PSBA-MANILA

ACCOUNTING 15 V. R. ESPIRITU

CONSIGNMENT
REVENUE RECOGNITION - IFRS(PFRS) 15
REVENUE RECOGNITION PRINCIPLE
- recognize revenue in the accounting period when the performance obligation is
satisfied.
A. Revenue recognition at a (Single) Point in time
When control of the goods or services is transferred from the seller to the customer.
It means there is delivery of goods and there is an obligation to pay the seller.

B. Revenue recognition over a period of time (over time)

When goods or service are transferred over time.
The customer controls the asset or consumes the benefit of the seller's work
The seller is creating an asset that has no alternative use to the seller, and the
seller has the legal right to receive payment for progress to date

5 Steps to revenue recognition

Step For transactions involving single and multiple

performance obligation
1 Identify the contract Legal right of seller and customer is established
SINGLE Multiple
2 Identify the performance performance performance obligation
obligation(s) obligation
3 Determine the transaction amount seller is amount seller is entitled to
price entitled to receive receive from customers
from customers
4 Allocate the transaction price No allocation is Allocate a portion to each
required performance obligation
5 Recognize revenue when(or At a point over a At whatever time is appropriate
as) each performance in time period of for each performance obligation
obligation is satisfied time

A contract is an agreement that creates legally enforceable rights and obligations.

Can be explicit or implicit
Can be oral or written

A contract exists for purposes of revenue recognition only if all of the following are true:
1. It has commercial substance (affecting the timing or amount of the seller's future cash flows)
2. It has been approved by both the seller and the customer, indicating commitment to fulfilling
their obligations.
3. It specifies the seller's and customer's rights regarding the goods or services to be
transferred.
4. It specifies payment terms
5. It is probable that the seller will collect the amount it is entitled to receive

Identify the performance obligation

Parts of the contract that are performance obligation:
1. Extended warranties - the customer has the option to purchase the warranty separately.
2. Options that provide a material right (a material right is something the customer wouldn't
get otherwise, so the seller is obligated to provide it.)

Parts of the contract that are not performance obligation:

1. Prepayments (its part of the transaction price)
2. Quality assurance warranties (it's part of the performance obligation to deliver goods and
services that are free of defects)
3. Right of return (it's part of the performance obligation to deliver acceptable goods and
services)
Determine the transaction price
occurs when some of the contract price depends on the outcome of a future event (like
incentive payments, royalties, rebates

Allocate the transaction price to performance obligation:Estimating stand-alone selling price

3 methods in establishing stand-alone selling price:
1. Adjusted market assessment approach-the seller considers what it could sell the product
or services for in the market in which it normally conducts business.
2. Expected cost plus margin approach - the seller estimates its cost of satisfying a performance
obligation and then adds an appropriate profit margin
3. Residual approach - the seller estimates an unknown (or highly uncertain) stand alone selling
price by subtracting the sum of the known or estimated stand alone selling prices from the
total transaction price . This is allowed if the stand alone selling price is highly uncertain.

Contract asset- an entity's right to consideration in exchange for goods or services that the
entity has transferred to the customer (the entity performs before the customer pays)
Alternative term - receivable and work in progress
If revenue excees cash received - its included in trade receivables
If cost to date exceed cost of sales,-its included within inventory as work in progress.

Contract liabilities - a company's obligation to transfer goods or services to a customer for which
the company has received consideration from the customer or consideration is due from the
customer .
If cash exceeds the revenue recognized to date, there will be a contract liability.
Alternative term - Unearned service revenues

If a contract is loss making, there will be a provision recorded to recognize the full loss under
the onerous contract. This can either be termed as a contract liability or a provision.

