BCOC-131

Financial Accounting
Indira Gandhi
National Open University
School of Management Studies

Block

5
CONSIGNMENTS AND JOINT VENTURES
UNIT 15
Consignment Accounts - I 5

UNIT 16
Consignment Accounts - II 50

UNIT 17
Joint Venture Accounts 70
 PROGRAMME DESIGN COMMITTEE B.COM (CBCS)
Prof. Madhu Tyagi Prof. D.P.S. Verma (Retd.) Faculty Members
Director, SOMS, IGNOU Department of Commerce
University of Delhi, Delhi SOMS, IGNOU
Prof. R.P. Hooda Prof. N V Narasimham
Former Vice-Chancellor Prof. K.V. Bhanumurthy (Retd.) Prof. Nawal Kishor
MD University, Rohtak Department of Commerce
University of Delhi, Delhi Prof. M.S.S. Raju
Prof. B. R. Ananthan Dr. Sunil Kumar
Former Vice-Chancellor Prof. Kavita Sharma
Department of Commerce
Dr. Subodh Kesharwani
Rani Chennamma University
Belgaon, Karnataka University of Delhi, Delhi Dr. Rashmi Bansal
Dr. Madhulika P Sarkar
Prof. I. V. Trivedi Prof. Khurshid Ahmad Batt
Former Vice-Chancellor Dean, Faculty of Commerce & Dr. Anupriya Pandey
M. L. Sukhadia University Management
Udaipur University of Kashmir, Srinagar

Prof. Purushotham Rao (Retd.) Prof. Debabrata Mitra

Department of Commerce Department of Commerce
Osmania University, Hyderabad University of North Bengal
Darjeeling
Prof. R. K. Grover (Retd.)
School of Management Studies
IGNOU

COURSE DESIGN COMMITTEE

Prof. Madhu Tyagi Faculty Members
Director, SOMS, IGNOU SOMS, IGNOU
Prof. N. V. Narasimham
Prof. A.A. Ansari Prof. Nawal Kishor
Jamia Millia Islamia, New Delhi Prof. M.S.S. Raju
Dr. Sunil Kumar
Ms. Surbhi Gupta Dr. Subodh Kesharwani
Vivekananda College Dr. Rashmi Bansal
University of Delhi, Delhi Dr. Madhulika P. Sarkar
Dr. Anupriya Pandey

COURSE PREPARATION TEAM

Accountancy-I: ECO-02 Prof. N V Narasimham, Editor
Prof. M.S.S. Raju
(Unit-10, 11, 12 and 13 Revised by Dr. Sunil Kumar) (Course Coordinator & Editor)
Shri Vinod Prakash, Moti Lal Nehru College Dr. Sunil Kumar
University of Delhi, Delhi (Course Coordinator & Editor)

Print Production
Sh. Y. N. Sharma Sh. Sudhir Kumar
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MPDD, IGNOU MPDD, IGNOU

June, 2019
Indira Gandhi National Open University, 2019
ISBN-978-93-89200-
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BLOCK 5 CONSIGNMENTS AND JOINT
VENTURES
It is a common practice in business to send goods on consignment basis to some
firms who undertake to sell it on behalf of the consignor. The consignor would like
to ascertain the profit or loss of each consignment separately. This involves certain
peculiarities in accounting. Sometimes two or more persons agree to carry out a
specific project or a job jointly. This is termed as a joint venture. In that case,
the parties to the joint venture called co-venturers want to ascertain their share
of profit or loss from the joint venture business separately. For this purpose, they
may prepare a separate set of books for the joint venture business or record the
joint venture transactions in their own books only. This block consisting of three
units covers the accounting procedure usually followed for recording various
transactions related to the consignments and the joint ventures.
Unit 15 discusses various concepts related to consignment and describes the
basic framework of accounting for recording the consignment transactions. It also
deals with accounting treatment of normal and abnormal losses which may take
place in transit or in the godown of the consignee.
Unit 16 explains how Consignment Account is prepared when goods are invoiced
to the consignee at a price which is higher than its cost. It also describes the
adjustments to be made at the time of working out the profit on consignment
when goods are consigned at invoice price.
Unit 17 discusses various methods of accounting for the joint venture transactions.
Consignments and Joint
Ventures

4
 Consignment
JournalAccounts –I
and Ledger
UNIT 15 CONSIGNMENT ACCOUNTS-I
Structure
15.0 Objectives
15.1 Introduction
15.2 Concepts of Consignment
15.2.1 What is Consignment?
15.2.2 Parties to Consignment
15.2.3 Features of Consignment
15.2.4 Distinction between Sale and Consignment
15.2.5 Important Terms in Consignment

15.3 Accounting Treatment

15.3.1 Books of the Consignor
15.3.2 Books of the Consignee

15.4 Direct Recording in the Ledger

15.5 Unsold Stock
15.5.1 Valuation of Unsold Stock
15.5.2 Accounting Treatment of Unsold Stock

15.6 Loss of Goods

15.6.1 Normal Loss
15.6.2 Abnormal Loss
15.6.3 Where Normal and Abnormal Losses Occur Simultaneously

15.7 Let Us Sum Up

15.8 Key Words
15.9 Some Useful Books
15.10 Answers to Check Your Progress
15.11 Terminal Questions/Exercises

15.0 OBJECTIVES
After studying this unit, you should be able to:
 explain the meaning of consignment;
 distinguish it from sale;
 identify the parties involved in consignment and describe their relationship;
 explain the basic framework of accounting for consignment transactions in
the books of the consignor and the consignee;
 record consignment transactions directly in the ledger accounts of the consignor
and the consignee;
 compute the value of unsold stock;
5
Consignments and Joint
Ventures  explain the nature of normal and abnormal losses;
 compute the value of unsold goods in case of normal loss; and
 explain the treatment of normal and abnormal losses of goods and their
impact on profit.

