem, take note na madaming components ang cash collections: Cash - wherein nandito yung down
payment mo at yung installment payment. Actual Value – yan yung value na ikinocompare mo sa
trade-in allowance para makuha yung over or underallowance. If ever na may AV of MTI kang 500,
ang TC mo ay 1,500.
3. Collection is 1,000 including Resale Value of the property amounting to 500.
Hindi naman kasama sa components ng collections ang RV kaya aalisin mo since ang sabi ay included
sa 1,000 ang RV na 500. Ang TC ay 500 lang.
14 | P a g e I n s t a l l m e n t S a l e s
Special Cases of the Fair Market Value
1. FMV of Merchandise after Reconditioning Cost of 100 is 1,000.
Dito, idededuct mo yung 100 sa 1,000 na FMV. Kasi kasama yun sa statement, assumed na kasama rin
yun sa 1,000.
2. FMV of Merchandise is 1,000. There is a Reconditioning Cost of 100.
Dito naman, sinabi na directly na 1,000 ang FMV, nasa labas ng sentence yung RC na 100 kaya di mo
na aalisin yung 100 na RC sa 1,000 na FMV.
▂ ▃ ▅ ▆ █ EXAMPLE █ ▆ ▅ ▃ ▂
May special problems pa regarding repossession, yung mga problems na may interest rates na binibigay.
Assume that on October 1, 2011 Mr. Carolino sold for P100,000 a car costing P60,000. The contract
of sale called a down payment of P20,000 and a note is issued for the balance which is payable for
24 monthly installments of P4,723.79 each starting on November 1, 2011. The interest rate is 36%
and is applied to the unpaid balance.
1. RGP on 2011
Para makuha mo yung RGP, hahanapin mo muna yung Collections mo. Since may interest rate na
binigay sa bawat installment payment mo, hindi mo masosolve gamit yung formula lang. Ang gagawin
mo, gagawa ka ng table wherein nandoon yung Date, Collection, Collection as to Principal,
Collection as to Interest, Unpaid Balance. Ang iingatan mo lang dito ay ang date kung kalian ka
huling tumanggap ng collection, sakaling calendar year, December 31 dapat ang huling date mo sa
table, kung fiscal year naman, kung anong date ang sinabi sa problem. Kapag December 1 ang huling
date na nagcompute ka ng collection mo, at December 31 naman talaga dapat magtapos yung year
mo, magrerecognize ka ng accrued collection. Sa problem given, walang nakalagay kung yung 36%
na interest ba ay monthly or annually, pag silent ang problem, annually ang gagamitin, since
maybabayad ka monthly, ididivide mo sa 12 months ang 36% which will result sa 3% per month.
Date
Collection
A (Monthly Installments)
Collection as to P
B (A – C)
Collection as to I
C (D * Interest Rate)
Unpaid Balance
D (DOLD – B)
October 1, 2011
October 1, 2011
November 1, 2011
December 1, 2011
December 31, 2011
20,000 (DP)
4,723.79
4,723.79
20,000 (DP)
2,323.79
2,393.50
-
2400
2,330.29
2,258.48
100,000
80,000
77,676.21
75,282.71
GPR: 100T – 60T = 40T ÷ 100T = 40%
RGP 2011: (20T + 2,323.79 + 2,393.50 ) * 40% = 9,886.92
2. Collections as to Principal?
I-aadd mo lang lahat ng nasa Collection as to P column para makuha yung sagot.
CollP: 20T + 2,323.79 + 2,393.50 = 24,717.29
3. Collections as to Interest?
15 | P a g e I n s t a l l m e n t S a l e s
I-aadd mo lang lahat ng nasa Collection as to I column para makuha yung sagot. Up to December 1,
2011 lang yung i-aadd mo kasi hanggang dun ka lang naman talaga nagcollect ng interest since yung
next collection ay January 1, 2011 pa.
CollI: 2,400 + 2330.29 = 4,730.29
4. Interest Income?
Kukunin mo muna yung Accrued Interest mo since ang end ng calendar year ay Deceember 31, 2011
pa, meaning may interest income ka pa na ma-aaccrue mula December 1-31, 2011. Para macompute
yung Accrued Interest, imumultiply mo yung last value ng Unpaid Balance sa interest rate mo per
month (3%) then i-aadd mo yun sa CollI mo.
Interest Income: 4,730.29 + 2,258.48 = 6,988.77
Papaano mo kukunin ang Installment Payment mo per month kung hindi given?
