Professional Documents
Culture Documents
INCOME
RECOGNITION:
INSTALLMENT SALES + FRANCHISE +
LONG-TERM CONSTRUCTION
Based on lectures and materials
by Rodiel C. Ferrer, CPA, Ph.D.
(CPAR, 2016)
INSTALLMENT SALES
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
The flip side of this account is deferred gross profit, which is based
on the outstanding balance of installment receivable. This is also
maintained as to year of installment sale
Installment receivable balance, year-end
MULTIPLY: Gross profit rate, based on sales (for 20xx)
Deferred gross profit, 20xx
xx
xx
xx
The gross profit rate may also be different for every year
ILLUSTRATION
(Actual CPAR 2016 handout item)
Php 337,500
525,000
185,000
272,500
1,500,000
960,000
Each year, the gross profit on installment sales was 8% lower than
regular sales. In 2016, the gross profit on installment sales was
4% higher than that of 2015. Determine the total realized gross
profit in 2016
ANALYSIS
o
o
REPOSSESSIONS AND
TRADE-INS
xx
xx
xx
xx
xx
xx%
xx
xx
xx
xx
xx
xx
xx%
xx
xx
xx
xx
xx
xx
xx
xx
xx%
Note that the installment sale amount, in all cases, is always net
of trade discount. Also, the adjusted installment sale amount is
used only for computing the new gross profit rate
FRANCHISES
bearing note, and if the collection of the fee is reasonably or nonreasonably assured
If the note payable is interest-bearing and collection is reasonably
assured, accrual method is used for the initial franchise fee:
Initial franchise fee, total
DEDUCT: Direct cost for initial services
Gross profit
ADD: Continuing franchise fee
ADD: Interest income, nominal
DEDUCT: Expenses
Net income
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx%
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
In the case of most problems in franchises, if the note is noninterest-bearing and collection is not reasonably assured:
Downpayment
ADD: Collections during the year (net of interest)
Total collection for the year
MULTIPLY: Gross profit rate
xx
xx
xx
xx%
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx%
LONG-TERM CONSTRUCTION
ILLUSTRATION
(Actual CPAR 2016 handout item)
2017
Php 600,000
400,000
550,000
2018
Php 1,050,000
275,000
ANALYSIS
975,000
75,000
675,000
225,000
10%
22,500
0
22,500
Contract price
DEDUCT: Costs incurred to date
DEDUCT: Estimated costs to complete
Estimated gross profit (loss)
MULTIPLY: Percentage of completion
Gross profit to date
DEDUCT: Prior gross profit
Gross profit, 2016
975,000
600,000
400,000
(25,000)
100%
(25,000)
22,500
(47,500)
600,000
(47,500)
575,000
700,000
(125,000)