CONSIGNMENT SALES | MILLAN

Problem 1: TRUE or FALSE

1. Under a consignment arrangement, the consignor recognizes net revenue equal to the gross
sales price less the consignee’s commission. TRUE
2. A consignor recognizes revenue when the consigned goods are transferred to the consignee.
FALSE.
3. If another party is primarily responsible for fulfilling a contract with a customer, this may
indicate that the entity is an agent. TRUE.
4. Pinewood Co agrees to create an artifact for Sagada Co. Pinewood is primarily liable for the
artifact’s performance with the customer’s specifications. Pinewood does not have the required
expertise so it subcontracts Saleng Co to do the manufacturing. If the entire manufacturing
process is outsourced from Saleng Co., Pinewood would be acting as an agent of Saleng. FALSE.
5. Fight Club Co. enters into a contract with Tough Co., a promoter of mixed material Arts (MMA)
fights. Under the contract, Fight Club Co. purchases MMA event tickets from Tough at a
negotiated price and resells them to end customers at a marked up price. Fight Club bears the
loss for unsold tickets. The arrangement between Fight and Tough implies a principal-agent
relationship whereby Fight is an agent of Tough. FALSE.

Problem 2: MULTIPLE CHOICE

1. Which of the following indicates that an entity is acting as an agent rather than principal?
D. The entity does not have inventory risk
2. When should a consignor recognize revenue from a consignment sale?
B. When the consignee sells the goods to the end customers
3. How should each of the following recognize revenue from the sale of consigned goods to end
customers? A. Consignor: Gross Amount of the sales price ; Consignee: Commission or fee
4. Consignor Co paid the in- transit insurance premium for consignment goods shipped to
Consignee Co. In addition, Consignor advanced part of the commission that will be due when
Consignee sells the goods. Should consignor include the in-transit insurance premium and the
advanced commissions in inventory cost?
C, Insurance Premium: YES ; Advanced Commission: NO
5. Entity A consigns goods to entity B. Normally, end customers buy over-the-counter from Entity
B. However, in some cases, Entity B ships the goods to the customer. Entity B deducts the
shipping cost from the amount remitted to Entity A. How should entity A account for the
shipping costs? D. Freight out

Problem 3: EXERCISE

Publisher Co. delivers 1,000 books to Bookstore Co. under a consignment arrangement. The cost per
book is P300. Publisher Co pays freight of P22 per book. Bookstore Co is entitled to a 20%
commission based on the Publisher’s suggested retail price.

a. Compute for the amounts to be presented in the Publisher’s statement of Profit or Loss?
P20, 300
 CONSIGNMENT SALES | MILLAN

b. How much is the ending inventory to be presented in Publisher’s statement of financial

position? P96, 600
c. How much income is recognize by the bookstore? P110, 250

Problem 4: MULTIPLE CHOICE- Computational

1. 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 cost 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. A. Yahama: P520,000 ; Consignee P0
How much is the cost of the consigned goods in Yahama’s and the consigned goods?
2. Falling leaves Co consigned 50 units of a certain product to a consignee on august 1, 20x1. The
products originally cost P10, 000 apiece 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 which of the following?
B. Revenue: P1, 200, 000 ; Profit: P456,000

3. The following items were included in Opal Co’s inventory account at December 31, 20x1.
>Merchandise out on consignment at sales price
Including 40% mark up on selling price 40,000
>Goods purchased, in transit, shipped FOB shipping point 36,000
>Goods held on consignment by Opal 27,000

By what amount should Opal’s Inventory account at December 31, 20x1 be reduced?
D. P43,000

ABC Co consigned twelve refrigerators to XYZ Inc, the refrigerators originally cost P6, 000 each.
ABC paid freight of P720 on the transfer. The consignee subsequently reported sale of five units,
each sold for P7, 700 and deducted the following from the selling price.

>Commission (based on sales net of commission) 40,000

>Marketing Expense (based on commission) 36,000

>Delivery and installation (on each unit sold) 27,000

4. How much was ABC’s profit on the five refrigerators sold? C. P4, 200

5. How much was the consignee’s met remittance for the sale? A. P34, 500

Problem 5: CLASSROOM ACTIVITY

Allegretto Co agrees to purchase tickets from major airlines at reduced prices and resells them at a
higher price. Allegretto must pay for the tickets regardless of whether it will be able to resell them.
 CONSIGNMENT SALES | MILLAN

Allegretto determines the prices at which the tickets are resold to the customers. Allegretto also assists
the customers in resolving complaints regarding the service provided by the airlines. However each
airline is responsible for fulfilling obligations associated with the ticket, including remedies to a
customer for dissatisfaction with the service.

Requirement: Determine whether Allegretto is acting as a principal or as an agent using the guidance in
PFRS 15 and describe how Allegretto will recognize revenue from the contract.