15.1 INTRODUCTION
The producers often make use of the services of selling agents and distributors
in their channel of distribution. This is particularly true of the agricultural goods.
The selling agents/distributors act in various ways. One of the methods used is to
receive the goods on consignment basis. Under this system, the agent receives the
goods and undertakes to sell it on behalf of the consignor. He often settles the
account of the consignor after all the goods received from him have been sold.
This involves certain peculiarities in accounting. In this unit, you will learn about
various concepts relating to consignment and the basic framework of accounting
for consignment transactions in the books of the consignor and the consignee.
You know the method of working out the profit on each consignment when all
goods are sold out. In practice, you will find that at the time of submitting the
Account Sales, some goods may remain unsold. Then, there is also a possibility
of loss while the goods are in tranit or while they are lying in the godown of the
consignee. Such loss may occur due to normal or abnormal causes. In this unit,
you will learn how the value of unsold goods is worked out and recorded in
books of account. You will also learn about the treatment of normal and abnormal
losses which may take place in transit or in the godown of the consignee and their
impact on valuation of stock and the profit on consignment.

15.2 CONCEPTS OF CONSIGNMENT

You know that goods are often sent by the producer on consignment basis to
the selling agents or distributors. Let us now understand what exactly we mean
by consignment, how does it differ from sale and what kind of relationship exists
between the consignor and the consignee.

15.2.1 What is Consignment?

When goods are sent by a manufacturer or a trader to an agent to be sold by
him on commission basis and at the risk and account of the former, they are said
to be sent on consignment. In other words a producer/trader forwards his products
to his selling agents, appointed at different places, to sell them on his behalf for
an agreed commission. The process of sending goods on this basis by one firm
to another for sale is known as ‘Consignment’ and this transaction is called a
‘Consignment Transaction’. The consignment is ‘Outward Consignment’ for the
person who sends the goods and an ‘Inward Consignment’ for the person who
receives the goods for sale.

15.2.2 Parties to Consignment

You know that in consignment, the goods are sent by one person to another for
sale by the latter on behalf of the former. Therefore, there are two parties involved:
(i) the person who sends the goods and, (ii) the person to whom the goods are
sent. The person who sends the goods to the agent is called the ‘consignor’ and
6 the person to whom the goods are sent for sale is called the ‘consignee’.
If ‘X’ sends goods to ‘Y’ for sale, ‘X’ is known as consignor and ‘Y’ consignee. Consignment Accounts – I
The Consignor is the ‘principal’ and the consignee is the ‘agent’. Their mutual
relations are governed by the Law of Agency and, of course, by the terms of the
contract between themselves. The consignee is a special kind of agent who is in
possession of the goods. He passes the title of the goods to those who buy from
him even if he sells the goods in contravention to the principal’s instructions.
Suppose, the consignor instructs the consignee not to sell the goods below a
certain price. If the consignee sells the goods below the stipulated price, the buyer
will have good title to goods. The consignor may, of course, ask the consignee
to pay damages for breaking the terms of the contract with him. Like all agents,
the consignee must render true accounts to the consignor, be faithful to him, and
act according to his instructions. He is entitled to remuneration and reimbursement
of expenses incurred by him on behalf of the consignor.

15.2.3 Features of Consignment

 Goods are forwarded by the consignor to the consignee with an objective
of sale at a profit.

 Under the consignment, goods are to be treated as the property of the

consignor and to be sold at his risk entirely. The consignee does not buy
the goods, he merely undertakes to sell them on behalf of the consignor. He
is not responsible for any loss or even for any destructions or damages to
the goods. But the consignee should not show any negligence.

 The consignor does not sell the goods to the consignee. Therefore, he can
not ask the consignee to pay the price of the goods unless they are sold and
the sale proceeds are actually realised.

 The consignee agrees to sell the goods for an agreed rate of commission and
is allowed to deduct his commission due from the sale proceeds.

 The agent enters into the picture only when he sells the goods and realises
the amount. He becomes indebted for amounts realised on behalf of the
principal. The relationship between the consignor and the consignee is that
of a principal and an agent.

 As it is not a sale, whatever the consignee does is on behalf of the consignor

and, therefore, all legitimate expenses incurred by the consignee for receiving
and selling the goods should be reimbursed.

 Any stock remaining unsold with the consignee belongs to the consignor.

 As the consignee acts on behalf of the consignor, the profit or loss on sale
of goods sent on consignment belongs to the consignor.

