ADVAC - Prelim

PROBLEM 1
GMB Publishing ships 8-volume sets of encyclopedia to book dealers on consignment.
The sets are to be sold at an advertised price of P99. The cost per set is P50. Consignees
are allowed a commission of 30% of the sales price, and are to be reimbursed for freight
relating to the consigned goods.

On December 3, 20x7, 100 sets were sent to MTG Bookstore on consignment. The
consignor paid packaging charges of P170 for the shipment. The shipping cost paid by
the consignor was P400, and the consignee paid P60 for the freight on the sets received.
60 sets were sold in December for cash. Remittance of the amount owed to the
consignor was made on December 31, 20x7.

How much is the consignor’s net profit on the consignment?

a. P560
b. P780
c. P650
d. P870

Solution:
Sales (60 x P99) P5,940
Less applicable cost and expenses:
Cost of sales: (50 x 60) P3,000
Packing: (170 x 60/100) 102
Shipping: (400 x 60/100) 240
Freight: (60 x 60/100) 36
Commission:
Commissi on: (5,940 x 30%) _1,782_ 5,160
Consignment profit P 780

PROBLEM 2
On July 1,2015, the Eastern Appliance ships 5 of its appliances to the XYZ Store on
consignment. Each unit is to be sold at 25,000 payable 5,000 in the month of purchase
and 1,000 per month thereafter. The consignee is to be entitled to 20% of all amounts
collected on consignment sales. XYZ Store sells three appliances in July 1 and one on
August. 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 15,500 per unit. The consignor paid shipping
costs to the consignee totaling 5,000.
 Compute for the cost of inventory on August 31, 2015.
Soution:
Cost of consigned goods. 15,500
Shipping cost. 1,000
Commission. 0
Total. 16,500

PROBLEM 3
On December 1 20x8, Anna Manufacturing Company supplies 1000 product to local
distributors on consignment. Each product cost P100.Expenses incurred for Shipping
includes freight 1,500 and Carriage 1,000. Commission is at 10% of sales proceeds. On
December 15, 20x8 500 product were sold.

How much is the consignors net Profit in the Consignment?

a. 10,000

b. 2,500

c. 12,500

d. 1,000

Solution:

Sales (1000x100) 100,000

Less: Freight exp (1,500)

Carriage exp (1,000)

Commision (100,000x10%) (10,000)

87,500

Sales (100,000)

Consignment Profit 12,500

PROBLEM 4
On January 1, 201 entities A and B (the venturers) form a joint venture (entity X). Upon
incorporation of entity X, entities A and B each take up 50 percent of the share capital of
entity. In return for their interests in entity X, entities A and B each contribute P100,000
to entity X. Entity A contributes machine with fair value of P100,000 and a carrying
amount of P80,000. Entity B’s contribution is P100,000 cash.

The Machine contributed by the entity A has an estimated useful life of 10 years with no
residual value.

Entity X’s profit for the year ended December 314, 2016 is P30,000 (after deducting
depreciation expense of P10,000 on the machine contributed by the entity A). Entity A
accounts for his investment using the equity method.
What is the cost of investment of entity A on December 31, 2016?
a. P90,000
b. P121,000
c. P105,000
d. P106,000

Solution:

Carrying amount P80,000

Realized gain (P100,000-P80,000)50% 10,000 P90,000
Profit share (50%xP30,000) 15,000
Realized gain on machine (P10,000/10yrs) 1,000

P106,000
Investment account bal., Dec. 31, 2016

PROBLEM 5
On January 1, 2016 entities M and N each acquired 30 percent of the ordinary shares
that carry voting rights at a general meeting of shareholders of entity Z for P300,000.
Contingent consideration probable to be paid by the entity M is measures reliably at
P50,000. Entities M and N immediately agreed to share control over entity Z.

For the year ended December 31, 2016 entity Z recognized a profit of P400,000. On
December 31, 2016, entity Z declared and paid a dividend of P150,000 for the year
2016. At December 31, 2016 the fair value of each venturers’ investment in entity Z is
P425,000. However, there is no published price quotation for entity Z.
 On December 31, 2016 entity M sells goods for P60,000 to entity Z. At December 31,
2016 these goods were in the inventories of Equity Z (i.e. they had not been sold by
entity Z). Entity M sells goods at a 50% markup on cost. Entities M and N account for its
investment in entity Z using the equity method.

At December 31, 2016 entity M would report i ts investment in entity Z at:

a. P419,000
b. P375,000
c. P363,000
d. P300,000

Solution:

Cost of Investment, January 1, 2016 P 350,000

(P300,000 + P50,000)
Profit Share (30% x P400,000) 120,000
Unrealized Profit (50/150 x 60,000) 30% (6,000)
Dividend Income (30% x P150,000) (45,000)

Investment in entity Z, December 31, 2016 P 419,000

PROBLEM 6
On August 5, 20x8, Famous Furniture shipped 20 dining sets on consignment to
furniture outlet, Inc. The cost of each dining set was P350 each. The cost of shipping the
dining sets amounted to 1,800 and was paid for by Famous Furniture. On Dec 30, 20x8,
the consignee reported the sales of 15 dining sets at P850each. The consignee remitted
payment for the amount due after deducting a commission, advertising expense of p300
and installation and set up costs of P390.
The total profit on units sold for the consignor is?
a. 11,295
b. 4,695
c. 6,045
d. 9,945

Solution:

11,295 – (15 x 350) = 6,045

PROBLEM 7
On July 15, 2017, Din Company received a shipment of merchandise with a selling price of P150,

000 from Bin Co. The consigned goods cost Bin Co. P100, 000 and freight charger of 1, 200 had

been paid to ship the goods to Din Co.

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 only cash advanced to the consignor are deductible from the remittance by the consignee.

Din Co. advanced P60, 000 to Bin Co. upon receipt of the shipment. Expenses of P8, 000 was

paid by Din Co. By August 2017 70% of the shipment had been sold and 80% of it has been

collected, all within the discount period. Remittances of the amount due was made on August

30, 2017.

1) The cash remitted by Din Co is:

a) 2,789 c) 1,720

b) 2,078 d) 1,570

2) The net income/ loss on consignment is:

a) 8,730 c) 9,687

b) 9,000 d) 8,760

3) The cost of unsold units in the hands of Din Company:

a) 30,840 c) 30,459

b) 31,861 d) 30,360

SOLUTION:

1) C
PROBLEM 16