CONSIGNMENT SALES
Problem 1
On November 1, 2016, The Western Appliance Center ships five (5) of its appliances to the ABC Store on consignment. Each
Unit is to be sold at P25, 000 payable P5, 000 in the month of purchase and P1, 000 per month thereafter. The consignee is
to be entitled to 20% of all amounts collected on consignment sales. ABC Store sells three (3) appliances in November and
one (1) on December. Regular monthly collections are made by the consignee, and appropriate cash remittances are made
to the consignor at the end of each month. The cost of the appliances shipped by the consignor was P15, 500 per unit. The
consignor paid shipping cost to the consignee totaling P5, 000.
1.
2.
3.
The cost of inventory on consignment on December 31, 2016 is:
a. P15, 500
c. P19, 600
b. P16, 500
d. P24, 500
Using the same information in no. 1, the profit on consignment for 2016 is:
a. P29, 400
c. P15, 000
b. P15, 500
d. P14, 000
Using the same information in no. 6, the total amount remitted to the consignor for the year 2016 is:
a. P23, 000
c. P12, 000
b. P18, 400
d. P6, 400
Solutions:
1.
(b)
The inventory on consignment amounted to P16, 500 computed as follows:
Sales
(4sets)
Charges by consignor:
Cost of consigned goods (@P15, 500/set)
Shipping cost
Charges by consignee:
Commissions [20% of sales (25,000x4)]
Total
2.
3.
Charges Analysis
Inventory
(1set)
Total
(5units)
P62, 000
4, 000
P15, 500
1, 000
P77, 500
5, 000
20, 000
P86, 000
0
P16, 500
20, 000
P102, 500
(d)
The consignment net income amounted to P14, 000 computed as follows:
Consignment sales (4units x P25, 000 per unit)… ........................................................... P100, 000
Less: Applicable cost and expenses – charges related to
Consignment sales (refer to no. 1) ................................................................... P86, 000
Net Income ..................................................................................................................... P14, 000
(b)
The total amount remitted amounted to P18, 400 computed as follows:
Collections in 2016:
November sales – 3 units
November down payment (3units x P5, 000)… ................................P15, 000
December installments (3units x P1, 000)........................................ P3, 000
December sales – 1 unit
December down payment (1unit x P5, 000)… ................................... P5, 000
Total Collections ............................................................................................................... P23, 000
Less: Commission (20% of sales x collections of P23, 000)… ............................................. P4, 600
Total Remittance ............................................................................................................... P18, 400
Problem 2
Abenson Appliance Center consigned to XYZ Marketing the following merchandise:
Cost
10 units of Sony LCD TV set
5 units of Blu-ray DVD player
Freight
P300,000
275,000
Total
P10,000
5,000
P310,000
280,000
After a month, the consignee rendered an account sale as follows:
Sony TV set
No. of units sales
Amount of sales
Less: Charges – Commission (10% of sales)
Cartage-in
Net Amount
Remittance to consignor
1.
2.
7
P280,000
28,000
3,500
P248,500
Accounts Sales
DVD player
3
P210,000
21,000
1,500
P187,500
Total
10
P490,000
49,000
5,000
P436,000
P436,000
The net income (loss) on consignment of Sony TV set is:
a. P19,500 net income
c. P51,000 net income
b. P32,550 net income
d, P19,500 loss
Using the same information above, the cost of inventory on consignment is:
a. P112,000
c.
P206,650
b. P205,000
d.
P317,000
Solution:
1.
2.
(b)
Consignment sales (given per problem) .....................................................................P280,000
Less: Applicable cost and expenses – charges related to consignment sales:
Cost of goods sold (P300,000 x 7/10) ...................... P210,000
Freight (P10,000 x 7/10) .......................................... P7,000
Commission (10% x P280,000) ..................................P28,000
Cartage-in (P3,500 x 7/10)…………………………………….P2,450
P245,450
Net Income ............................................................................................................... P32,550
(c)
Sony TV set
DVD player
Cost of goods sold:
TV: 3/10 x P300,000
P90,000
DVD player: 2/5 x P275,000
P110,000
Add:
Freight:
TV: 3/10 x P10,000
3,000
DVD player: 2/5 x P5,000
2,000
Cartage – in:
TV: 3/10 x P3,500
1,050
DVD player: 2/5 x P1,500
600
Total cost of inventory
P94,050
P112,600
Total
P200,000
5,000
1,650
P206,650
Problem 3
General company consigned five computer equipments, with cost of P8,000 each, to the Xaviery Computers which was to
sell these goods for the account and risk of the former for a commission of 15% of selling price. The general company paid
trucking costs of P2,000 on the shipment. Correspondingly, Xaviery Computers paid P3,200 on the freight of the shipment.