15.2.4 Distinction between Sale and Consignment

Although the possession of goods is transferred from one person to the other,
both in case of sale and in case of consignment, they differ from each other in
various ways. The difference between an outright sale and the goods sent on
consignment has been explained as follows:
7
Consignments and Joint No. and Item Sale Consignment
Ventures
1. Parties Seller and Buyer Consignor and Consignee

2. Ownership and title Ownership and title of The legal ownership and
of goods goods is transferred from title of goods is not
seller to the buyer of the transferred to the
goods. consignee. It remains with
the consignor till they are
sold.

3. Relationship The relationship between The relationship between

the seller and the buyer of the consignor and the
the goods is that of a consignee is that of a
creditor and debtor. principal and an agent. The
consignee is to sell goods
on behalf of the consignor.
4. Expenses Expenses incurred after sale Expenses incurred by the
of goods are borne by the consignee in connection
buyer. with the goods consigned
to him are borne by the
consignor.
5. Risk Risk attached to the goods Risk attached to the goods
sold is transferred to the consigned lies with the
buyer of goods as soon as consignor till the goods
goods are sold. In case, the consigned are sold. In
goods are destroyed after case, the goods are
sale, the loss is suffered by destroyed, the loss is
the buyer. borne by the consignor.
6. Return of Goods Return of goods is not Goods can be returned if
possible as goods once they are not sold by the
sold are not returnable. consignee.
7. Account Sales No Account sale is Account sale has to be
required to be submitted by submitted by the consignee
the buyer to the seller. to the consignor from time
to time.
8. Unsold Goods
The seller has nothing to do Unsold goods with the
with the goods which could consignee will be treated
not be resold. as stock of the consignor.

The distinction between sale and consignment given above also amply clarifies the
difference between the rights and duties of the buyer and the consignee.
Check Your Progress A
1. Read the following carefully and tick mark the correct answer.
a) The relationship between the consignor and the consignee is that of
i) Buyer and Seller
8
 ii) Principal and Agent Consignment Accounts – I

iii) Debtor and Creditor

b) The term used for consignee’s remuneration is
i) Commission
ii) Brokerage
iii) Discount
c) The party responsible for the risk attached to the goods in
consignment is
i) Consignee
ii) Consignor
iii) Both
d) The legal ownership of the goods is not transferred till the goods are
sold in case of
i) Sale
ii) Consignment
iii) Both
2. State whether the following statements are True or False.
i) Despatch of goods on consignment amounts to sale
of goods by the consignor. (T/F)
ii) All the legitimate expenses incurred by the
consignee relating to consignment are borne by
the consignor. (T/F)
iii) For the consignor the consignment is an outward
consignment and the same becomes an inward
consignment for the consignee. (T/F)
iv) Goods are treated as sales under consignment
when they are consigned. (T/F)
v) The consignee does not become the debtor of the
consignor on receipt of goods. (T/F)

15.2.5 Important Terms in Consignment

There are a few terms relating to consignment which are commonly used. These
are proforma invoice, account sales, non-recurring and recurring expenses,
commission, advance, etc. These are explained as follows:
ProformaInvoice :Since the goods sent on consignment cannot be treated as
sales, the consignor does not prepare proper Invoice. He simply prepares a
Proforma Invoice and sends it to the consignee along with the goods despatched.
This is prepared with a view to inform the consignee about price of goods,
expenses incurred, mode of transportation and the minimum sale price at which
the goods are to be sold. A specimen of proforma invoice is given in figure 15.1 9
Consignments and Joint Fig. 15.1
Ventures
Specimen of Proforma Invoice.
BABAR TRADERS
Proforma Invoice 222, Mount Road
Chennai
For Goods Sent on consignment basis to: Oct. 10, 2018
M/s Hari Kishan Enterprises, Hauz Khas, New Delhi.

Serial No. Particulars Amount

Rs. Rs.
Rs. 500 Bush Radio sets at 3,00,000
Rs. 600 each
Charges
Packing and Cartage 4,000
Freight 3,000
Insurance 6,000 13,000
Total 3,13,000
Goods despatched vide R.R.NO.
Smt. G.834866, Dated 10/10/18
Freight to pay.

