Constyumect Sales 255 Consignment Sales Arrangements Entities frequently deliver inventory on a consignment basis to other parties distributor, dealer). By shipping on a consignment basis, consignors aré to better market products by moving them closer to the end user. . able However, they do so without selling the goods to the intermediary (consignee). The Boards provided the following indicators that an arrangement is a consignment arrangement: Under PFRS 15 the following indicators to determine that an arrangement is a consignment arrangement include, but are not limited to, the following: {a) The product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires; (0) The entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and (9 The dealer does not have an unconditional obligation to pay for the product {although it might be required to pay a deposit). Entities entering into ‘a consignment arrangement must determine the nature of the performance obligation (i.e., whether the obligation is to transfer the inventory to the consignee or to transfer the inventory to the end customer). This determination is based on whether control of the inventory has passed to the consignee upon delivery. Typically, a consignor will not relinquish control of consignment inventory until the inventory is sold to the end-consumer or, in some cases, when a specified period expires. Consignees commonly do not have any obligation to pay for the inventory, other than to pay the consignor the agreed-upon portion of the sale price once the consignee sells the product to @ third party. As a result, revenue generally would not be recognized for consignment arrangements when the goods are delivered to the consignee because control has not yet transferred (i.e., the performance obligation to deliver goods to the customer has not yet been satisfied). The main feature of consignment sales: 1. The consigned goods remain the inventory of the consignor (principal). 2. The consignee (agent) sells the goods on account and risk of the consignor (principal). 3. All expenses incurred by the consignee on the consigned goods are reimbursed by the consignor. The consignee is expected to take reasonable care of the consigned goods The consignee is not liable to pay the consignor until the goods are sold to a third party (customer). eSConsignment Sates 256 The following expenses that are to be allocated to sold and unsold units Inventoriable costs): 1. Shipping costs, freight and handling cost paid by the consignor upon shipment. 2. Freight and cartage paid by the consignee upon receipt of the shipment. 3. Packing expenses related to consigned goods 4. Insurance of consigned goods The following are examples of expenses that are considered outright expenses chargeable directly to the sold units: 1. Delivery and installation Commission Advertising Insurance while in transit Reconditioning costs on delivered units Expenses relating to returned units. Pre. ee The following are the journal entries of in the books of the consignor and consignee in consignment transactions: Consignor Consignee ‘Transactions 1. Shipment of goods Inventory on consignment Memo Entry on consignment Merchandise Inventory | 2. Payment of expenses Inventory on consignment No Entry Cash by consignor Consignor Receivable Cash 3. Payment of reimbursable Inventory on consignment expenses by consignee Consignee Payable payment of cash due 4, Sale of Merchandise No entry Cash by consignee Consignor payable 5. Notification of sale Commission Expenses Consignor payable to consignor and Consignee Payable Cash Cash (remittance) Consignment Revenue Commission Income Consignor ReceivableConsigument Sales 257 EXERCISES problem 1: Vonne Inc. had the following consignment transactions during the month of December 2030: Inventory shipped on consignment to Cyrus Corp. 90,000 Freight paid by Vonne 4,500 Inventory received on consignment from Mike Inc. 60,000 Freight paid by Mike Inc. 2,500 No sales of consigned goods were made through December 31, 2030. Vonne’s December 31, statement of financial position should include consigned inventory at: a. P94,500 c. P60,000 b. P90,000 d. P62,500 Answer A Suggested Solution: Inventory shipped on consignment to Cyrus Corp. 90,000 Freight paid by Vonne 4,500 Total 94,500 Problem 2: Sol Corp consigned ten cellphones to