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AFAR (Advanced Accounting)

"INSTALLMENT SALES"

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PART 1

A. TRADE IN

Estimated Selling Price(after reconditioning cost)


- Reconditioning Cost
-Cost to complete or sell
-Normal Profit Margin (% x Est. S.Price)
= NRV (NET REALIZABLE VALUE), FAIR VALUE, APPRAISED VALUE, TRUE WORTH, ACTUAL VALUE, or
WHOLESALE VALUE

NRV
-Trade in Allowance
= UNDER(OVER) ALLOWANCE

Installment sales
+UNDER(-OVER) ALLOWANCE
=ADJUSTED INSTALLMENT SALES

ADJUSTED INSTALLMENT SALES


-Cost of Installment Sales
=Deferred Gross Profit

Cost Ratio = Cost of Installment Sales / Adjusted Installment Sales


GP RATE (Gross Profit Rate) = Deferred Gross Profit / Adjusted Installment Sales

B. REPOSSESSION

Estimated Selling Price(after reconditioning cost)


- Reconditioning Cost
-Cost to complete or sell
-Normal Profit Margin (% x Est. S.Price)
= NRV (NET REALIZABLE VALUE), FAIR VALUE, APPRAISED VALUE, TRUE WORTH, ACTUAL VALUE, or
WHOLESALE VALUE

NRV
-Unrecovered Cost
= GAIN or LOSS ON REPOSSESSION
...........................

*Unrecovered Cost = Unpaid Installment AR x Cost Ratio(year of sale)

...........................

**Unpaid Installment AR = Installment sales - Trade in allowance - cash down payment - principal
collections

**Unpaid Installment AR = ADJUSTED Installment sales - Trade in "NRV" - cash down payment - principal
collections

...........................

NOTE:
Trade in "NRV" + cash down payment = TOTAL DOWNPAYMENT

...........................

DEPRECIABLE ASSET
***Gain on repossession = GAIN
***Gain on repossession "to be recognized" = ZERO (none)

LAND, JEWELRY, or NONDEPRECIABLE ASSET


***Gain on repossession = GAIN
***Gain on repossession "to be recognized" = GAIN

...........................

****Loss on repossession = LOSS


****Loss on repossession = always recognized

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PART 2

Adjusted Installment Sales


-Repossessed Accounts
-Written off Accounts
-Collections
=Installment AR, end

Installment AR, beg


-Repossessed Accounts
-Written off Accounts
-Collections
=Installment AR, end

Adjusted Installment Sales x GP rate = DGP, beg


Installment AR, beg x GP rate = DGP, beg
Repossessed Accounts x GP rate = DGP, repossession
Written off Accounts x GP rate = DGP, write off
Collections x GP rate = RGP
Installment AR, end x GP rate = DGP, end

*DGP = Deferred Gross Profit


*RGP = Realized Gross Profit FROM INSTALLMENT SALES

DGP, beg
-DGP, repossession
-DGP, write off
= DGP, before adjustment
-RGP
=DGP, end

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PART 3

Beginning Inventory (New merchandise, Trade In Merchandise, Repossessed Merchandise)


+Purchases
-Purchase returns and allowances
-Purchase discount
+Freight in
+Trade in Merchandise (NRV + Reconditioning Cost)
+Repossessed Merchandise ("NRV" + Reconditioning Cost)
>*if resulted to LOSS ON REPOSSESSION of Depreciable & Nondepreciable asset
>*if resulted to GAIN ON REPOSSESSION of Nondepreciable asset

+Repossessed Merchandise ("Unrecovered Cost" + Reconditioning Cost)


>*if "GAIN" ON REPOSSESSION of Depreciable Asset

= Cost of goods available for sale


-Ending Inventory (New merchandise, Trade In Merchandise, Repossessed Merchandise)
=TOTAL Cost of Sales
- Cost of Installment Sales (or Shipment on Installment Sales)
=Cost of Regular Sales
...........................

*Regular sales = Cash Sales + Credit Sales (Charge Sales or Sales on accounts)

...........................

Regular Sales
-Cost of Regular Sales
=Realized Gross Profit (from Regular Sales)

Realized Gross Profit (from Regular Sales)


+Realized Gross Profit (FROM INSTALLMENT SALES, "see PART 2")
=TOTAL Realized Gross Profit

TOTAL Realized Gross Profit


+Gain on Repossesion (LAND, JEWELRY, or NONDEPRECIABLE ASSET)
-Loss on Repossession
=Realized Gross Profit after repossession

Realized Gross Profit after repossession


-Operating Expenses
+Interest income
=Net Income

*Operating Expenses = (Written off accounts x Cost Ratio, year of sale) + other operating expenses