E. & O. E. For Babbar Traders

(D. BABBAR)
Partner
Note: E.&.O.E. stands for Errors and Omissions Excepted. Which mean that
invoice is subject to the errors of omission and commission.
In the above invoice, Babbar Traders is the consignor and Hari Kishan Enterprises
is the consignee. Goods worth Rs. 3,00,000 have been consigned on which a
sum of Rs. 13,000 has been incurred on various expenses.
Account Sales : As the consignee is an agent and is selling the goods on behalf
of the consignor, he has to furnish the details of sale proceeds, expenses,
commission, etc. to the consignor. He furnishes all these details by means of a
statement called ‘Account Sales’. This shows the quantity and description of
goods sold, sale proceeds realised, the expenses incurred by the consignee,
commission due to him, and the balance amount payable by him to the consignor.
While preparing an Account Sales, the consignee will deduct all expenses incurred
by him in relation to the consignment and the commission due to him. The
remittances made in advance, if any, are also to be deducted from the balance
so obtained. The consignee will send a bank draft or his acceptance for the
balance due to the consignor. Illustration I will give you a clear understanding as
to how an Account Sales is prepared.
Illustration 1
On January 1, 2018 Babbar Traders of Mumbai consigned 500 Bush Radio sets
to Hari Kishan Enterprises, Chennai. The cost of each set was Rs. 750. On
receiving the consignment, Hari Kishan Enterprises sent a bank draft for Rs.
10
25,000 as an advance to Babbar Traders. Hari Kishan Enterprises paid Rs. Consignment Accounts – I
1,500 for freight, Rs. 2,000 for octroi, Rs. 2,500 for godown rent and other
selling expenses. Hari Kishan enterprises submitted an Account Sale on March,
1, 2018 showing that all the sets had been sold at Rs. 850 each. They were
entitled to 10% commission on sales. Prepare the Account Sales.
Solution
ACCOUNT SALES
of 500 Bush Radio Sets Received from Babbar Traders, Mumbai
S.No. Particulars Amount
Sale Proceeds: 500
Bush Radio Sets sold at Rs. 850 each 4,25,000
Less:
Freight 1,500
Octroi 2,000
Godown rent & selling expenses 2,500 6,000
4,19,000
Less: Commission Rs. 4,25,000 × 10% 42,500
3,76,500
Less: Advance (Bank Draft) 25,000
Balance due to Babbar Traders
remitted as per draft enclosed 3,51,500

E. & O. B. For Hari Kishan Enterprises

HARIKISHAN
Dated 01/03/18 Managing Partner
Commission : It is the remuneration paid to the consignee by the consignor in
consideration of the services rendered by the former in selling the goods consigned.
This commission can be divided into two types (a) Ordinary Commission, and (b)
Special Commission.
a) Ordinary Commission: It is a commission usually paid as a fixed percentage
on gross sale proceeds. The terms commission normally denotes ordinary
commission, unless specified otherwise. The consignee is not responsible for
any bad debts and he does not guarantee the payment from all those who
buy on credit so long as he is getting ordinary commission only.
b) Special Commission: This is the commission which the consignee gets over
and above the ordinary commission. It can be sub-divided into two categories
viz., (i) Over-riding Commission and (ii) Del Credre Commission.
i) Over-riding Commission:This is an extra commission allowed over
and above the normal commission and is generally offered when the
agent is required to put in hard work either in introducing a new product
in the market or where he is entrusted with the work of supervising the
performance of other agents in a particular area. This commission is
also given for sales at prices higher than the price fixed by the consignor.
ii) Del Credre Commission: Usually, all the losses are borne by the
consignor. Sometimes the consignor expects that the consignee should 11
Consignments and Joint also be responsible for recovering the debts and bear the loss on
Ventures
account of bad debts, if any. In order to compensate him for this
additional responsibility, he is given some extra commission called ‘Del
Credre Commission’. Such commission is calculated on the total sales
unless there is a special agreement to the effect that it is to be paid only
on the amount of credit sales. Payment of this commission imposes
extra liability on the consignee and induces him to deal in a prudent and
cautious manner.
In illustration 2, we have given you the details regarding the computation of
commission. It would certainly give you an idea about the calculation of normal
commission and special commission.
Illustration 2
Rajadhani Cycles Ltd, sent 2,000 dynamos costing Rs. 50 each for sale on
consignment basis to Banerjee & Co. Calcutta. Normal selling price per dynamos
is Rs. 60. Consignee is entitled to commission at i) 5% on normal selling price;
ii) 10% additional commission on excess sales and iii) 1 ½ % Del credre commission
on total sales for guaranteeing collection of credit sales. Banerjee & Co. reported
sales of 500 dynamos at Rs. 60 each and 200 dynamos at Rs. 75 each on cash
basis, 400 dynamos at Rs. 75 each and another 400 at Rs. 80 each on credit
basis. Compute consignee’s commission.
Solution:
Total Sales:
500 units Rs 60 each 30,000
200 Units @ Rs 75 each 15,000
400 units @ Rs 75 each 30,000
400 Units @ Rs 80 each 32,000

1,07,000
i) Normal Commission
5% on normal price of goods sold.
Number of Units sold are: 1,500 (500 + 200 + 400 + 400)
Normal selling price per unit Rs. 60

Normal Sale: 1500 60 = Rs. 90,000

3
Normal Commission: 5  90,000 = Rs. 4,500
100

ii) Additional Commission : 10% on amount realized in excess of the normal

price Rs.
Total Sales Value: 1,07,000
Normal Sales Value: 90,000
Excess Sales Value: 17,000
10
3
Additional Commission:  17,000 = Rs. 1,700
100
12
iii) Del Credre Commission Consignment Accounts – I