On the last day of the year, Xaviery Computers reported that it sold three of the computers: two for cash at P15,000 each
and one on credit at P18,000 of which 25% was collected as down payment. Xaviery computers remitted all the cas due.
1.
2.
3.
The amount remitted by Xaviery computers is:
a. P13,500
c. P34,500
b. P24,100
d. P37,600
The Consignment net income (loss) is :
a. P10,000
c.
P12,400
b. P11,600
d.
P13,680
The amount of inventory on consignment of General Company is:
a. P16,000
c.
P18,080
b. P17,200
d.
P27,120
Solution:
1.
2.
(b)
The total amount remitted amounted to P24,100 computed as follows:
Collections made from:
Cash Sales (P15,000 x 2) .............................................................. P30,000
Credit Sales (P18,000 x 25%)......................................................... 4,500
Total Collections ................................................................................. P34,500
Less: Charges
Freight: ...................................................... P3,200
Commission (P30,000 + P18,000) x 15% .....7,200
10,400
Total Remittance ................................................................................ P24,100
(d)
The consignment net income amounted to P13,680 computed as follows:
Consignment sales ........................................................................... P48,000
Less: Applicable cost and expenses – charges relating to
Consignment sales (refer to table below) ..................... 32,320
Net Income..........................................................................................P13,680
Sales
(3)
Charges by Consignor:
Cost
Trucking costs
Charges by Consignee:
Freight
Commission
Total
3.
(c) – refer to no. 2 for further computation.
Charge analysis
Inventory
(2)
Total
(5)
P24,000
1,200
P16,000
800
P40,000
2,000
1,920
7,200
P34,320
1,280
0
P18,080
3,200
7,200
P52,400
Problem 4
On July 15, 2016, James Last Sales Company received a shipment of merchandise with a selling price of P150,000 from
James Bond Company. The consigned goods costs James Bond Company P100,000 and freight charges of P1,200 had been
paid to ship the goods to James Last Company.
The consignment agreement provided for a sale of merchandise on credit with terms of 2/10, n/30. The 15% commission is
to be based on the accounts receivable collected by the consignee. Cash discounts taken by customers, expenses
applicable to goods on consignment and any cash advanced to the consignor are deductible from remittance by the
consignee.
James last company advanced P60,000 to James Bond Company upon receipt of the shipment. Expenses of P8,000 was
paid by James Last. By August 2016, 70% of the shipment had been sold, and 80% of the resulting accounts receivable had
been collected, all within the discount period. Remittance of the amount was made on August 30, 2016.
1.
2.
3.
The cash remitted by James Last Company is:
a. P1,720
c. P23,400
b. P22,300
d. P61,720
The net income(loss) on consignment is:
a. P14,280
c. P11,880
b. P13,560
d. P8,730
The cost of unsold units in the bonds (merchandise on consignment) of James Last is :
a. P15,000
c. P30,840
b. P30,360
d. P31,860
Solution:
1.
(a)
The total amount remitted amounted to P1,720 computed as follows:
Gross Collection (P150,000 x 70% x 80% ) .................................................... P84,000
Less Cash discount taken by customer (P84,000 x 2%).................................. 1,680
Net collection................................................................................................ P82,320
Less: Charges
Expenses ................................................P8,000
Commission (P84,000 x 15% )……………..12,600
20,600
Due to consignor… .........................................................................................P61,720
Less: Advances .................................................................................................. 60,000
Cash remitted by James Last Company… .......................................................... P1,720
2.
(d)
The consignment net income amounted to P13,680 computed as follows:
Consignment sales (P150,000 x 70%) .............................................................. P105,000
Less: Applicable cost and expenses – Charge relating to
Consignment sales (refer to table below) ........................................... 96,270
Net Income ........................................................................................................ P8,730
Sales
(70%)
Charges by Consignor:
Cost
Freight
Charges by Consignee:
Expenses
Commission (P105,000 x 15%)
Cash discounts (P105,000 x 80% x 2%)
Total
3.
