BAFINAR – ADVANCED FINANCIAL ACCOUNTING PART I

CONSIGNMENT ACCOUUNTING

PART I. Straight Problem. Jingka Juice Supplier sends P60,000 (120 sachets of herbal foods) worth of goods on
consignment to Lipton Enterprises. Following are costs incurred

Shipping costs of P600 are paid by Jingka Juice

Reimbursable finishing costs of P2,400 are paid by Lipton
Lipton advances P3,360
On December 31, 20x4, one-half of the goods on consignment are sold for P48,000 cash
A 10% commission on sales is earned by Lipton according to the terms of the consignment

Required:

1. Journal entries on the books of consignor and consignee

2. Determine the amount of remittance by preparing the account sales

PART II. Multiple Choice Questions

On June 1, DD Company shipped twenty-five DVD to BB View Store on consignment. The DVD is to be sold at an
advertised price of P200 per item. The cost of each DVD to the consignor is P100. The consignor paid P75 to ship the
merchandise. Commission is to be 25% of sales price. During the month, two DVD were returned.

On June 30, BB View Store remitted the amount due to consignor after deducting commission of P400.

1. The amount remitted by BB View Store is

a. P1,100 b. P1,600 c. P1,200 d. P2,000
2. The consignment profit is
a. P370 b. P415 c. P720 d. P800
3. The cost of inventory on consignment amounted to:
a. P1,400 b. P1,550 c. P1,545 d. P1,500

TS Trading consigned 100 beds costing P600 each to PP Company. The advertised selling price is P1,000 each bed. The
consignment agreement provides that the consignee is to be allowed a commission of 15% of the selling price.
Furthermore, PP Company has to draw a sight draft for 60% of the cost of the beds: the advance is to be recovered
periodically by monthly deductions (in proportion to units sold) from the remittance which accompany the account sales.
All expenses of the consignee are to be deducted monthly as incurred.
At the end of the first month, the consignee rendered an account sales showing among others the following charges:
Commission, P2,250; Advertising, P1,500; and Delivery expense, P750.
4. The number of units sold by PP Co is:
a. 10 b. 15 c. 20 d. 25
5. The amount remitted to TS Co for the month is:
a. P1,500 b. P4,500 c. P5,100 d. P5,500
6. The consignment profit of TS Co is:
a. P1,500 b. P2,137.50 c. P3,412.50 d. None of the above

On October 1, 20x4 the NN Company consigned one hundred wall clocks to P & G Retailers, Inc. Each wall clock had a
cost of P150. Freight on the shipment was paid by NN Company for P200. On December 1, 20x4, P & G submitted an

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accounts sales stating that it had sold sixty pieces and it was remitting the P12,840 balance due. The remittance was net
of the following deductions from the sales price of the wall clocks sold:
Commission (20% of sales price) ?
Advertising P500
Delivery and installation charges P100
7. What was the total sale price of the wall clocks sold by P & G?
a. P13,440 b. P15,000 c. P16,800 d. P17,000
8. What was the cost of inventory on consignment?
a. P6,000 b. P6,080 c. P6,280 d. P6,320

The CC Manufacturing Company delivered ten DVD players to CLTV Company on consignment. These DVD players costs
P3,000 each and are to be sold at P5,000 each. The CC Manufacturing Company paid shipment costs of P2,500.
CLTV Co submitted an account sales stating that it had returned one unit and was remitting P21,900. This amount
represents the total amount due to CC Manufacturing after deducting the following items from the selling price of the
DVD player sold:
Commission 20% of the selling price
Advertising P1,000
Delivery and installation P600
Cartage on consigned goods P500
9. The number of units sold by CLTV Co is
a. 4 b. 5 c. 6 d. none of the above
10. The profit (loss) on consignment realized by CC Manufacturing is:
a. P2,300 b. P2,480 c. P(P2,550) d. None of the above
11. The cost of inventory in the hands of CLTV Co is:
a. P10,080 b. P10,150 c. P10,200 d. None of the above

On May 15, 20x4 AA Sales Company received a shipment of merchandise with a selling price of P15,000 from PC
Company. The consigned goods cost PC Company P10,000 and freight charges of P120 had been paid to ship the goods
to AA Sales Company.
The consignment arrangement provided for a sale of merchandise on credit with terms of 2/10, n/30. The 15%
commission is to be based on accounts receivable collected by the consignee. Cash discounts taken by the customers,
expenses applicable to goods on consignment and any cash advanced to the company are deductible from the remittance
by the consignee.
AA Sale Company advanced P6,000 to PC Company upon receipt of the shipment. An expense of P800 was paid by AA. By
June 20x4, 70% of the shipment had been sold, and 80% of the resulting accounts receivable had been collected, all
within the discount period. Remittance of the amount due was made on June 30, 20x4
12. The cash remitted by AA Sales Company
a. P172 b. P800 c. P972 d. P2,340
13. The profit on consignment is
a. P750 b. P873 c. P1,188 d. P1,428
14. The cost if unpaid units in the hands of AA is
a. P3,186 b. P3,036 c. P1,500 d. None of the above

FRANCHISE ACCOUNTING

Frozen Delight Inc. charges an initial franchise fee of P75,000 for the right to operate as a franchisee of Frozen Delight.
Of this amount P25,000 is collected immediately. The remainder is collected in four equal annual instalments of P12,500

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each. These instalments have a present value of P41,402. As part of the total franchise fee. Frozen Delight also provides
training (with a fair value of P2,000) to help franchisees get the store ready to open. The franchise agreement is signed
on April 1, 20x5, training is completed, and the store opens on July 1, 20x5.

1. The amount of revenue from training and franchise on April 1, 20x5 is

a. Zero b. P64,402 c. P66,402 d. P75,000
2. The amount of revenue from training and franchise on July 1, 20x5 is
a. Zero b. P64,402 c. P66,402 d. P75,000

Pacific Crossburgers inc. charges an initial fee of P70,000. Upon signing of the agreement (which covers 3 years), a
payment of P28,000 is due. Thereafter, three annual payments of P14,000 are required. The credit rating of the
franchisee is such that it would have to pay interest at 10% to borrow money. The franchisee agreement signed on May
1, 20x5 and the franchise commences operation on July 1, 20x5.
3. The amount of franchise revenue on May 1, 20x5 assuming no future services are required by the franchisor
once the franchise start operations:
a. Zero b. P28,000 c. P62,816 d. P70,000
4. In relation to No 3, the amount of franchise revenue on July 1, 20x5:
a. Zero b. P28,000 c. P62,816 d. P70,000
5. The amount of franchise revenue on May 1, 20x5, assuming that the franchisor has substantial services to
perform, once the franchise begins operations, to maintain the value of the franchise
a. Zero b. P28,000 c. P62,816 d. P70,000
6. In relation to No 5, the amount of franchise revenue on December 31, 20x5
a. Zero b. P13,959 c. P62,816 d. P70,000
7. The amount of franchise revenue on May 1, 20x5 assuming that the total franchise fee includes training services
(with value of P2,400) for the period leading up to the franchise opening and for two (2) months following
opening:
a. Zero b. P60,416 c. P62,816 d. P70,000
8. In relation to No 7, the amount of franchise revenue on July 1, 20x5:
a. Zero b. P60,416 c. P61,616 d. P63,616
9. In relation to No 7 and 8, the amount of service revenue on September 1, 20x5
a. Zero b. P1,200 c. P2,400 d. P70,000