1
1 % on Total Sales
2

3
 1,07,000 = Rs. 1,605
100
Total Commission (i) + (ii) + (iii) Rs.4,500+ Rs. 1,700 + Rs. 1,605 =Rs.7,805
Expenses: Expenses relating to consignment of goods are divided into two
categories viz., (i) Non-recurring Expenses, and (ii) Recurring Expenses.
i) Non-recurring Expenses: All the expenses which are incurred for bringing
goods to the godown of the consignee are non-recurring in nature. Such
expenses are generally incurred on the consignment as a whole. The non-
recurring expenses will be incurred partly by the consignor and partly by the
consignee.
The consignor usually incurs expenses on sending the goods to the consignee
such as packing, cartage, loading charges, insurance, freight. etc. The
consignee usually incurs expenses on receiving the goods from the consignor
such as dock dues, customs duty, clearing charges, octroi, etc.
ii) Recurring Expenses: These expenses are incurred after the goods have
reached the consignee’s place or godown. They are recurring in nature
because they may be incurred repeatedly by the consignor and the consignee.
The examples of recuing expenses incurred by the consignor are: advertising,
discount on bills, commission on collection of cheques, travelling, expenses
of salesmen, bad debts etc. The examples of recurring expenses incurred by
the consignee are godown rent, godown insurance, sales promotion, etc.
Advance: It is a common trade practice for the consignor to demand some
advance from the consignee as a security for the goods despatched to him. It may
be in the form of cash or bank draft or in the form of a bill of exchange. The
consignee will send some amount as an advance before or after he receives the
goods from the consignor. The advance received from the consignee should not
be credited to consignment account as it is not a part of the sale proceeds. The
advance will be adjusted against the amount due from the consignee when the
accounts are finally settled. In some cases, a bill may be drawn on the consignee
if he is not in a position to pay advance money. The consignor can discount the
bill with his bankers. In such a case, the value of the bill (as advance) so accepted
will be deducted from the sale proceeds. The discount paid to the bank can be
straight away charged to the Profit &Loss Account as it represent cost of raising
finance.
Check Your Progress B
1. Distinguish between Account Sales and Sales Account?
.................................................................................................................
.................................................................................................................
.................................................................................................................
................................................................................................................. 13
Consignments and Joint 2. Under what circumstances can the consignee get a special commission?
Ventures
.................................................................................................................
.................................................................................................................
.................................................................................................................
3 Fill in the blanks:
i) E. & O.E. stands for ………..
ii) Consignor allows ……….Commission to the consignee to bear the
bad debts.
iii) ……….expenses are those expenses which are incurred after the goods
reach the consignee’s godown.
iv) The consignee gives advance to the consignor as a……… for goods
despatched.
v) Unloading charges paid by the consignee are ………….expenses.

15.3 ACCOUNTING TREATMENT

The transactions relating to each consignment are recorded in such a way that the
profit or loss of each consignment can be worked out separately. For this purpose,
the consignor prepares a Consignment Account relating to each consignment to
which all concerned expenses including the cost of goods consigned are debited
and the sales proceeds and the closing stock are credited. In addition, he also
maintain a consignee’s account in order to compute the amount due from him. The
consignee, on the other hand, simply maintains consignor’s account in his books
to which he debits the amounts remitted to the consignor the expenses incurred
by him in relation to the consignment and the commission due to him. Consignor’s
Account is credited mainly by the amount of sale proceeds. Now let us study how
various transactions related to consignment are recorded in the books of the
consignor and the consignee.

