Financial Reporting, Installment sales, p. 151 method, profit, only, payment, between

jawz

It says that under this method you apportion the cash receipt between cost recovered and profit using the ratio of profit to sales values. Therefore you recognise only a portion of the down payment. This is clear so far.

What happens to the next payment. Do you recognize also only the same portion as for the down payment? If yes, when do you recognise the full profit?

Andreas

Siddimaula

wouldn't what you recognize also depend on what you collect? Can you give an example?

ogoluwa

It is also mentioned in the example that the rest of the payment will be received over 10 year period, so you would do the same procedure (profit/total sales = 45% ; profit to recognize = ($cash received)*45% to each payment received over time.

It is basically based on applying pre-determined profit margin % to each payment received, recognizing the profit and cost of goods sold portions over time.



Edited 2 time(s). Last edit at Tuesday, March 29, 2011 at 10:42AM by sdeni.