Problem 6: CLASSROOM DISCUSSION

1. Pizzicato Co. sells vouchers that entitle customers to significant discounts on future meals at
specified restaurants. Pizzicato does not purchase the vouchers in advance but rather purchases
them only upon customer request. Pizzicato and the restaurants jointly determine the prices at
which the vouchers will be sold to customers. Pizzicato is entitled to a 30% of the voucher price
when it sells the voucher. Customers pay as they purchase the vouchers and payments are non-
refundable. Pizzicato also assists the customers in resolving complaints about the meals and
Pizzicato has a buyer satisfaction program. However the restaurant is responsible for fulfilling
obligations associated with the voucher, including remedies to a customer for dissatisfaction
with the service.

Requirement: Determine whether Pizzicato is acting as a principal or as an agent using the guidance in
PFRS 15 and describe how Pizzicato will recognize revenue from the contract.

2. Staccato Co enters into a contract with a customer for equipment with unique specifications.
Staccato and the customer develop the specifications for the equipment. Staccato then
communicates the specifications to a supplier which Staccato subcontracts to manufacture the
equipment. The supplier deliver the equipment directly to the customer. Upon delivery,
Staccato pays the supplier the agreed subcontract price. Staccato and the customer negotiate
the selling price, of which the customer was given 30-day credit term. Staccato’s profit is based
on the difference between the selling price negotiated with the customer and the subcontract
price charged by the supplier. The contract between Staccato and the customer requires the
customer to seek remedies for defects in the equipment from the supplier under the supplier’s
warranty. However, Staccato is responsible for any corrections to the equipment resulting from
errors in specifications.

Requirement: Determine whether Staccato is acting as a principal or as an agent using the guidance in
PFRS 15 and describe how Staccato will recognize revenue from the contract.
 CONSIGNMENT | DAYAG

1. On November 30, Norfhup Company consigned 90 freezers to Watson Company for sale at
P1,600 each and paid P1,200 in transportation costs. A report of sales was received on
December 30 from Watson reporting the sale of 20 freezers, ….
2. On August 1, 2016, JBD, Inc. consigned to Mags Store 10 ladies handbags costing P3,000 each,
paying freight charge of P3,000. At the end of the month, Mags Store reported sales of 6
handbags at P6,000 each and expenses incurred of 2,500, and remitted the net proceeds due to
JBD after deducting a 20% commission.
3. Using the same information in No.2, what is the total cost of inventory of unsold handbags
4. On June 1, Bruce Company shipped 25 television sets to Lee, Inc. on consignment. The sets are
to be sold at an advertise price of P20,000. The cost of each set to the consignor was P10,000.
The cost of shipment paid by the consignor was P7,500.
5. Compute the profit for the consignor for the units sold.
6. 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.
7. Using the same information in No. 6, the profit on consignment for 2013 is:
8. Using the same information in No. 6, the total amount remitted to consignor for the year 2013
is:
9. Abenson Appliance Center consigned to XYZ Marketing the following merchandise:
10. Using the same information in No. 9, the cost of inventory on consignment is:
11. General Company consigned fie 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.
12. Using the same information in No. 11, the consignment net income (loss) is:
13. Using the same information in No. 11, the amount of inventory on consignment of General
Company is:
14. 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 cost James Bond Company
P100,000 and freight charges of P1,200 had been paid to ship the goods to James Last Company.
15. Using the same information in No. 14, the net income (loss) on consignment is:
16. The cost of unsold units in the hands (merchandise on consignment) of James Last is:
17. On September 5, 2016, the Heth Computers consigned 30 apple computer units, costing
P80,000 each, to Abet, Inc. The units were to be sold on either cash or credit bassis at a
commission of 15% net sales.
18. Using the same information in No. 17, the consignment profit (loss) is:
19. The cost of inventory on consignment is:
20. Mongol Pencil Company consigns pencils to retailers, debiting Accounts Receivable for the retail
sales price of the pencils consigned and crediting Sales. All costs relating to the consigned
pencils are debited to expenses of the current accounting period.
21. Condoro Mfg. Company consigned twenty (20) airconditioners to Coolrite, Inc. The cost of each
airconditioner is P10,000 and the freight on the shipment was paid by Condoro Mfg. Company in
the amount of P4,000.
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22. In September 2016, Conanan Bookstore consigned 3,200 books, costing P60 and retailing for
P100 each to ReSA Store, debiting Accounts Receivable and crediting Sales for the retail sales
price. Freight cost of P3,200 was debited to Freight Expense by the consignor.
23. Rosales Corporation delivered 150 bath water heaters on consignment basis to Bautista
Company. These water heaters cost P900 each, and they are advertised to sell at P1,500 each
24. Using the same information in No. 23, how much was remitted to the consignor by Bautista
Company at the end of the first month?
25. Using the same information in No. 23, how much was the consignment net (loss) of Rosales
Corporation during the first month?