15.3.1 Books of the Consignor

You know each transaction is recorded first in a subsidiary book and then posted
to the respective accounts in the ledger. All transactions related to consignment
therefore, are first recorded in the Journal. The entries passed in respect of
various transaction are as follows:
1. Goods despatched to the consignee: As you know the consignment of
goods cannot be treated as a sale of goods. Therefore, Sales Account will
not be credited. In its place, an account called ‘Goods Sent on Consignment
Account will be credited and the Consignment Account is debited with the
cost of the goods consigned’. Thus the journa1entry will be as follows:
Consignment A/c Dr.
To Goods Sent on Consignment A/c
(Being the value of the consignment)
If consignments have been sent to more than one consignee, the consignment
accounts may be distinguished by adding the names of the places to the
14
 Consignment Account. (For example Consignment to Calcutta Account, Consignment Accounts – I
Consignment to Gonda Account, etc.
2. Expenses incurred by the consignor: All expenses incurred by the consignor
on consignment of goods are debited to the Consignment Account and are
thus added to cost of goods consigned. The entry would be:
Consignment A/c Dr.
To Cash/Bank A/c
(Being the expenses incurred on the consignment)
3. Advance made by the consignee: The amount of advance received from
the consignee cannot be treated as sale proceeds, and so should not be
credited to the Consignment Account. It is treated as follows.
Cash/Bank/Bills Receivable A/c Dr.
To Consignee’s A/c
(Being an advance from the consignee)
4. Bill received from the consignee discounted with the bank: If the
consignor gets the bills receivable discounted from his bankers, the entry will
be
Bank A/c Dr.
Discount A/c Dr.
To Bills Receivable A/c
(Being bill discounted with the bank)
5. Receipt of account sales from the consignee: When the goods are sold
out, the consignee will send an Account Sales to the consignor intimating him
the total sales and the amount of his expenses and commission. The following
three entries will be recorded in this connection.
a) For sales made by the consignee:
Consignee’s A/c Dr.
To Consignment A/c
(Being gross proceeds of sales)
b) For consignee’s expenses:
Consignment A/c Dr.
To Consignee’s A/c
(Being expenses incurred by the consignee in dealing with consignment)
c) For consignee’s commission:
Consignment A/c Dr.
To Consignee’s A/c
(Being commission payable on sale proceeds)
6. Goods returned by the consignee: Sometimes defective or obsolete goods
are returned by the consignee to the consignor. When such goods are
received, the journal entry will be :
Goods Sent on Consignment A/c Dr.
To Consignment A/c
(Being goods returned by the consignee)
15
Consignments and Joint 7 Bad debts incurred: When the consignee is entitled to delcredre commission,
Ventures
no entry for bad debts is to be passed as such loss is to be borne by the
consignee himself. But when delcredre commission is not paid, the loss on
account of bad debts is to be borne by the consignor, the entry will be:
Consignment A/c Dr.
To Consignee’s A/c
(Being value of bad debts)
8. Remittance by the consignee in full settlement: The balance amount will
have to be remitted by the consignee to the consignor on settlement of the
account. The following entry will be recorded, when the consignee remits to
the consignor:
Cash/Bank/Bills Receivable A/c Dr.
To Consignee’s A/c
(Being balance due from the consignee received).
9. Profit or loss on consignment: When you balance the Consignment
Account, it reveals profit or loss. If the total of credit side is more than the
total of debit side, it is a profit and if the total of debit side is more than that
of the credit side, it is a loss. The profit or loss is transferred to the Profit
& Loss Account and thus the Consignment Account is closed.
The following entries will be recorded:
a) If there is a profit:
Consignment A/c Dr.
To Profit & Loss A/c
(Being profit on consignment)
b) If there is loss:
Profit & Loss A/c Dr.
To Consignment A/c
(Being loss on consignment)
10. Closing entry for goods sent on consignment : Goods Sent on
Consignment Account is closed by transfer to the Trading Account. The
entry passed is as follows:
Goods Sent on Consignment A/c Dr.
To Trading A/c
(Being goods sent on consignment account closed)
11. Unsold stock with the consignee: It is quite possible that all the goods
sent on consignment are not sold by the consignee up to the date on which
final accounts are prepared. Some goods may remain unsold known as the
‘Consignment Stock’. This should be properly valued and credited to the
Consignment Account. You will learn about the valuation of unsold stock in
section 15.5 in this unit. However, the entry for consignment stock will be:
Consignment Stock A/c Dr.
To Consignment A/c
(Being unsold goods with the consignee)

16
You have learnt how to record consignment transactions in the Journal of the Consignment Accounts – I
consignor.
Now let us see how these accounts are shown in the ledger and how profit or
loss on consignment is worked out. The consignor usually maintains the following
three accounts:
1. Consignment Account: It is prepared by the consignor showing all
transactions relating to a particular consignment. The objective of this account
is to ascertain net profit/loss aising from each consignment. Once goods are
consigned by the consignor, its cost is debited to the Consignment Account
alongwith various expenses incurred by the consignor and the consignee in
dealing with that particular consignment. The commission due to the consignee
is also debited to the Consignment Account. When Del Credre Commission
is not paid, the bad debts, if any, are also to be debited to this account.
Once the goods reach the consignee, some of these will be unsold and the
rest sold either on cash or on credit. irrespective of the type of sale, the
entire sale proceeds will he shown on the credit side of the Consignment
Account. The unsold goods are treated as consignment stock and credited
to this Account. If some goods are found unsuitable for sale, the consignee
will send them back to the consignor and the same will appear on its credit
side. After all these items are recorded, the Consignment Account is balanced.
The difference between the debit and credit totals of Consignment Account
is regarded as profit or loss which is transferred to the Profit and Loss
Account and the Consignment Account stands closed. It is infact a nominal
account and is just like a Trading and Profit and Loss Account about which
you have studied earlier in final accounts. Therefore, the principles applied
to Trading and Profit & Loss Account hold good for this account also. Like
Trading and Profit & Loss Account, all expenses and purchases are debited
to this account and all sales and incomes are credited. The proforma of the
consignment account is given in Figure 15.2.
Fig. 15.2
Consignment to Patna Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

To Goods Sent on By Consignee’s A/c xxx

Consignment A/c xxx (Cash and Credit sales)
To Cash A/c xxx By Goods Sent on
(Consignor’s Expenses) Consignment A/c xxx
(Goods returned by the Consignee)
To Consignee’s A/c By Consignment Stock A/c
(Consignee’s Expenses) xxx (Unsold Stock) xxx
To Consignee’s A/c By Profit and Loss A/c
(Commission) xxx (Loss transferred) xxx
To Consignee’s A/c
(Bad Debts if any) xxx
To Profit and Loss A/c
(Profit transferred) xxx
xxx xxx
17
Consignments and Joint 2. Goods Sent on Consignment Account: This is a real account. It deals with
Ventures
the goods transferred from the consignor to the consignee and goods returned
by the consignee to the consignor. All the goods consigned by the consignor
will be credited to this account and the goods returned by the consignee are
debited to this account. The balance represents the cost of goods with
consignee for sale, and is transferred to the Trading Account. The proforma
of the Goods Sent on Consignment Account is depicted in Figure 15.3
Fig. 15.3
Goods Sent to Consignment Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Consignment A/c xxx By Consignment A/c xxx
(Goods returted) (Goods consigned)
To Trading A/c xxx
(Balance transferred)