Hanapin mo yung interest rate, in this case 3% yun. Apply mo yung sa 1.03-24
= a; 1-a = b; b ÷ 0.03 =
c; c = PV of 1 on an Ordinary Annuity of 3% for 24 periods. C = 16.93554212 ang sagot, hindi pa yan
ang installment payment per month, ididivide mo yung C sa selling price ng merchandise mo, LESS
downpayment.
Installment Payment: (100,000 – 20,000) ÷ 16.93554212 = 4,723.79
▂ ▃ ▅ ▆ █ HANDOUT #2 █ ▆ ▅ ▃ ▂
Problem B
Selling Price P 32,000
CGS 20,000
Down Payment 3,200
Period 12 installments - end of each succeeding month
Interest 1% per month
Reconditioning Cost 300
Resale Value 11,500
PV of 1 at 1% for 12 periods 0.8874
PV of 1 of an ordinary annuity at 1% for 12 periods 11.2551
1. Total Collections as to Interest for the Year 2011
Gagawa ka muna ng table for D, C, CP, CI, UB.
Date Collection Collection as to P Collection as to I Unpaid Balance
09-30-2011
09-30-2011
10-31-2011
11-30-2011
12-31-2011
Total
3,200
2,558.84
2,558.84
2,558.84
10,876.52
3,200
2,270.84
2,293.55
2,316.48
10,080.87
-
288
265.29
242.36
795.65
32,000
28,800
26,529.16
24,235.61
21,919.13
-
CollI: 288 + 265.29 + 242.36 = 795.65
16 | P a g e I n s t a l l m e n t S a l e s
2. Total Collections as to Principal for the Year 2011
CollP: 3,200 + 2,270.84 + 2,293.55 + 2,316.48 = 10,080.87
3. The Realized Gross Profit on Installment Sales for the Year 2011
GPR: (32T – 20T) ÷ 32T = 37.5%
RGP: 10,080.87 * 37.5% = 3,780.33
4. The Gain (Loss) on Repossession in March 2012
Take note na ang IAR, defaulted ay = sa UB kung kelan huling nakabayad.
FMV: 11.5T – 300 = 11,200
UC: 21,919.13 * 62.5% = 13,699.46
FMV < UC = 2,499.46 Loss
What if “as to Principal” lang yung given na Installment Payment?
Assume that on October 1, 2011, Mr. Sanchez sold for P100,000 a car costing P70,000. The contract
of sale called for a payment of P20,000 and a note is issued for the balance which is payable for 20
monthly installments of 4,000 each starting on November 1, 2011. The installment payment is
attributable only to the payment of the principal. It is agreed that an interest rate f 36% is to be
applied to the unpaid balance.
Date Collection Collection as to P Collection as to I Unpaid Balance
10-31-2011
10-31-2011
11-30-2011
12-31-2011
Total
20,000
6,400
6,280
32,680
20,000
4,000
4,000
28,000
-
2,400
2,280
4,680
100,000
80,000
76,000
72,000
-
Problem A
Accounts Receivable P 34,000
IAR 2011 192,000
IAR 2010 90,000
IAR 2009 22,000
Merchandise Inventory 48,000
Purchases 238,000
Freight-in 12,000
Repossessed Merchandise 14,000
Selling Expense 92,000
Loss on Repossession 2011 16,000
Loss on Repossession 2009 8,000
Doubtful Account on Charge Sales 1,000
Cash Sales 60,000
Charge Sales 120,000
Installment Sales 300,000
Unrealized Gross Profit 2010 56,000
Unrealized Gross Profit 2009 32,000
17 | P a g e I n s t a l l m e n t S a l e s
Merchandise Inventory on December 31, 2011 (including repossessed merchandise) was 52,000.
Charge Sales and Installment Sales prices were higher than Charge Sales by 20% and 25%
respectively.
Installment Sales in 2009 and 2010 had gross profit rates of 40% and 35% respectively.
Summary of the Repossession Account on December 31, 2011
Year of Sale FMV Loss Installment Contracts Receivable
2009 2,000 8,000 10,000
2011 12,000 16,000 28,000
1. Total Sales for 2011, assuming all Sales were on Cash Basis
Kapag sinabing Cash Basis, equal na rin yun sa Time of Sale. In this case, gagawin mong 100% ang
lahat ng sales mo kasi hahanapin mo yung allocation when it comes to GPR and kasi kapag Sales ang
hinahanap, ilalagay mo talaga sa 100% parang sa MAS subject, kasi kapag hindi, Accounts
Receivable mo lang yun, sa entries kasi, (dr) AR (cr) Sales, Gain, ibig sabihin yung mark-up sa cost
nya di talaga nirerecord sa loob ng sales.