Dante Inc. Each cellphone cost P30,000 and are to be sold at P50,000 each. Sol Corp paid P25,000 for the shipment to consignee, Dante. On November 13, 2030, Dante Corp. submitted an account sales stating that it had returned one unit and was remitting P219,000 after deducting the following charges: Commission, 20% of selling price ? Selling expenses 10,000 Delivery and installation of items sold 6,000 5,000 Cartage cost upon receipt of consigned goods Compute the following: Req. 1: The total number of units sold by Dante: a8 ©.7 b 6 asConsigument Sales 258 Req. 2: The cost of inventory a. P101,500 cc. P102,000 b. 100,800 d. P99,000 Req. 3: The total consignment net profit? a. P24,800 c. P23,000 b. P(25,500) d. P20,000 Answer 1) B 2) D 3) C ‘Suggested Solution: Req. 1 X - 20%X -10,000 - 6,000 - 5,000 = 219,000 240,000 = 80%x X = 240,000/80% 300,000 Unite sold = P300,000 total sales / P50,000 selling price = 6 units Req. 2 Unsold units (10 - 1 return - 6 = 3 x P30,000) 90,000 Cartage cost (P5,000 x 3/10) 1,500 Freight on shipment to Dante (25,000 x 3/10) 7,500 Cost of Inventory 99,000 Req. 3 Consignment Sales 300,000 Less: Cost of goods sold Cost of units sold (P30,000 x 6) 180,000 Freight (P25,000 x 7/10 units, including return units) 17,500 Gross Profit 102,500 Less Expenses: Selling expenses 10,000 Cartage cost (5,000 x 7/10 units, including return units) 3,500 Commission 60,000 Delivery and installation of items sold 6,000 Net Profit 23,000 Note: Freight onthe units returned is charged against the sales of the period. Problem 3: On April 30, 2030, Gustav Corp consigned 450 shoes to Angel Corp. for the sale at P80,000 each and paid P60,000 freight to transport the goods to Angel Corp. An account sales were received from Angel Corp on MayCoesiguneet Seles 159 Ee sale of 100 shoes, together with remittance of P1,360,000 a1 reporting re remittance was net of the agreed 15% commission, balance CS signment sales revenue in April, 2030? gers szine total cons c. P35,700,000 ri 736,000,000 d. P6,800,000 2: The total consignment sales revenue in May, 2030? c Req . 6,000,000 d. 6,787,667 f p6,800,000 787,61 Answer 1) A2) A Solution: ; ra en veventie will be recognized since no goods were sold in April Req. 2: 100 shoes x P80,000/shoes = P8,000,000 problem 4: Irene Corp consigned ten bags to Aileen Inc. These bags had a cost of P10,800 each. Freight on the shipments amounting to P7,200 was paid by Irene Corp. Aileen submitted an account sales stating that it has sold six bags and remitted cash amounting P81,900 to Irene Corp. after deducting the following: Commission, 15% of selling price ? Selling expenses 5,400 Delivery and installation of items sold 3,600 Cartage cost upon receipt of consigned goods 900 Compute the Following: Req. 1: The total consignment sales: a. P91,800 c. P108,000 ». P69,120 d, P64,800 Req. 2: The commission earned on the sale of the six bags by Aileen Inc. @ P16,200 c. P15,000 6. P9,720 d. P10,800 Req. 3: The consignor net profit: & P17,100 c. P36,000 >. P3140 d. P19,800Req. 4: The cost of inventory on consieamen a hands of Aileen Inc, ams Cc. , a. P43/200 d. P66,600 b. P46,440 Answer 1) C 2)A3)B4)B Suggested Solution: Req. 1 Let x = Sales X - 15%X - 5,400 = 3,600 - 900 = 81,900 91,800 = 85% X X= 91,800 / 85% X = 108,000 Req. 2: Commission = 15% x 108,000 = 16,200 Req. 3: Consignment Sales Less: Cost of goods sold Cost of units sold (P10,800 x 6) Freight (P7,200 x 6/10 units) Gross Profit Less Expenses: Selling expenses Commission Delivery and installation of items sold Cartage cost (900 x 6/10 units) Net Profit Req. 4 . Cartage cost (900 x 4/10) Unsold units (10,800 x 4) Freight on shipment to Aileen (7,200 x 4/10) Cost of Inventory Guctganest Ses 269 108,000 64,800 4,320 38,880 5,400 16,200 3,600 540 13,140 = 360 43,200 2,880 46,440 Problem 5: Edison Inc. consigned ten dozen of bikes with cost of P15,000 per bike to Paul Cycling Works. Edison Inc. incurred freight costs of dozen. A month later, Paul Cycling Works reported seven dozen at P3I bike and expenses of P45,000. Paul Cycling Works remitted the pr‘ Edison Inc. net of the agreed 15% commission on sales. P450 per 0,000 per oceeds 10 —Pret Sela Ye How much is the total cash remitted to Edison Inc? red: 0,000 ©. P2,097,000 a eee 137,500 eee b . . How much is the total consignment net profit? Fe 