(b) refer to no. 2 for further computation.
Charge Analysis
Inventory
(30%)
Total
(100%)
P70,000
840
P30,000
360
P100,000
1,200
8,000
15,750
1,680
P96,270
0
0
0
P30,360
8,000
15,750
1,680
P126,630
Problem 5
On September 5, 2016, The Helth Computers consigned 30 apple computer units, costing P80,000 each, to Abet, Inc. The
units were to be sold on either cash or credit basis at a commission of 15% of net sales. The consignor paid freight of
P18,000 on the shipment. On September 11, the consignee received the goods. Sales were maid as follows:
September 15: 10 units for cash as P130,000 each
September 27: 12 units on account at P140,000 each
On September 30, 2016, sales allowance of P20,000 was given to a charge customer for a detective unit. On October 10,
2016, a receivable balance of P70,000 was determined to be uncollectible. On October 11, 2016, the consignee made the
proper remittance.
1.
2.
3.
The amount due from Abet, Inc is:
a. P2,980,000
b. P2,890,000
The Consignment profit (loss) is:
a. P464,000
b. P484,000
The cost of inventory on consignment is:
a. P640,000
b. P644,800
c.
d.
P2,536,000
P2,446,000
c.
d.
P554,000
P672,800
c.
d.
P664,800
P708,000
Solution:
1.
2.
(d)
Sales on credit [(P140,000/unit x 12 units) + (P130,000/unit x 10 units)]… .................................. P2,980,000
Less: sales allowance ........................................................................ P20,000
Doubtful Accounts ............................................................... 70,000
Commission [(P2,980,000-P20,000)x15%]…………………………444,000
534,000
Amount Due from Abet, inc........................................................................................................... P2,446,000
(d)
The consignment sales net income amounted to P672,800 computed as follows:
Consignment sales (refer to no. 1 )............................................................................... P2,980,000
Less: Applicable cost and expenses- charges relating to
Consignment sales (refer to table below) .................................................... P2,307,200
Net income ...................................................................................................................P672,800
Sales
(22)
Charges by Consignor:
Cost
Freight
Charges by consignee:
Sales allowance
Doubtful accounts
Commission [(2,980,000 – P20,000) x 15%]
Total
3.
(b) refer to no. 2 for further computation.
Charge Analysis
Inventory
(8)
Total
(30)
P1,760,000
13,200
P640,000
4,800
P2,400,000
18,000
20,000
70,000
444,000
P2,307,000
0
0
0
P644,800
20,000
70,000
444,000
P2,952,000
FRANCHISE
Problem 1
Frozen Delight, Inc. charges an initial franchise fee of P75,000 for the right to operate as a franchisee of Frozen Delight. Of
this amount P25,000 is collected immediately. The remainder is collected in four equal annual installments of P12,000
each. These installments have a present value of P41,402. As part of the total franchise fee, Frozen Delight also provides
training (with a fair value of P2,000) to help franchisees get the store ready to open. The franchise agreement is signed of
April 1, 2015, training is completed, and the store opens on July 1, 2015.
1.
2.
The amount of revenue from training and franchise on April 1, 2015 to:
a. Zero
c. P66,402
b. P64,402
d. P75,000
The amount of revenue from training and franchise on July 1, 2015 to :
a. Zero
c. P66,402
b. P64,402
d. P75,000
Solution:
1.
2.
(a)
April 1, 2015
Cash ........................................................................ 25,000
Notes receivable (75,000-25,000) .......................... 50,000
Unearned interest income/discount on NR ........................................... 8,598
Unearned service revenue (training) ...................................................... 2,000
Unearned service revenue(franchise) (25,000 + 41,402 – 2,000) ............ 64,402
(c)
July 1, 2015
Unearned service revenue (training) ..................... 2,000
Unearned service revenue (franchise) .................... 64,402
Franchise revenue ................................................................................... 64,402
Service revenue (training) ........................................................................ 2,000
Problem 2
Pacific crossburgers Inc. charges an initial fee of P70,000. Upon the signing of the agreement (which covers 3 years), a
payment of P28,000 is due. Thereafter, three annual payments of P14,000 are required. The credit rating of the franchiee is
such that it would have to pay interest at 10% to borrow money. The franchise agreement signed on May 1, 2015, and the
franchise commences operation on July 1, 2015.
