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In July 2014, Sta Lucia Company who uses the installment method of account sold land costing P60,000 for P240,000, receiving reduced the principal of the note to a balance of P180,000. The buyer defaulted on the note beginning of 2015 and the property was repossessed. The property had an appraised value of P120,000 at that time of repossession.

What is the gain or loss on the repossession?
What is the realized gross profit in 2014?

 

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To calculate the gain or loss on the repossession, we need to compare the carrying value of the property on the company's books to the appraised value at the time of repossession.

Carrying value of the property = Cost of the property - Total principal payments received
= P60,000 - P60,000 = P0

Since the carrying value is zero, the company did not record any gain or loss on the repossession of the property.

To calculate the realized gross profit in 2014, we first need to determine the total profit on the sale.

Total profit on the sale = Selling price - Cost of the property
= P240,000 - P60,000 = P180,000

Since the company uses the installment method of accounting, only the portion of the profit that has been received as principal payments can be recognized as realized gross profit.

Total principal payments received = Selling price - Balance of the note at the end of 2014
= P240,000 - P180,000 = P60,000

Realized gross profit in 2014 = Total profit on the sale x (Principal payments received / Selling price)
= P180,000 x (P60,000 / P240,000) = P45,000

Therefore, the realized gross profit in 2014 was P45,000.