xxx xxx

3. Consignee’s Account: It is a personal account of the consignee. It is prepared

for ascertaining the amount due from the consignee. The consignee’s account
is debited with all cash and credit sales effected by the consignee. The
various expenses incurred by the consignee, the commission charged by him
as well as the advance remitted by him are credited to this account. This
account usually shows a debit balance indicating the amount due from the
consignee. At time it may show credit balance, if the advance given by the
consignee is more than the sale affected by him. The balance revealed by this
account is shown in the balance sheet of the consignor, debit balance on the
assets side, and credit balance on the liabilities side, unless the account is
settled by the required remittance. Figure 15.4 shows the proforma of
Consignee’s Account.
Fig. 15.4
Consignee’s Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Consignment A/c xxx By Cash/Bank/Bills Receivable A/c xxx
(Cash and Credit Sales) (Advance)
By Consignment A/c xxx
(Consignee’s Expenses)
By Consignment A/c xxx
(Consignee’s Commission)
By Banks A/c or xxx
Balance c/d

xxx xxx
18
Look at illustration 3 and see how various transactions relating to consignment are Consignment Accounts – I
recorded in the books of the consignor.
Illustration 3
Bush Radio & Co., Delhi sent on consignment to Chadda& Co., Calcutta 100
radio sets, invoiced at Rs. 100 each on January 6, 2018. Bush Radio & Co. paid
Rs. 1,000 on the same day for despatching goods to the consignee. Consignee
remitted Rs. 5,000 as an advance by bank draft on January 14. The Consignee
is entitled to a commission of 10% on the sale proceeds. On receipt of goods,
the consignee paid Rs. 1,000 for freight and Rs. 500 for godown charges.
On January 28, Chadda & Co. sent an Account Sales showing that the radio sets
have realisedRs. 200 each. He remits the amount due to Bush Radio & Co. Pass
Journal entries and prepare ledger accounts in the books of the consignor.
Books of Bush Radio & Co., Delhi
JOURNAL
Date Particulars L.F. Dr. Cr.
Amount Amount

2018 Rs Rs.
Jan. 6 Consignment to Calcutta A/c Dr. 10,000
To Goods Sent on Consignment A/c 10,000
(Being cost of consignment sent to Chadda & Co.)
“ 6 Consignment to Calcutta A/c Dr. 1,000
To Bank A/c 1,000
(Being expenditure incurred on despatching of goods)
“ 14 Bank A/c Dr. 5,000
To Chadda & Co. 5,000
(Being receipt of an advance payment from the consignee)
“ 28 Consignment to Calcutta A/c Dr. 1500
To Chadda & Co. 1500
(Being expenses paid by the consignee)
“ 28 Chadda & Co. Dr. 20,000
To Consignment to Calcutta A/c 20,000
(Being the gross proceeds of sales made by the consignee)
“ 28 Consignment to Calcutta A/c Dr. 2,000
To Chadda & Co. 2,000
(Being commission payable on sale proceeds)
Jan. 31 Bank A/c Dr. 11,500
To Chadda & Co. 11,500
(Being balance payment received from the consignee)
“ 31 Consignment to Calcutta A/c Dr. 5,500
To Profit & Loss A/c 5,500
(Being Profit on consignment transferred to
Profit & Loss Account)
“ 31 Goods Sent on Consignment A/c Dr. 10,000
To Trading A/c 10,000
(Being goods sent on consignment transferred to
Trading Account)
19
Consignments and Joint LEDGER
Ventures
Consignment to Calcutta Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. Jan Rs.

To Goods sent To Chadha & Co 20,000

on Consignment A/c 10,000
To Bank A/c
(Consignor’s Expenses) 1,000
To Chadha & Co. 1,500
(Consignee’s Expenses)
To Chadha & Co.
(Consignee’s Commission) 2,000
To Profit & Loss A/c 5,500
(Profit transferred)
20,000 20,000

Goods Sent on Consignment Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 2018
Jan 30 To Trading A/c 10,000 Jan 6 By Consignment to Calcutta A/c 10,000

Chadha& Co. Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan 28 To Consignment to 20,000 Jan 14 By Bank A/c 5,000
Calcutta A/c (Advance)
(Sale Proceeds) By Consignment to Calcutta A/c 1,500
(Expenses)
By Consignment to Calcutta A/c 2,000
(Commission)
By Bank A/c 11,500
(Balance received)
20,000 20,000