Consignment - is a marketing scheme where the consignor delivers goods to another party
called the consignee, who will undertake to sell the goods to end customers on behalf of the
consignor.
The consignor recognizes revenue when the consignee sells the consigned goods to end users.
Unsold consigned goods remain in the consignor's inventory.
Freight and other incidental costs that the consignor incurs in transfering the goods to consignee
are capitalized as cost of consigned goods. If the consignee shoulders the freight and other
incidental costs, the consignee treats the costs as receivable from the consignor if the cost are
reimbursable; if not the consignee recognizes them as expense.
Commission is expense by the consignor and is income by the consignee.

Recognition of Revenue:
Consignor recognizes revenue at the gross amount of sales price.
The consignee recognizes commission revenue (sales x agreed rate)

Proforma Entries:
1. Shipment of merchandise:
Memo entry: Shipped goods costing Pxxx to consignee.

2. Receipt of remittance and account sales:

Cash
Commission expense
Revenue

Cost of goods sold

Inventory

PROBLEM 1
Yellow Co. consigns guitars costing P500,000 to a consignee. Yellow incurs P20,000 freight
in transporting the goods to the consignee's place and P5,000 repair costs for minor damages
during shipment. To induce the consignee in signing the consignment contract, Yellow pays the
consignee an advance commission of P100,000 to be deducted from the consignee's actual
commission on future sales.
Required: How much is the cost of the consigned goods in Yellow's and the consignee's book?

computation:
yellow consignee
500,000
20,000
520,000 -

PROBLEM 2
Flare Co. consigned 50 units of a certain product to a consignee on August 1, 2021. The products
originally cost P10,000 a piece and are marked to sell for P25,000 each. Flare 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% of sales.
Required How much is Revenue? 1,200,000
How much is profit?

Revenue (Sales) sales

1. no of units sold x selling price deductions
2. commission/rate of commission remittance
3. sales = x
sales - deductions = remittance sales =
x - commission = remittance

commission = 1.2M x 20

no. of units sold = sales 1.2M =48 units sold

selling price per unit 25,000

sold=48 unsold=2 cost of merchandise

cost of merchandise: freight
10k 48 480,000 cartage
10k x 2 20,000 handling & packing
freight insurance-in transit
25k x 48/50 24,000 commission
25k x 2/50 1,000 selling expenses:
commission 240,000 advertising
cost of sales & exp 744,000 21,000 ending marketing
sales 1,200,000 inventory delivery and installation
profit 456,000 on total cost and expenses
consignment sales
net income

PROBLEM 3
Arvin consigned 12 refrigerators to Jam Inc. The refrigerators originally cost P6,000 each. Arvin
paid freight of P720 on the transfer. The consignee subsequently reported sale of 5 units, each
sold for P7,700, and deducted the following from the selling price:
Commission (based on sales net of commission) 10%
Marketing expense (based on commission) 10%
Delivery and installation (on each unit sold) P30
Required: Profit on the 5 refrigerators sold
Amount of remittance from consignee

sales = 5 units x 7,700 = 38,500

C = 10%(sales -C)
C = 10% (38,500 - C) marketing expense = 10% x 3,500
C = 3,850 -10%C = 350
C + 10%C = 3,850
 3,850
110%

C= 3500

sales 38,500
less: Deductions
Commission 3500
Marketing 350
Delivery (30 x 5) 150 4000
Remittance 34500

Sold
cost of mdse = 5 x 6000 30000
freight = 720 x 5/12 300
commission 3500
marketing 350
delivery 150
cost of sales and expenses 34300
sales 38500
profit 4200
 V. R. ESPIRITU

Multiple

ver time is appropriate

performance obligation
 xx 100% 1200000
-xx 20% 240000
xx 80% 960000

960,000 1,200,000
80%

commission = 1.2M x 20%= 240k

=48 units sold

inventoriable
cost unsold
SOLD merchandise
cost of merchandise xx xx
xx xx
xx xx
handling & packing xx xx
insurance-in transit xx xx
commission xx
selling expenses: xx
xx
xx
delivery and installation xx
total cost and expenses xx xx ending inventory in the hands of the consignee
xx
xx
PROBLEM 28
On November 30, 2010, Sharp Co. consigned 90 freezers to Robinson for sale at
P3,200 each and paid P2,400 in transportation costs. A report of sales was received on
December 30, 2010 from Robinson reporting the sale of 20 freezers, together with a
remittance was net of the agreed 15% commission.
Required: How much and what month, should Sharp recognize as consignment sales
revenue?
November December
a. 0 64,000
b. 0 54,400
c. 288,000 0
d. 285,600 0

