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Chapter 9
Consignment Sales
NAME: Date:
Professor: Section: Score:

QUIZ
1. X Ltd., a large manufacturer of cosmetics, sells merchandise to Y Ltd., a retailer, which in turn sells
the goods to the public at large through its chain of retail outlets. Y Ltd. purchases merchandise
from X Ltd. under a consignment contract. When should revenue from the sale of merchandise to Y
Ltd. Be recognized by X Ltd.?
a. When goods are delivered to Y Ltd.
b. When goods are sold by Y Ltd.
c. It will depend on the terms of delivery of the merchandise by X Ltd. to Y Ltd. (i.e., CIF [cost,
insurance, and freight] or FOB).
d. It will depend on the terms of payment between Y Ltd. and X Ltd. (i.e., cash or credit).

2. When should a consignor recognize revenue from a consignment sale?

a. When the consignor sells the goods to the consignee
b. When the consignee sells the goods to the end customer
c. At the point of time indicated in the contractual arrangement between the consignor and the
consignee
d. Any of these

3. How should each of the following recognize revenue from the sale of consigned goods to end
customers?
Consignor Consignee
a. Gross amount of sale price Commission or fee
b. Sale price net of commission Commission or fee
c. Net amount of sale price Mark up
d. Fee Commission

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 costs?
Insurance premium Advanced commission Insurance premium Advanced commission
a. Yes Yes c. Yes No
b. No No d. No Yes

5. Aircon, Inc. consigned ten one-horsepower air conditioning units to Argy Trading and paid ₱2,000
for the freight. The consignee is allowed a commission of 5% on sales. Argy Trading submitted the
following report at the end of the period:
Sales (6 units) 72,000
Less: Advances to Aircon, Inc. 10,000
Selling expenses 800
Installation and delivery 1,200
Commission 7,200 19,200
Net remittance 52,800
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The selling expenses and the installation and delivery costs are chargeable to Aircon. Aircon
consistently marks-up its inventories at a 12.50% gross profit rate based on sales price. This does not
reflect any freight. How much was Aircon’s profit or loss on the consignment?
a. 52,800 profit c. 2,200 profit
b. 7,800 loss d. 1,400 loss

Use the following information for the next three questions:

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.

6. How much profit is earned by the consignor from the sale?

a. 3,292,500 c. 1,025,000
b. 5,375,000 d. 3,412,500

7. How much was the net remittance to the consignor?

a. 9,182,500 c. 8,850,500
b. 8,417,500 d. 7,891,500

8. How much is the cost of the unsold machines?

a. 3,075,000 c. 1,025,000
b. 2,987,000 d. 1,000,000

9. On November 30, 20x1, Northup Co. consigned 90 freezers to Watson Co. for sale at ₱1,600 each
and paid ₱1,200 in transportation costs. A report of sales was received on December 30, 20x1 from
Watson reporting the sale of 20 freezers, together with a remittance that was net of the agreed 15%
commission. How much, and what month, should Northup recognize as sales revenue?
November December November December
a. 0 32,000 c. 144,000 0
b. 0 27,200 d. 142,800 0

10. On December 1, 20x1, Alt Department Store received 505 sweaters on consignment from Todd.
Todd’s cost for the sweaters was ₱80 each, and they were priced to sell at ₱100. Alt’s commission on
consigned goods is 10%. At December 31, 20x1, 5 sweaters remained. In its December 31, 20x1
balance sheet, what amount should Alt report as payable for consigned goods?
a. 49,000 b. 45,400 c. 45,000 d. 40,400
“Finally, brethren, whatever things are true, whatever things are noble, whatever things are just, whatever things are pure, whatever things are lovely,
whatever things are of good report, if there is any virtue and if there is anything praiseworthy – meditate on these things.” – (Philippians 4:6-8)
- END -
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ANSWERS:
1. B
2. B
3. A
4. C
5. C
Solution:
Gross profit from sale (excluding freight) (72K x 12.5%) 9,000
Freight (2K x 6/10) (1,200)
Commission (adjusted) (72K x 5%)… not 10% (3,600)
Selling expenses (800)
Installation and delivery (1,200)
Profit 2,200

6. A
Solution:
Total sales [2,100,000 x (8-3)] 10,500,000
Cost of goods sold (a) (5,125,000)
Gross profit 5,375,000
Commission (b) (1,750,000)
Finder's fee (5% x 1,750,000) (87,500)
Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
Profit 3,292,500

(a)
Cost of goods sold is computed as follows:
Unit cost 1,000,000
Freight per machine (200,000 ÷ 8) 25,000
Total unit cost 1,025,000
Multiply by: No. of machines sold 5
Cost of goods sold 5,125,000

(b)
The commission is computed as follows:
We will use the following formula for bonus after bonus:

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

7. B
Solution:
Total sales [2,100,000 x (8-3)] 10,500,000
Commission (1,750,000)
Finder's fee (87,500)
Delivery, installation and testing (50,000 x 5) - 5,000 scrap (245,000)
Net remittance 8,417,500
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8. A
Solution:
Unit cost before freight 1,000,000
Freight per machine (200,000 ÷ 8) 25,000
Total unit cost 1,025,000
Multiply by: No. of unsold machines 3
Ending inventory 3,075,000

9. A (20 x 1,600) = 32,000

10. C (505 – 5) x ₱100 x 90% = 45,000