Question2: Cost Recovery On 1st January, 2017, Deera Commercial Co. sold inventory to a customer for AED 3,000,000. The cost of the inventory is AED 1,900,000. The terms of sale required a down payment of AED 1,000,000 and three annual installments due on 1st January each year as follows - AED 800,000 in 2018, AED 700,000 in 2019 and AED 500,000 in 2020. Instructions: 1. Using the cost-recovery method calculate the amount of gross profit to be recognized in 2017, 2018 and 2019 and 2. Using the cost recovery method, prepare the entries for 2017. Part 1 3,000,000 1,900,000 = 600,000 date Cost collected Cost recovery Gross profit 1.1.17 1,000,000 1,000,000 1.1.18 800,000 800,000 1.1.19 700,000 100,000 600,000 *On this date we have recovered the cost equal to 2,500,000 and our original cost was 1,900,000 hence, our profit on 1/1/2019 will be = 2,500,000- 1,900,000 = 600,000 1.1.20 500,000 Revenue 3,000,000 500,000 1,900,000 1,100,000 part 2 journal entry 1/January/2017 Dr: installment receivable 3,000,000 Cr: inventory 1,100,000 1, January, 2017 Dr: cash 1,000,000 Cr: installment receivable 1,000,000