ANSWER
3,200 X 20 FREEZERS = 64,000
PSBA-MANILA
ACCOUNTING 308 V. R. ESPIRITU

CONSIGNMENT
REVENUE RECOGNITION - IFRS(PFRS) 15
REVENUE RECOGNITION PRINCIPLE
- recognize revenue in the accounting period when the performance obligation is
satisfied.
A. Revenue recognition at a (Single) Point in time
When control of the goods or services is transferred from the seller to the customer.
It means there is delivery of goods and there is an obligation to pay the seller.

B. Revenue recognition over a period of time (over time)

When goods or service are transferred over time.
The customer controls the asset or consumes the benefit of the seller's work
The seller is creating an asset that has no alternative use to the seller, and the
seller has the legal right to receive payment for progress to date

5 Steps to revenue recognition

Step For transactions involving single and multiple

performance obligation
1 Identify the contract Legal right of seller and customer is established
SINGLE Multiple
2 Identify the performance performance performance obligation
obligation(s) obligation
3 Determine the transaction amount seller is amount seller is entitled to
price entitled to receive receive from customers
from customers
4 Allocate the transaction price No allocation is Allocate a portion to each
required performance obligation
5 Recognize revenue when(or At a point over a At whatever time is appropriate
as) each performance in time period of for each performance obligation
obligation is satisfied time

A contract is an agreement that creates legally enforceable rights and obligations.

Can be explicit or implicit
Can be oral or written

A contract exists for purposes of revenue recognition only if all of the following are true:
1. It has commercial substance (affecting the timing or amount of the seller's future cash flows)
2. It has been approved by both the seller and the customer, indicating commitment to fulfilling
their obligations.
3. It specifies the seller's and customer's rights regarding the goods or services to be
transferred.
4. It specifies payment terms
5. It is probable that the seller will collect the amount it is entitled to receive

Identify the performance obligation

Parts of the contract that are performance obligation:
1. Extended warranties - the customer has the option to purchase the warranty separately.
2. Options that provide a material right (a material right is something the customer wouldn't
get otherwise, so the seller is obligated to provide it.)

Parts of the contract that are not performance obligation:

1. Prepayments (its part of the transaction price)
2. Quality assurance warranties (it's part of the performance obligation to deliver goods and
services that are free of defects)
3. Right of return (it's part of the performance obligation to deliver acceptable goods and
services)

Determine the transaction price

occurs when some of the contract price depends on the outcome of a future event (like
incentive payments, royalties, rebates

Allocate the transaction price to performance obligation:Estimating stand-alone selling price

3 methods in establishing stand-alone selling price:
1. Adjusted market assessment approach-the seller considers what it could sell the product
or services for in the market in which it normally conducts business.
2. Expected cost plus margin approach - the seller estimates its cost of satisfying a performance
obligation and then adds an appropriate profit margin
3. Residual approach - the seller estimates an unknown (or highly uncertain) stand alone selling
price by subtracting the sum of the known or estimated stand alone selling prices from the
total transaction price . This is allowed if the stand alone selling price is highly uncertain.

Contract asset- an entity's right to consideration in exchange for goods or services that the
entity has transferred to the customer (the entity performs before the customer pays)
Alternative term - receivable and work in progress
If revenue excees cash received - its included in trade receivables
If cost to date exceed cost of sales,-its included within inventory as work in progress.

