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Consignment Sales

The document outlines the principles of consignment sales, detailing the roles of the consignor and consignee, revenue recognition, and cost considerations. It includes illustrative examples of profit calculations and net remittances for consignors, as well as true or false questions to test understanding. Additionally, it provides problem-solving scenarios to apply the concepts discussed.

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0% found this document useful (0 votes)
4 views27 pages

Consignment Sales

The document outlines the principles of consignment sales, detailing the roles of the consignor and consignee, revenue recognition, and cost considerations. It includes illustrative examples of profit calculations and net remittances for consignors, as well as true or false questions to test understanding. Additionally, it provides problem-solving scenarios to apply the concepts discussed.

Uploaded by

Heart Repollo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CONSIGNMENT

SALES
Consignment Arrangements
• Under a consignment arrangement, an entity (called the ‘consignor’)
delivers goods to another party (called the ‘consignee’) who
undertakes to sell the goods to end customers on behalf of the
consignor.
• The consignor recognizes revenue only when the consignee sells the
consigned goods to end customers.
• Consigned goods are included in the consignor’s inventory until they
are sold to the end customer.
• Freight and other incidental costs of transferring consigned goods to
the consignee (e.g., transportation and insurance) form part of the
cost of the consigned goods.
Revenue Recognition
• When the consigned goods are sold to end customers, The consignor
recognizes revenue at the gross amount of consideration, i.e., the sale
price agreed with the consignee.

• The consignee recognizes revenue at the commission or fee to which


it is entitled.
Illustration: Revenue Recognition from Consignment
Sales
ABC Co. consigns goods costing P220,000 and with a total sales price of P390,000 to XYZ,
Inc. XYZ will be entitled to a 20% commission based on its sales.
ABC Co. - Consignor XYZ, Inc. - Consignee
Memo Entry Memo Entry

XYZ, Inc. sells consigned goods costing P55,000 for P100,000. ABC Co. is not notified of
the sale. ABC Co. - Consignor XYZ, Inc. - Consignee
No Entry Cash 100,000
Commission income 20,000
Payable to ABC Co. 80,000

XYZ, Inc. makes the weekly remittance of sale proceeds, net of commission, to ABC Co.
ABC Co. - Consignor XYZ, Inc. - Consignee
Cash 80,000 Payable to ABC Co. 80,000
Commission Expense 20,000 Cash 80,000
Revenue 100,000

Cost of Goods Sold 55,000


Inventory 55,000
Illustration: Problem Solving
Trumpet Co. consigned eight heavy machineries to Cold Breeze Co. Each
machine costs ₱1,000,000 and has a suggested retail price of ₱2,100,000.
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
unsold machines and remitted the collections on sales during the period,
after deducting the following:
• Commission (based on sales net of commission) 20%
• Finder’s fee (based on commission) 5%
• Delivery, installation and testing (on each unit sold) ₱50,000
Materials generated from the testing were sold for ₱5,000 and included in
the remittance to Trumpet Co.
Illustration: Problem Solving
Requirements:
A. How much profit is earned by the consignor from the sale?
B. How much was the net remittance to the consignor?
C. How much is the cost of the unsold machines?
SOLUTION:
Unit Cost 1,000,000
Freight Cost/unit 25,000
Total Unit Cost 1,025,000
Multiply by: No. of Machines sold 5
Cost of Goods Sold 5,125,000
SOLUTION:
Total Sales (2,100,000 x(8-3)) 10,500,000
Cost of Goods Sold (5,125,000)
Gross Profit 5,375,000
Commission (1,750,000)
Finder’s Fee (1,750,000 *5%) (87,500)
D,I,Testing Cost (50,000*5)-5,000) (245,000)
Profit 3,292,500
SOLUTION:
Bonus after Bonus method
B=P – (P /(1+Br)

Commission = Gross Sales – (Gross Sales/ (1+Commission Rate)


Commission = 10,500,000 –(10,500,000/ 1+ 20%)
Commission = 10,500,000 -8,750,000
Commission = 1,750,000
Illustration: Problem Solving
Requirements:
A. How much profit is earned by the consignor from the sale? 3,292,500
B. How much was the net remittance to the consignor?
C. How much is the cost of the unsold machines?
SOLUTION:
Total Sales (2,100,000 x(8-3)) 10,500,000
Commission (1,750,000)
Finder’s Fee (1,750,000 *5%) (87,500)
D,I,Testing Cost (50,000*5)-5,000) (245,000)
Net Remittance 8,417,500
Illustration: Problem Solving
Requirements:
A. How much profit is earned by the consignor from the sale? 3,292,500
B. How much was the net remittance to the consignor? 8,417,500
C. How much is the cost of the unsold machines?
Illustration: Problem Solving
Requirements:
A. How much profit is earned by the consignor from the sale? 3,292,500
B. How much was the net remittance to the consignor? 8,417,500
C. How much is the cost of the unsold machines? 3,075,000
TRUE OR
FALSE
Under a consignment
arrangement, the
consignor recognizes
revenue equal to the gross
amount of the
consideration in the
contract.
Under a consignment
arrangement, the
consignor recognizes
revenue equal to the gross
amount of the
consideration in the
contract.
Consigned goods are
included in the
consignee's inventory.
Consigned goods are
included in the
consignee's inventory.
Costs of transporting consigned goods to the consignee's place
of business forms part of the cost of the consignee's inventory.
Costs of transporting consigned goods to the consignee's place
of business forms part of the cost of the consignee's inventory.
An entity that merely
arranges the sale of
goods between a
supplier and a customer
is most likely acting as
an agent.
An entity that merely
arranges the sale of
goods between a
supplier and a customer
is most likely acting as
an agent.
PROBLEM
SOLVING
Yahama Co. consigns bass guitars costing
P500,000 to a consignee. Yahama incurs
P20,000 freight in transporting the goods to the
consignee's place and P5,000 repair costs for
minor damages during shipment. To induce the
consignee in signing the consignment contract,
Yahama pays the consignee an advanced
commission of P100,000 to be deducted from
the consignee's actual commission on future
sales. How much is the cost of the consigned
goods in Yahama's and the consignee's books?
Yahama Co. consigns bass guitars costing
P500,000 to a consignee. Yahama incurs
P20,000 freight in transporting the goods to
the consignee's place and P5,000 repair costs
for minor damages during shipment. To induce
the consignee in signing the consignment
contract, Yahama pays the consignee an
advanced commission of P100,000 to be
deducted from the consignee's actual
commission on future sales. How much is the
cost of the consigned goods in Yahama's and
the consignee's books? ANSWER: 520,000
Falling Leaves Co. consigned 50 units of a
certain product to a consignee on August
1, 20x1. The products originally cost
P10,000 a piece and are marked to sell for
P25,000 each. Falling Leaves Co. incurred
P25,000 in shipping the products to the
consignee. At month-end, the consignee
remitted P960,000, net of the agreed
commission of 20%. Falling Leaves Co.
would report profit and COGS at what
amount?
Falling Leaves Co. consigned 50 units of a
certain product to a consignee on August 1,
20x1. The products originally cost P10,000
a piece and are marked to sell for P25,000
each. Falling Leaves Co. incurred P25,000 in
shipping the products to the consignee. At
month-end, the consignee remitted
P960,000, net of the agreed commission of
20%. Falling Leaves Co. would report profit
and COGS at what amount? ANSWER:
p=456,000,c=504,000

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