1.
2.
3.
The amount of the franchise revenue on May 1, 2015 assuming no future services are required by the franchisor
once the franchise starts operations:
a. Zero
c. P62,816
b. P28,000
d. P70,000
The amount of francise revenue on July 1, 2015 is:
a. Zero
c. P62,816
b. P28,000
d. P70,000
The amount of franchise revenue on December 31 is:
a. Zero
c. P62.816
b. P13,959
d. P70,000
Solution:
1.
2.
3.
(a)
May 1, 2015
Cash .............................................................................. 28,000
Notes receivable (70,000 – 28,000) .............................. 42,000
Discount on NR / unearned interest income [42,000 – (2.48685* x 14,000)]… ......... 7,184
Unearned Franchise revenue (28,000 + 42,000 – 7,184) ........................................... 62,816
(c)
July 1, 2015
Unearned franchise revenue ......................................... 62,816
Franchise revenue .................................................................................................... 62,816
(b)
December 31, 2015: (62,816 / 3) x 8/12 = P13,959
Problem 3
Dominador’s Pizza Inc. enters into a franchise agreement on December 31, 2017, giving Doming Corp. the right to operate
as a franchisee of Dominador’s Pizza for 5years. Dominador’s charges Doming an initial franchise fee of P475,000 for the
right to operate as a franchisee. Of this amount, P190,000 is payable when Doming Corp signs the agreement, and the
balance is payable in five annual payments of P57,000 each on December 31.
Consider the following for allocation of transaction price at December 31, 2017.
Rights to the trade name, market area, technical and propriety know – how ................... P190,000.00
Services – training, etc… ....................................................................................................... 94,591.50
Machinery and equipments, etc. (costing, P95,000) ............................................................ 133,000.00
Total transaction price ....................................................................................................... P417,591.50
The credit rating of Doming indicates that money can be borrowed at 8%. The present value of an ordinary annuity of five
annual receipts of P57,000 each discounted at 8% is P227,591.50. The discount of P57,408.50 represents the interest
revenue to be accrued by Dominador’s Pizza Inc. over the payment period.
Training is completed in January 2018, the equipment is installed in January 2018, and Doming holds a grand opening on
February 4, 2018. On February 4, 2018, franchise opens.
Doming also promises to pay ongoing royalty payments of 1% of its annual sales (payable every January 31 of the following
year) andi obliged to purchase products from Dominador’s at its current stand alone selling prices at the time of purchase.
1.
2.
3.
How mny performance obligations exist in this contract for franchise?
a. 2
c. 4
b. 3
d. 5
When Dominador should recognize revenue for the rights (combined) to the trade name, market area, and
proprietary know-how which give rise to a single performance obligation?
a. No transaction
c. Point in time
b. No revenue
d. Over time
How much revenue (franchise revenue, service revenue and sales revenue – machinery and equipment) be
recognized on February 4, 2017?
a. Zero
c. P133,000.00
b. P94,591.50
d. P190,000.00
Solution:
1.
(b) – There are three performance obligations in the contract for franchise:

Rights to the trade name, market area, and proprietary know-how for 5 years are not individually
distinct. Each one is not sold separately and cannot be used with other goods or services that are
readily available to the franchisee. Combined rights give rise to a single performance obligation.

Training services, and

Equipment
It should be noted that training (similar) service and equipment are distinct and can be sold separately.
Dominador’s cannot recognize revenue for the royalty payments because it is not reasonably assured to be
entitled to those sales-royalty amounts. That is, these payments represent variable consideration. Therefore,
Dominador’s recognizes revenue for the royalties when (or as) the uncertainty is resolved.
2.
3.
Dominador’s promise to stand ready to provide products to the franchisee in the future at a standalone selling
price is not accounted for as a separate performance obligation in the conract because it does not provide
Doming with a material right. Thus, revenue from those sales is recorded in the future when the sales are made.
(c) – Those combined rights give rise to a single performance obligation. Dominador’s satisfies performance
obligation at point in time when Doming obtains control of the rights. That is, once Doming begins operating the
store. Dominador has no further obligation with respect to this rights. It should be noted that training (similar)
services and equipment are distinct and can be sold separately. Dominador’s satisfies those performance
obligations (services and equipment) when it transfer the service and equipment to Doming.