33,850 c, P884,250 a 9,142,000 mee p. PA ‘Answer 1C2)A suggestet Solution: Red} 19 = 84 bikes x P30,000) a sales aes paid by Paul Cycling Works 45.000 Less: Commission (15% x 2,520,000) __sr800 Remittance “aos om nen? (7x 12 = 84 bikes x P30,000) rena Less: Cost of Goods Sold Cost of units (P15,000 x 84) 1,260,000 Freight (P450 x 7 dozen) _ 380. Gross Profit : mes Less: Expenses paid by Paul Cycling Works oa Commission (15% x 2,520,000) 8000 Profit a Problem 6: Anton Corp consigned 25 shirts to Paul Inc. The cost of the shirt is P310 each. Anton paid the freight cost amounting to P500. The shirt is to be sold at P500 each payable P100 in the month of purchase and P20:per month thereafter. Paul’s commission on consigned goods is 20%. Paul Inc. was able to sell 15 shirts in July and 5 shirts in August. The regular monthly collections by Paul and the appropriate cash remittances have been made to Anton at the end of each month. The parties agreed that Paul is allowed only to deduct a commission based on the amount collected from: consignment. Req. 1: The cost of inventory on consignment in the hands of Paul Inc. & P1,650 c. P2,450 b. P1,750 d. P1,550 Req, 2: Anton’s net profit: & P1400 c, P2,000 b P2,940 d, P1,500Consigument Sates 262 Req. 3: Total remittance by Paul: a. P460 c. P2,000 b. P1,840 d. P1,650 Answer 1) A 2) A 3) B Suggested Solution: Req. 1 Units on hand (5 x P310) 1,550 Freight cost (5/25 units x P500) 100 Cost of Inventory on hand ~_1,650_ Req. 2 Sales (P500 x 20) 10,000 Less: Cost of Goods Sold Units sold (20 x P310) 6,200 Freight (20/25 x P500) ‘400 Gross Profit 3,400 Less: Operating Expenses Commissions earned noms x P10,000) 2,000 Net Profit 1,400 Req. 3 Soe Collection month of July: (15 x P100) 1,500 Add: Collection after the month of July sales (15 x P20) “300 Collection month of August sales (5 x P100) 500 Total collection 2,300 Less: Commission based on collection (20% x 2,300) 460 Remittance 1,840 -roblem 7: Lego Corp. consigns toys debiting Accounts Receivable for the retail ales price of toys consigned and crediting Sales. All costs relating to the onsigned toys are debited to expenses. The net remittances of the consigned e credited to Accounts Receivable. August, 1,200 toys costing P60 each and selling price of P100 each were signed to SM Store. Freight costs of P800 was debited to freight expenses by consignor. On August 31, SM Store remitted P42,606 to Lego Corp. in full lement of the balance due. Accounts Receivable was credited for this unt. SM Store deducted its commission of P10 per toy sold and P54 for sportation expenses. The total toys sold by SM Store is: 480 c. 426 74 d. 400Gutyeneet Sales 263 Answer B Suggested Solution: Let x = Sales in units 100x - 10x - 54 = 42,606 42,651 = 90x X= 42,651 +90 X= 474 Problem 8: German Corporation received 75 stereos on consignment from the Chris Corporation. The stereos cost P500 each to manufacture and P100 each to:'ship to German. German paid the freight, although the contract called for Chris to do so. German sold 25 stereos at P1,600 each and received 2 25% commission. Payment in full is made to the Chris Corporation. Req. 1: German pays Chris: a. P22,500 c. P30,000 b. 27,500 d. P40,000 Req. 2: Chris profit is: a. P10,000 c. P30,000 b. P15,000 d. 40,000 Answer 1) A 2) B Suggested Solution: Req. 1 Units sold (P1,600 x 25) 40,000 Less: Commission (25% x 40,000) 10,000 Freight paid by German (75 x 100) 7,500 Remittance 22,500 Req. 2 Sales (P1,600 x 25) 40,000 Less: Cost of Goods Sold Units sold (25 x P500) 12,500 Freight (25 x P100) __2,500_ 725,000 Gross Profit Less: Operating Expenses Commission Net Profit 10,900. 15,000. 15,000,Consignment Sales 264 Problem 9: The account sales submitted by Medy Inc. to Chris Corp on its consignment transactions during the month of April, 2030 is presented below: Sales 35 units at P6,000 210,000 Less: Advances to consignor 20,000 Selling expenses 2,000 Commission 8,400 _ 30,400 Net proceeds remitted 179,600. The consignment consisted of 50 units which cost P4,000 each, and on which freight cost of P1,200 was paid by Medy Inc. Req. 1: The cost of inventory in the hands of Chris: a. P61,800 c. P60,360 b. P61,200 d. P60,000 Req, 2: The net profit from the sale of consigned goods: a. P58,760 c. P58,400 b. P69,160 d. P59,600 Answer 1) C 2) A Suggested Solution: Req. 1 Units on hand (15 x P4,000) 60,000 Freight cost (15/50 units x P1,200) 360 Cost of Inventory on hand 60,360 210,000 Req. 2 Sales (P6,000 x 35) Less: Cost of Goods Sold Units sold (35 x P4,000) 140,000 Freight (35/50 x P1,200) 840 Gross Profit 69,160 Less: Operating Expenses Selling expenses 2,000 8,400 Commission Net Profit Problem 10: C-10 Corp. consigned 20 Gucci bags to Monette Shop and paid P4,000 freight cost. Monette Shop has a commission of 10% based on sales.Consignment Sales 265 Monette Shop submitted an account sales on its transactions for the month of August with the following data: Sales (12 units, with markup of 12.5%) 144,000 Less: Advances to consignor 20,000 Selling expenses 1,600 Installation and delivery cost 2,400 Commission 14,400__38,400 Net Remittance 105,600 Req. 1: The cost of inventory in the hands of Monette Shop: a. P96,000 c. P84,000 b. P88,000 d. P85,600 Req. 2: The het profit (loss) of C-10 Corp. on consignment sales: a. P(2,800) c. P(2,500) b. P(4,400) d. P4,400 Answer 1) D 2) A Suggested Solution: Req. 1 & 2 Expenses Inventory Costs: Units Sold (144,000 x 87.5% = 126,000 126,000 Unsold (126,000/12 units x 8 units) 84,000 Freight from consignor to consignee Units Sold (12/20 x P4,000) 2,400 Unsold (8/20 x P4,000) 1,600 Selling expenses 1,600 Installation and delivery cost 2,400 Commission 14,400 Total 146,800 _ 85,600 Less: Sales Net Profit Problem 11: Darwin Corp consigned 60 units of motors to Inigo Corp. on May 1, 2030. Each motor cost P6,000 and Darwin*paid P30,000 for the shipment to Inigo Corp. On May 20, 2030, 36 units were sold and the consignee submitted an account sales, and remitted the balance due to Darwin Corp. in the amount of P279,000 after deducting the following charges:Consignment Sales 266 Commission, 15% of selling price Selling expenses 18,000 Delivery and installation of items sold 9,000 Req. 1: The total consignment sales: a. P360,000 c. P216,000 b. P40,800 d. P328,235 Req. 2: How much is the cost of inventory on consignment in the hands of Inigo Corp? a. P174,000 c. P216,000 b. P144,000 d. P156,000 Req. 3: The net profit in the consignment sales? a. P45,000 c. P50,000 b. P33,000 d. P63,000 Answer 1)A2)D3)A Suggested Solution: Req. 1 Let x = Sales X - 15%X — 18,000 — 9,000 = 279,000 306,000 = 85% X X = 306,000 / 85% X = 360,000 Req. 2 Unsold units (P6,000 x 24) TO Freight on shipment to Inigo (P30,000 x 24/60) 20° Cost of Inventory 756,000, Req. 3 Consignment Sales 360,000 Less: Cost of goods sold Cost of units sold (P6,000 x 36) 216,00) Freight (P30,000 x 36/60 units) — 2000" Gross Profit eB 126, Less Expenses: Selling expenses 18,00 Commission (P360,000 x 15%) A ee Delivery and installation of items sold —z2000- ——— Net ProfitCossignment Sales 267 jem 12: Orocan Inc. consigned 12 cabinets, which costs P960 each, to SM ree Which was to sell it for a 15% commission based on selling price. aid freight cost amounting P240 and reimbursed SM Store P250 Prits delivery to customers. On August 30, 2030, SM Store reported that it had id 8 cabinets, 6 for cash at P1,800 and 2 for credit basis at P2,160 of which it ‘ollected 20% as down payment. Orocan Inc. Pi be oeithe cost of inventory in the hands of SM Store: 794,080 c. P3,840 b. P4.003 d. P3,920 eq. 2: The net profit of Orocan Inc. on consignment sales: a. P4,762 c. P4845. b. P4,682 d. P4,006 eq, 3: The amount remitted by SM Store to Orocan Inc.: a. P11,664 c. P9,396 b, P9,229 d. 9,146 Answer 1) D 2) A 3)D Suggested Solution: Req. 18 2 Expenses _ Inventory Costs: Units Sold (8 x P960) 2 7,680 Unsold (4 x P960) 3,840 Freight from consignor to consignee Units Sold (8/12 x P240) 160 Unsold (4/12 x P240) 80 Freight out of consignee 250 Commission [(6 x 1,800) +(2 x 2,160)] x 15% 2,268 Total 10,358 ___ 9,920 ae Less Sales (6 x 1,800) +(2 x 2,160) 15,120 Net Profit 4,762 Ae Req. 3 Collections Cash sales: (6 x P1,800) 10,800 On account sales (2 x P2,160 = 4,320 x 20%) 864 Total 11,664 Less: Reimbursable freight of consignee 250 Commission 2,268 Remittance ; 9,146Coasigument Sates 6p Problem 13: Account Sales includes: a. Sales made c. Commission earned by consignee b. Payable by consignee to consignor _d. All of above. Problem 14: The risk of stock on consignment lies with c. Buyer a. Consignor b. Consignee d. Seller Problem 15: In the books of the consignor, the