Chapter 4: Installment Sales
Revenues from Instalment sales can be recognized based on one of the following methods:
1) Recognizing revenues in full on the day of the sale.
2) Recognising revenues based on collected installments.
3) Recognizing revenues based on collected installments after covering all costs.
4) Recognizing revenues in full on the day of the last installment.
Example 1:
In 1/12/2008 EuroPlanes sold 520,000 to Petra Retails. Petra paid 120,000 in cash. And the
remaining balance on ten semi-annual installments. Annual intrest on uncollected amounts is
10%. Cost of sale 320,000.
Recognized Revenue = (Collections / Contract price) * Total profit
Total contract price = 520,000
Cost of sales = 320,000
Total Profit (Revenue) = 520,000 – 320,000 = 200,000
Interest Revenue = Uncollected before current collection * Interest Rate * Period
• Recognising revenues based on collected installments:
Revenue and Interest based on installments
Date
Collectio
ns
Uncollected
Recognized Revenue
Interest Revenue
01/12/200
8
120,000
520,000-
120,000=
400,000
(120,000/520,000*200,00
0)=
46,153.8
–
31/12/200
8
0
400,000
–
10%*400,000*1/1
2=
3,333.33
01/06/200
9
40,000
360,000
(40,000/520,000*200,000)
=
15,384.6
10%*400,000*5/1
2=
16,666.67
01/12/200
9
40,000
320,000
(40,000/520,000*200,000)
=
15,384.6
10%*360,000*6/1
2=
18,000
31/12/200
9
0
320,000
–
10%*320,000*1/1
2=
2,666.67
01/06/201
0
40,000
280,000
(40,000/520,000*200,000)
=
15,384.6
10%*320,000*5/1
2=
13,333.33
01/12/201
0
40,000
240,000
(40,000/520,000*200,000)
=
15,384.6
10%*280,000*6/1
2=
14,000
31/12/201
0
0
240,000
–
10%*240,000*1/1
2=
2,000
01/06/201
1
40,000
200,000
(40,000/520,000*200,000)
=
15,384.6
10%*240,000*5/12
=
10,000
01/12/201
1
40,000
160,000
(40,000/520,000*200,000)
=
15,384.6
10%*200,000*6/1
2=
10,000
31/12/201
1
0
160,000
–
10%*160,000*1/1
2=
1,333.33
01/06/201
2
40,000
120,000
(40,000/520,000*200,000)
=
15,384.6
10%*160,000*5/1
2=
6,666.67
01/12/201
2
40,000
80,000
(40,000/520,000*200,000)
=
15,384.6
10%*120,000*6/1
2=
6,000
31/12/201
2
0
80,000
–
10%*80,000*1/12
=
666.67
3
40,000
40,000
15,384.6
3,333.33
01/12/201
3
40,000
0
(40,000/520,000*200,000)
=
15,384.6
10%*40,000*6/12
=
2000
