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1|Page HANDOUT 1

Installment Sales

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 200,000 120,000 105,000 2012 250,000 175,000 75,000 150,000

Installment Sales Cost of Installment Sales Cash Collected on Installment Sales 2011 Installment Sales 2012 Installment Sales

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.

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Installment Sales

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 750,000 450,000 275,000 180,000 125,000 2007 600,000 375,000 2006 400,000 260,000

Installment Sales Cost of IS Collections on 2008 IS 2007 IS 2006 IS

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]

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Installment Sales

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.

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Installment Sales

d) The following is the summary of the repossession account on December 31, 2011: Year of Sale 2009 2011 FMV of Mdse 2,000 12,000 14,000 Loss 8,000 16,000 24,000 Installment Contracts Receivable 10,000 28,000 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. 2. 3. 4. 5. Total Sales for 2011, if all sales were on cash basis The cost of goods sold on instalment sales for 2011 should be: The total realized gross profit The net income (loss) for the year 2011 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. 7. 8. 9. Total collections as to interest for the year 2011 Total collections as to principal for the year 2011 The realized gross profit on instalment sales for the year 2011 The gain (loss) on repossession in March 1, 2012

LDMM, CPA. 2011. INSTALLMENT SALES [SPECIAL]

5|Page Installment Sales series of payments over a long period of time.

Installment Sales

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|Page b. Installment Payment 2) Actual Value of Merchandise IAR, beginning (IAR, defaulted) (IAR, written-off) IAR, unadjusted (Collections) IAR, end

Installment Sales

(GPR)

DGP, beginning (DGP on IAR, defaulted) (DGP on IAR, written-off) DGP, unadjusted (RGP) 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 Shipment on Installment Sales Collections: Year 1 Year 2 1. 2. 3.

1,000,000 600,000

300,000 400,000

Realized Gross Profit, Recovered Cost on Year 1 and Year 2 using Cost Recovery Method Realized Gross Profit, Recovered Cost on Year 1 and Year 2 using Profit Realization Method 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,

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Installment Sales

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|Page 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%

Installment Sales

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 200,000 250,000 120,000 175,000 105,000 75,000 150,000

Installment Sales Cost of Installment Sales Cash Collected a. 2011 Installment Sales b. 2012 Installment Sales

1. Deferred Gross Profit on December 31, 2011 RGP = Collections * GPR DGP = GP RGP GPR = (IS COIS = GP IS) GPR: 200T 120T = 80T 200T RGP: 105T * 40% DGP: 80T 42T = 40% = 42T = 38T

9|Page 2. Realized Gross Profit on December 31, 2011 RGP = 42T

Installment Sales

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: RGP: 75T * 40% = 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 RGP 2012 on 2011: 105T 120T = (15T) + 75T Assuming that Profit Realization Method is used: = 60T

Installment Sales

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

Installment Sales

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) b) c) d) e) How much is the loss on repossession? Ans: Computed Loss; 0 if Gain How much is the loss on repossession to be recognized? Ans: Computed Loss; 0 if Gain How much is the gain on repossession? Ans: Computed Gain; 0 if Loss How much is the gain on repossession to be recognized? Ans: 0 if Gain (Loss) 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 Gross Profit IAR Balance Appraised Value Reconditioning Cost Normal Profit P 3,000 1,200 2,200 1,000 100 200

1. Loss on Repossession

12 | P a g e

Installment Sales

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 Cost of Installment Sales Collections 2008 2007 2006 Repossession 2008: Unpaid Balance Resale Value Reconditioning Cost 2008 750,000 450,000 275,000 180,000 125,000 2007 600,000 375,000 240,000 120,000 2006 400,000 260,000

150,000

5,000 5,500 500

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 FMV of RM: 5.5T 500 CR: 100% 40% UC: 5T * 60% FMV > UC Special Cases in Collections = 5T = 60% = 3T = 2T Gain; 0 Loss

Installment Sales

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 Special Cases of the Fair Market Value

Installment Sales

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 October 1, 2011 October 1, 2011 November 1, 2011 December 1, 2011 December 31, 2011 Collection A
(Monthly Installments)

Collection as to P Collection as to I Unpaid Balance B C D


(A C) (D * Interest Rate) (DOLD B)

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 = 40% = 9,886.92

100,000 80,000 77,676.21 75,282.71

GPR: 100T 60T = 40T 100T RGP 2011: (20T + 2,323.79 + 2,393.50 ) * 40%

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

Installment Sales

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 CGS Down Payment Period Interest Reconditioning Cost Resale Value PV of 1 at 1% for 12 periods PV of 1 of an ordinary annuity at 1% for 12 periods 32,000 20,000 3,200 12 installments - end of each succeeding month 1% per month 300 11,500 0.8874 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 09-30-2011 3,200 3,200 09-30-2011 2,558.84 2,270.84 10-31-2011 2,558.84 2,293.55 11-30-2011 2,558.84 2,316.48 12-31-2011 Total 10,876.52 10,080.87 CollI: 288 + 265.29 + 242.36

Collection as to I 288 265.29 242.36 795.65 = 795.65

Unpaid Balance 32,000 28,800 26,529.16 24,235.61 21,919.13 -

16 | P a g e 2. Total Collections as to Principal for the Year 2011 CollP: 3,200 + 2,270.84 + 2,293.55 + 2,316.48

Installment Sales

= 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 10-31-2011 10-31-2011 11-30-2011 12-31-2011 Total Problem A Accounts Receivable IAR 2011 IAR 2010 IAR 2009 Merchandise Inventory Purchases Freight-in Repossessed Merchandise Selling Expense Loss on Repossession 2011 Loss on Repossession 2009 Doubtful Account on Charge Sales Cash Sales Charge Sales Installment Sales Unrealized Gross Profit 2010 Unrealized Gross Profit 2009 P 34,000 192,000 90,000 22,000 48,000 238,000 12,000 14,000 92,000 16,000 8,000 1,000 60,000 120,000 300,000 56,000 32,000 Collection 20,000 6,400 6,280 32,680 Collection as to P 20,000 4,000 4,000 28,000 Collection as to I 2,400 2,280 4,680 Unpaid Balance 100,000 80,000 76,000 72,000 -

17 | P a g e

Installment Sales

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 2,000 8,000 10,000 2009 12,000 16,000 28,000 2011 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 RGP ChS: 120T 65T TRGP IS,CaS, ChS: 82.1T + 21T + 55T = 55T = 158.1T

Installment Sales

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 80T 160T IAR, Beg (10T) (IAR, Def) (IAR, W-O) 70T 160T IAR, unadj (Coll) *workback (48T) (70T) 22T 90T IAR, End Coll IS 2011: 48T + 70T + 80T = 198T

2011 300T (28T) 272T (80T) 192T

19 | P a g e Trade-in ibibigay yung item na itinetrade mo plus yung pera.

Installment Sales

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 Installment Selling Price Trade-in Value Down Payment Installment Period Reconditioning Cost Resale Value Profit Rate P 60,000 85,000 30,000 5,000 10 months, end of each month 1,250 25,000 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