AFAR NOTES

CONSIGNMENT
SALES
 AFAR NOTES

LEARNING OBJECTIVE

DEFINE CONSIGNMENT ARRANGEMENT

APPLY THE PRINCIPLES OF PFRS 15
consignment
consignor consignee

Party who undertakes to

Entity that delivers sell the goods the
goods. goods to END CUSTOMERS
on behalf of the
consignor.
 consigned goods
are products not owned by the party in
physical possession of them.

CONSIGNOR CONSIGNEE
(included in the inventory) (memo entries)

 COMMISSION
Deducted from the amounts
remitted to the CONSIGNOR

advanced commission
the consignor
recognizes receivable
then later recognizes
commission expense as
the goods are sold.
 revenue recognition

Recognizes revenue ONLY when CONSIGNEE sells

the CONSIGNED GOODS to the END CUSTOMERS

consignor consignee

GROSS AMOUNT COMMISSION / FEE

 PRINCIPAL
Controls the goods or services
BEFORE the good or service is
transferred to the customer.
 AGENT
Arranges the provision of goods or
services by another company

Another party is primarily responsible for

fulfilling the contract
The entity does not have inventory risk
The entity does not have discretion in
establishing prices
The entity's consideration is in the form
of a commission
The entity is not exposed to credit risk
LET'S ANSWER SOME
THEORIES AND
PROBLEMS
 TRUE OR FALSE
Under consignment arrangement, the
consignor recognizes revenue equal to the
gross amount of the consideration in the
contract.

 TRUE OR FALSE
Under consignment arrangement, the
consignor recognizes revenue equal to the
gross amount of the consideration in the
contract.

 TRUE OR FALSE
If another party is primarily responsible for
fulfilling a contract with customer, this may
indicate that the arrangement is a
consignment contract

 TRUE OR FALSE
If another party is primarily responsible for
fulfilling a contract with customer, this may
indicate that the arrangement is a
consignment contract

 TRUE OR FALSE
Revenue from consignment arrangements is
normally recognized by the consignor/seller
when the consigned goods are delivered to
the consignee.

 TRUE OR FALSE
Revenue from consignment arrangements is
normally recognized by the consignor/seller
when the consigned goods are delivered to
the consignee.

TRUE OR FALSE
Good's out on consignment is properly
included in the consignee's inventory.

TRUE OR FALSE
Good's out on consignment is properly
included in the consignee's inventory.

 TRUE OR FALSE
Transportation costs of consigned goods from
the consignor to the consignee form part of the
cost of inventory of the consignee.
 TRUE OR FALSE
Transportation costs of consigned goods from
the consignor to the consignee form part of the
cost of inventory of the consignee.
 MULTIPLE CHOICE
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
 MULTIPLE CHOICE
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
 MULTIPLE CHOICE
How should each of the following recognize
revenue from the sale of consigned goods to end
customers?
CONSIGNOR
CONSIGNEE
a. Gross amount of sales price Commission/Fee
b. Sales price net of commission Commission/Fee
c. Net amount of sale price Mark up
d. Fee Commission
 MULTIPLE CHOICE
How should each of the following recognize
revenue from the sale of consigned goods to end
customers?
CONSIGNOR
CONSIGNEE
a. Gross amount of sales price Commission/Fee
b. Sales price net of commission Commission/Fee
c. Net amount of sale price Mark up
d. Fee Commission
 MULTIPLE CHOICE
FUTURE CPA Co., a consignee, paid the freight costs for
goods shipped from RAB Co., a consignor. These freight
costs are to be deducted from FUTURE CPA Co. payment to
RAB Co. when the consigbnment goods are sold. Until
FUTURE CPA Co. sells the goods, the freight costs should be
included in the FUTURE CPA Co.'s

a. COGS c. Selling expenses

b. Freight-out costs d. Receivable
 MULTIPLE CHOICE
FUTURE CPA Co., a consignee, paid the freight costs for
goods shipped from RAB Co., a consignor. These freight
costs are to be deducted from FUTURE CPA Co. payment to
RAB Co. when the consignment goods are sold. Until
FUTURE CPA Co. sells the goods, the freight costs should be
included in the FUTURE CPA Co.'s

a. COGS c. Selling expenses

b. Freight-out costs d. Receivable
 PROBLEM #1
On October 20, 2021, RAB Co. consigned 40 freezers to
FUTURE CPA Co. for sale at P1,000 each and paid P800 in
transportation costs. On December 30, 2021, FUTURE CPA
Co. reported the sale of 10 freezers and remitted P8,500.
The remittance was net of the agreed 15% commission.
What amount should RAB Co. recognize as sales revenue
for 2021?

a. 7,700 c. 9,800
b. 8,500 d. 10,000
 PROBLEM #1
On October 20, 2021, RAB Co. consigned 40 freezers to
FUTURE CPA Co. for sale at P1,000 each and paid P800 in
transportation costs. On December 30, 2021, FUTURE CPA
Co. reported the sale of 10 freezers and remitted P8,500.
The remittance was net of the agreed 15% commission.
What amount should RAB Co. recognize as sales revenue
for 2021?

a. 7,700 c. 9,800
b. 8,500 d. 10,000
PROBLEM #1
 PROBLEM #2
RAB Co. consigned eight heavy machineries to FUTURE CPA
Co. Each machine costs P1,000,000 and has a suggested
retail price of P2,100,000. RAB Co. paid P200,000 in
transporting the machines to the consignee's place of
business. At the end of the period, FUTURE CPA Co.
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) P50,000
 PROBLEM #2
Materials generated from the testing were sold for P5,000
and included in the remittance to RAB Co.

Requirements:
a. How much was the net remittance to the consignor?
b. How much is the cost of the unsold machineries?
PROBLEM #2
PROBLEM #2
 HOW WAS IT?
DID YOU HAVE FUN?