balance of the consigned goods inventory account would be shown: As an asset in the statement of financial position of the consignee. a. b. As liability in the statement of financial position of the consignee. c. As an asset in the statement of financial position of the consignor. d. As liability in the statement of financial position of the consignor. Problem 16: The person to whom goods are sent for sale on commission is known as: a. Merchant c. Retailer b. Wholesaler d. Consignee Problem 17: The sales revenue and cost of goods sold should be recognized by the consignor: a. When the consignor received the notification from consignee that the merchandise have been sold to a third party (customer). When the cash is received from the consignee b: c. When the goods are shipped to the consignee d. When the goods are shipped by the consignee to the third party (customer). Problem 18: The following items are found in the account sales, except: a. Expenses of the consignor c. Amount due to consignor b. Total sales d. Commission of consignee Problem 19: It is the statement sent by the consignee to the consignor regarding the sale of goods consigned. a. Billing c. Invoice b. Purchase order d. Account Sales Problem 20: On the transfer of consigned goods by the consignor to consignee, the journal entry in the books of the consignee will be a credit of: Inventory received from the consignor Inventory on consignment Memo Entry Consignee Payable BoopCoeslgnment Sales 269 Problem 21: Goods on consignment should be part of the inventory of: a. Consignee c. Consignor b. Both consignee and consignor _. Neither consignor nor consignee Problem 22: A shipment of inventory by the manufacturer or wholesaler to a dealer to be sold by him on a commission basis on the risk and account of the manufacturer or wholesaler is called: a. Arrangement b. Consignment c. Contract . 4. Agreement Problem 23: The journal entry to record the consignor expenses: a, Inventory on consignment Cash b. Inventory on consignment Consignee payable c. Inventory on consignment Consignee receivable d. Consignee Payable Consignor Receivable Problem 24: The person who sends the goods to the agent to be sold by him on commission is known as: a. Consignee c. Consignor b. Seller d. Buyer Problem 25: The consignee is the: a. Principal c. Buyer b. Agent d. Seller Problem 26: The Account Sale is submitted by: a. Consignor c. Debtor b. Consignee d. Principal Problem 27: In the books of the consignee, the sale of goods is credited to: a. Consignee Receivable c. Consignee Payable b. Consignor Receivable d. Consignor Payable Problem 28: A commission of payable to the consignee by consignor is for: : a. Loyalty payment cc. Making sales above a specific price b. Protection of agent for bad debts _d. Patronage ae Problem 29: A del credere commission is a commission payable to consignee by consignor for: a. Protecting himself from bad debts _c. Loyalty payment b. For making sales above sale priced. PatronageConsignment Sates 279 Problem 30: The commission of the consignee is based on: a. Cash sales c. Both Cash and Credit Sales b. Credit Sales d. Total collections Problem 31: The account sales shows: a. The net sales effected by consignee b. The net amount due from consignor to consignee by way of commission c. The net amount due from consignee to consignor d. None of the choice Problem 32: A proforma invoice is sent by: a. Consignee to consignor c. Consignor to consignee b. Debtor to consignee d. Debtor to consignor Problem 33: The use of the net method of recognizing revenue by an agent a: Is the correct method in a principal-agent relationship b. Could result in an overstatement of gent’s revenue c. Could result in an understatement of agent’s revenue d. Is appropriate as long as both revenue and costs are included. Problem 34: The role of the agent in a principal-agent relationship is to: a. Develop and maintain goodwill of the principal’s customers b. Market the principal goods and services to prospective customers c. Provide goods or services for a customer d. Arrange for the principal to provide goods or services to customers For Questions 13 - 32 13.{D | 18. | A | 23.| A | 28. | C { 33./A 14.{A | 19. |D | 24./-C | 29.| A/ 34.|D 15. {C | 20. | C | 25.| B | 30.|C 16. |D | 21. /C | 26. |B | 31./C 17./A | 22. [B | 27. | D | 32.) C