Contract liabilities - a company's obligation to transfer goods or services to a customer for which
the company has received consideration from the customer or consideration is due from the
customer .
If cash exceeds the revenue recognized to date, there will be a contract liability.
Alternative term - Unearned service revenues

If a contract is loss making, there will be a provision recorded to recognize the full loss under
the onerous contract. This can either be termed as a contract liability or a provision.
Consignment - is a marketing scheme where the consignor delivers goods to another party
called the consignee, who will undertake to sell the goods to end customers on behalf of the
consignor.
The consignor recognizes revenue when the consignee sells the consigned goods to end users.
Unsold consigned goods remain in the consignor's inventory.
Freight and other incidental costs that the consignor incurs in transfering the goods to consignee
are capitalized as cost of consigned goods. If the consignee shoulders the freight and other
incidental costs, the consignee treats the costs as receivable from the consignor if the cost are
reimbursable; if not the consignee recognizes them as expense.
Commission is expense by the consignor and is income by the consignee.

Recognition of Revenue:
Consignor recognizes revenue at the gross amount of sales price.
The consignee recognizes commission revenue (sales x agreed rate)

Proforma Entries:
1. Shipment of merchandise:
Memo entry: Shipped goods costing Pxxx to consignee.

2. Receipt of remittance and account sales:

Cash
Commission expense
Revenue

Cost of goods sold

Inventory

PROBLEM 1
Yellow Co. consigns guitars costing P500,000 to a consignee. Yellow incurs P20,000 freight
in transporting the goods to the consignee's place and P5,000 repair costs for minor damages
during shipment. To induce the consignee in signing the consignment contract, Yellow pays the
consignee an advance commission of P100,000 to be deducted from the consignbee's actual
commission on future sales.
Required: How much is the cost of the consigned goods in Yellow's and the consignee's book?

PROBLEM 2
Flare Co. consigned 50 units of a certain product to a consignee on August 1, 2021. The products
originally cost P10,000 a piece and are marked to sell for P25,000 each. Flare 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% of sales.
Required How much is Revenue?
How much is profit?

Revenue (Sales)
1. no of units sold x selling price
 2. commission/rate of commission
3. sales = x
sales - deductions = remittance
x - commission = remittance
x -20%commission = remittance
sales = 960,000 commission =1.2M x 20% =240k
80%
1.2M revenue units sold = sales/selling price per unit
=1.2M/25000 = 48 units sold

inventoriable unsold
cost of merchandise
10k x48 480,000
10k x 2 20,000
freight 25k x 48/50 24,000
25k x 2/50 1,000
commission 240,000
Total cost of sales & exp 744,000 21,000 ending inventory of the consignor
Sales 48 x 25000 1,200,000
profit 456,000

PROBLEM 3
Arvin consigned 12 refrigerators to Jam Inc. The refrigerators originally cost P6,000 each. Arvin
paid freight of P720 on the transfer. The consignee subsequently reported sale of 5 units, each
sold for P7,700, and deducted the following from the selling price:
Commission (based on sales net of commission) 10%
Marketing expense (based on commission) 10%
Delivery and installation (on each unit sold) P30
Required: Profit on the 5 refrigerators sold
Amount of remittance from consignee

sales= 7700 x 5 = 38,500

commission ©
C= 10% (sales - c) inventoriable
C= 10% (38,500 - c) cost of mdse =6,000x5 30,000
c= 3,850-10%c Freight 720 x5/12 300
c + 10%c =3,850 commission 3,500
c=3850/110% marketing 350
c= 3500 delivery 30x5 150
x 10% cost and expenses 34,300
350 marketing exp sales 38,500
profit 4,200
Sales 38500
Deductions:
Commission 3500
Mktg 350
Delivery 150 4000
Remittance 34500
 appropriate
ce obligation
 inventoriable cost:
cost of merchandise
freight
packing
insurance
cartage
handling
cost of merchandise

Yellow (Consignor) consignee

cost of merchandise 500k
freight 20k
cost of consigned 520k 0
goods

he products
the consignor