INSTALLMENT SALES AND LONG-TERM Sales
CONSTRUCTION CONTRACTS
Regular Sales
INSTALLMENT SALES
- Cash sales
- Series of payments over a period of - Credit sales
months or years - Uses accrual method
- Collectability of the note is reasonably
Gross Profit Recognition
assured
Time of Sale - Sales – COS = GP (no deferral)
- Sales is credited for the full price Installment Sales
- Selling expenses are incurred and
- Collectability of the note is not
recorded in the year of sale
reasonably assured
- Post-sale expenses will be recorded
- Collection x GPR = RGP
along with liability accounts
- IAR x GPR = DGP
- Basically the method we learned before
- Installment sales – Cost of Installment
Period in which Cash is Collected Sales = DGP (contra receivable)
- Discounted receivables
Cost Recovery Method GPR is based on PV of receivable
- Gross profit is not recognized until RGP is based on the total collections
collections = COS Repossessions
- Interest and principal portions of
collections are treated first as recovery What to do with reconditioning costs and
of property costs normal profit margin?
- After recovery all collections are
- Add when determining selling price (sir
regarded as realization of gross profit
doesn’t usually ask for this)
Gross Profit Realization Method - If the given FV is after RC + NPM:
deduct
- First collections are regarded as - FV is before RC + NPM: ignore
realization of gross profit
- Recognition of full profit subsequent Gross Profit from Sale of Repossessed Machine
collections are treated as recovery of
GP from sale of RM** Pxx
cost GP from regular sales xx
Installment Method (silent) RGP on installment sales xx
Less: Expenses (xx)
- Method prescribed by IFRS Net Income Pxx
- Cash collections = partial recovery of **Sales less cost of sales (FV + reconditioning
cost and partial realization of profit cost + normal profit margin)
- Gross profit is spread throughout the
**if FV is silent, assume it is after reconditioning
life of the installment sale contract
cost
- Anticipates possible failures
**if wholesale value is given there is no need to
deduct normal profit margin
CONSTRUCTION CONTRACTS
Regular Sales
INSTALLMENT SALES
- Cash sales
- Series of payments over a period of - Credit sales
months or years - Uses accrual method
- Collectability of the note is reasonably
Gross Profit Recognition
assured
Time of Sale - Sales – COS = GP (no deferral)
- Sales is credited for the full price Installment Sales
- Selling expenses are incurred and
- Collectability of the note is not
recorded in the year of sale
reasonably assured
- Post-sale expenses will be recorded
- Collection x GPR = RGP
along with liability accounts
- IAR x GPR = DGP
- Basically the method we learned before
- Installment sales – Cost of Installment
Period in which Cash is Collected Sales = DGP (contra receivable)
- Discounted receivables
Cost Recovery Method GPR is based on PV of receivable
- Gross profit is not recognized until RGP is based on the total collections
collections = COS Repossessions
- Interest and principal portions of
collections are treated first as recovery What to do with reconditioning costs and
of property costs normal profit margin?
- After recovery all collections are
- Add when determining selling price (sir
regarded as realization of gross profit
doesn’t usually ask for this)
Gross Profit Realization Method - If the given FV is after RC + NPM:
deduct
- First collections are regarded as - FV is before RC + NPM: ignore
realization of gross profit
- Recognition of full profit subsequent Gross Profit from Sale of Repossessed Machine
collections are treated as recovery of
GP from sale of RM** Pxx
cost GP from regular sales xx
Installment Method (silent) RGP on installment sales xx
Less: Expenses (xx)
- Method prescribed by IFRS Net Income Pxx
- Cash collections = partial recovery of **Sales less cost of sales (FV + reconditioning
cost and partial realization of profit cost + normal profit margin)
- Gross profit is spread throughout the
**if FV is silent, assume it is after reconditioning
life of the installment sale contract
cost
- Anticipates possible failures
**if wholesale value is given there is no need to
deduct normal profit margin