Cash Sales: 60,000 ÷ 1 = 60T
Charge Sales: 120,000 ÷ 120% = 100T
Installment Sales: 300,000 ÷ 125% = 240T
Total Sales 2011: 60T + 100T + 240T = 400T
2. The Cost of Goods Sold on Installment Sales for 2011
Sa CGS, Merchandise Inventory Beginning + Purchases + Freight-in = Total Goods Available for
Sale – Merchandise Inventory Ending = CGS from Cost Accounting. Then alalahanin mo yung
formula nya na Sales – CGS = GP. Then kunin mo yung proportion ng naka-100% na sales para
makuha mo yung GP. Sa problem na ito, yung MInv na nasa taas, beginning amount yan. Bakit? Kasi
may bukod na amount na binigay para sa ending nya. Sa MInv ending naman, aalisin mo yung value
ng repossessed merchandise kasi may sariling account yun na hiwalay sa regular merchandise mo.
CGS All: 48T + 238T + 12T = 298T – (52T – 14T) = 260T
Proportions:
Cash Sales: 260T * (60T ÷ 400T) = 39T (15%)
Charge Sales: 260T * (100T ÷ 400T) = 65T (25%)
Installment Sales: 260T * (240T ÷ 400T) = 156T (60%)
3. Total Realized Gross Profit
May tatlong components ang RGP, since total ang tinatanong kukunin mo yung RGP ng bawat isa
(CaS, IS, ChS) bago mo iadd lahat.
RGP IS 2011: 300T – 28T = 272T – 192T = 80T * 48% = 38.4T
RGP IS 2010: 160T – 0 = 160 T – 90T = 70T * 35% = 24.5T
RGP IS 2009: 80T – 10T = 70T – 22T = 48T * 40% = 19.2T
TRGP IS: 38.4T + 24.5T + 19.2T = 82.1T
RGP CaS: 60T – 39T = 21T
18 | P a g e I n s t a l l m e n t S a l e s
RGP ChS: 120T – 65T = 55T
TRGP IS,CaS, ChS: 82.1T + 21T + 55T = 158.1T
4. Net Income (Loss) for 2011
TRGP – Selling Expense – ADAEx – Loss on RP 2011 – Loss on RP 2009 = NI
NI: 158.1T – 92T – 1T – 16T – 8T = 58.54T
5. Cash Collections on Installment Sales for the year 2011
IAR, beg = UGP ÷ GPR then apply IAR formula.
2009 2010 2011
IAR, Beg 80T 160T 300T
(IAR, Def) (10T) - (28T)
(IAR, W-O) - - -
IAR, unadj 70T 160T 272T
(Coll) *workback (48T) (70T) (80T)
IAR, End 22T 90T 192T
Coll IS 2011: 48T + 70T + 80T = 198T
19 | P a g e I n s t a l l m e n t S a l e s
Trade-in – ibibigay yung item na itinetrade mo plus yung pera.
Kailangan mo munang alamin kung magkano yung Actual Value ng item na traded-in, gagamitin mo din
yung formula sa pagkuha ng FMV sa repossession while ang trade-in allowance, palaging given.
Then icompare mo sa trade-in allowance (kung magkano ang converted price nung item na itetrade-in mo
according sa seller) kung over o underallowance. Kadalasang underallowance.
▂ ▃ ▅ ▆ █ HANDOUT #1 █ ▆ ▅ ▃ ▂
Problem B
Unit Cost P 60,000
Installment Selling Price 85,000
Trade-in Value 30,000
Down Payment 5,000
Installment Period 10 months, end of each month
Reconditioning Cost 1,250
Resale Value 25,000
Profit Rate 15%
1. Realized Gross Profit during 2011
Sa pagkuha ng AV ng item traded-in, gagamitin mo yung (RV-RC-NP-DC=AV). Then ipagcompare mo
sya sa TA para makuha mo yung O/Uallowance, kung overallowance, idededuct mo yung OA sa
Installment Selling Price, if ever namang underallowance, iaadd mo sa Installment Selling Price yung
sagot na nakuha mo bilang difference ng dalawa. Since hinahanap ang RGP, hahanapin mo yung
collections, may mga elements na nagcocompose sa collection: downpayment + installment payment +
AV of merchandise.
AV: 25T – 1.25T – 3.75T – 0 = 20T
30T TA > 20T AV = 10T overallowance
ISP, adjusted: 85T – 10T = 75T
IP: 75T – 20T – 5T = 50T ÷ 10 mos = 5T
Total IP Collected: 5T * 3mos = 15T
Coll: 5T + 20T + 15T = 40T
GPR: 75T – 60T = 15T ÷ 75T = 20%
RGP: 40T * 20% = 8T