(a) – As of December 31, 2017, only signing of agreement and receipts of upfront payment and note were made.
The entries on December 31, 2017: Dominador’s signs the agreement and receives upfront payment and note.
Cash .............................................................. 190,000.00
Notes receivable ........................................... 285,000.00
Unearned Interest income (or discount on NR) .................................. 57,408.50
Unearned franchise revenue ............................................................... 190,000.00
Unearned service revenue – training , etc… ........................................ 94,951.50
Unearned sales revenue – machinery and equipment, etc ................. 133,000.00
Problem 4
Pasta Inn charges an initial fee of P1,600,000 for a franchise, with P320,000 paid when the agreement is signed and the
balance in four annual payments. The present value of annual payments, discounted at 10% is P1,014,000. The franchisee
has the right to purchase P60,000 of kitchen equipment and supplies for P50,000. An additional part of the initial fee is for
advertising to be provided by Pasta Inn during the next five years. The value of the advertising is P1,000 a month.
Collectively of the payments is reasonably assured and Pasta Inn has performed all the initial services required by the
contract.
1.
How much revenue from franchise fee be recognized when the agreement is signed?
a. Zero
c. P1,590,000
b. P1,264,000
d. P1,600,000
Solution:
1.
(b)
Total franchise fee ................................................................................................ P1,600,000
Less: Unearned Interest Income
Amount Due .................................................. P1,280,000
Less: Present value of payments……………………1,014,000
(266,000)
Bargain Purchase Option (60,000 – 50,000)............................................................ (10,000)
Advertising (1,000 x 60 months)............................................................................... (60,000)
Revenue from franchise fee .................................................................................... P1,264,000
Incidentally, the entry would be as follows:
Cash.............................................................. 320,000
Notes receivable .......................................... 1,280,000
Unearned Interest Income/Discount on notes receivable ................................... 266,000
Revenue from franchise fees ................................................................................ 1,264,000
Unearned franchise fees....................................................................................... 70,000
Problem 5
On January 1, 2015, Lesley Benjamin signed an agreement (covering 5years) to operate as a franchisee of Campbell Inc. for
an initial franchise fee of P50,000. The amount of P10,000 was paid when the agreement was signed, and the balance is
payable in five annual payments of P8,000 each, beginning January 1, 2016. The agreement provides that the down
payment is non-refundable and that no future services are required of the franchisor once the franchise commences
operations on april 1, 2015. Lesley Benjamin’s credit rating indicates that she can borrow money at 11% for a loan of this
type.
1.
2.
3.
The amount of franchise revenue on January 1, 2015 is:
a. Zero
c. P39,567
b. P10,433
d. P50,000
The amount of franchise revenue on April 1, 2015 is:
a. Zero
c. P39,567
b. P10,433
d. P50,000
For campbell’s 2015 related revenue for this franchise arrangement, assuming that in addition to the franchise
rights, Campbell also provides 1 year of operational consulting and training services, beginning on the signing
date. These services have a value of P3,600. The amount of franchise and service revenue on January 1, 2015
amounted to :
a. Zero
c. P39,567
b. P10,433
d. P50,000
Solution:
1.
(c)
January
1.
2015
Cash ......................................................................... 10,000
Notes receivable ...................................................... 40,000
Unearned interest income/discount on NR ........................................ 10,433
Unearned franchise revenue (10,000 + 29,567) ................................... 39,567
Down payment made on 4/1/15 ......................................... P10,000.00
Present value of an ordinary annuity (8,000 x 3.69590) ......... 29,567.20
Total revenue recorded by Campbell and total acquisition
Cost recorded by Lesley Benjamin .......................................... P39,567.20
2.
3.
(c)
April 1, 2015
Unearned franchise revenue ........................................ 39,567
Franchise revenue ................................................................... 39,567
(a)
January
1,
2015:
Cash ............................................................................... 10,000
Notes receivable .............................................................40,000
Unearned interest income/discount on NR ................................................... 10,433
Unearned service revenue (training) .............................................................. 3,600
Unearned franchise revenue (10,000 + 29,567 – 3,600) ................................. 35,967