A sold a residential house and lot for P10,000,000 with terms including a down payment of P4,000,000 and a balance payable over 50 years. After paying P4,360,000 and defaulting, the contract is cancelled. How much cash surrender value is the buyer entitled to?

• A. P2,000,000
• B. P2,240,000
• C. P180,000
• D. P2,180,000

Answer: (D)

Cash surrender value is the portion of payments already made on a seller-financed sale that the buyer can receive back in cash when the contract is cancelled. It represents the buyer’s equity recovered after offsetting the seller’s compensation for providing the financing.

Here, the buyer has paid a total of 4,360,000 (down payment of 4,000,000 plus 360,000 on the balance). In this treatment, the amount recoverable as cash surrender value is half of the total payments made, with the other half held as compensation to the seller for financing. Half of 4,360,000 is 2,180,000, which is the cash surrender value the buyer is entitled to.