20
15.3.2 Books of the Consignee Consignment Accounts – I

The Consignee mainly prepares a consignor’s account in his books to find out
what is finally due to the consignor. He records all transactions relating to the
consignment first in the Journal and then posts them to the relevant accounts
(including Consignor’s Account) in the ledger. The journal entries passed by the
consignee are:
1. Receipt of goods from the consignor: No entry is passed by the consignee
when he receives goods from the consignor because receipt of goods on
consignment does not amount to purchases of goods by him. He keeps them
in his godown on behalf of the consignor for which he usually maintains an
Inwards Consignment Book.
2. Expenses incurred by the consignor: No entry is passed by the consignee.
3. Advance made by the consignee
Consignor’s A/c Dr.
To Bank/Bills Payable A/c
(Being advance made by the consignee)
4. Bill discounted by the consignor with the bank: No entry is passed by
consignee.
5. Sale of goods by the consignee
Cash A/c (cash sales) Dr.
Consignment Debtors A/c (Credit sales) Dr.
To Consignor’s A/c
(Being goods sold)
6. Expenses incurred by the Consignee: Being an agent of the consignor,
all legitimate expenses incurred by the consignee related to the consignment
are to be reimbursed by the consignor, the entry will be:
Consignor’s A/c Dr.
To Cash/Bank A/c
(Being expenses incurred on consignment)
7. Commission due to the consignee: This should include all types of
commissions due to the consignee: The entry will be
Consignor’s A/c Dr.
To Commission A/c
(Being commission due on sales)
8. Return of goods to the consignor: No entry will be passed in the books
of the consignee as no entry was passed at the time of receipt of the goods.
9. Payment received from debtors
Cash/Bank A/c Dr.
To Consignment Debtors A/c
(Being amount collected from debtors)
10. Bad debts incurred
a) If consignee does not get delcredre commission, all bad debts have to
be borne by the consignor himself. The entry will be. 21
Consignments and Joint Consignor’s A/c Dr.
Ventures
To Consignment Debtors A/c
(Being bad debts on consignment)

b) If delcredre commission is paid to the consignee, the bad debts are to

be borne by him. The entry will be:
Bad Debts A/c Dr.
To Consignment Debtors A/c
(Being bad debts incurred on consignment)

11. When the bills payable accepted in favour of consignor is met on the due
date:
Bills Payable A/c Dr.
To Bank A/c
(Being bills payable honoured)

12. Remittance in final settlement

Consignor’s A/c Dr.
To Cash/Bank Account
To Bills Receivable Account
(Being payment of the balance due to the consignor)
13. Unsold stock in possession of the consignee : No entry will be passed
for unsold goods in the books of consignee as no entry was passed when
he received goods from the consignor.
14. Profit or Loss on consignment: No entry is passed for profit or loss on
consignment as the consignee is not concerned with it.
The Consignee also prepares ledger accounts after passing all the journal entries.
The Consignor’s Account and Commission Account are the two important accounts
prepared by the Consignee in his books. Of course, he will also do the postings
to the other accounts such as Consignment Debtor’s Account, Consignment
Expenses Account and Bills Payable Account. etc. But these are of less importance,
hence not discussed here.
1. Consignor’s Personal Account: This is the main account in Consignee’s
ledger which is prepared for working out the amount due to the consignor.
Whatever amount he receives from sales of goods is credited to this account.
All expenses incurred by the consignee in relation to consignment, the
commission due to him, and the advance given by him to the consignor will
be debited to this account. Further, if the consignee does not get delcredre
commission, the bad debts on account of credit sales are also debited to the
Consignor’s Account. The balance of this account indicates the amount payable
to the consignor. This account is just the opposite of the Consignee’s Account
in the books of the consignor. The proforma of the Consignor’s Account is
given in Figure 15.5
22
 Fig. 15.5 Consignment Accounts – I
Consignor’s Personal Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Bank/Cash A/c By Bank A/c
(Consignee’s Expenses) xxx (Cash Sales) xxx
To Bank/Bills Payable A/c By Consignment A/c
(Advance) xxx (Credit Sales) xxx
To Commission A/c By Bank A/c
(Consignee’s Commission) xxx (Balance remitted) xxx
xxx xxx

2 Commission Account: This is nominal account. It shows the income earned

by the consignee for the services rendered by him, All types of commission
whether, ordinary or special, due to the consignee is credited to this account.
The Commission Account will be debited with bad debts if the consignee is
to bear such loss because of delcredre commission. The proforma of the
Commission Account is given in Figure 15.6

Fig. 15.6
Commission Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Bad debts A/c xxx By Consignor’s A/c xxx
To Profit & Loss A/c (Consignee’s Commission)
(balance) xxx
xxx xxx

Taking the data of illustration 3 let us see how transactions related to consignment
will be recorded in the books of the consignee.
Books of Chadha & Co.
JOURNAL

Date Particulars L.F. Dr. Cr.

Amount Amount

2018 Rs Rs.
Jan. 14 Bush & Co. Dr. 5,000
To Bank A/c 5,000
(Being advance paid by the consignee)
“ 15 Bush & Co. Dr. 1,500
To Cash/Bank A/c 1,500
(Being expenses incurred on consignment)
23
Consignments and Joint
Ventures
“ 28 Bank A/c Dr. 20,000
To Bush & Co. 20,000
(Being cash sales on consignment)
“ 28 Bush & Co. Dr. 2,000
To Commission A/c 2,000
` (Being commission due on goods sold)
“ 31 Bush & Co. Dr. 11,500
To Bank A/c 11,500
(Being balance payment made)

LEDGERS
Bush & Co’s Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan. 14 To Bank A/c 1,500 Jan. 31 By Bank A/c (Sales) 20,000
Jan. 14 To Bank A/c (Advance) 5,000
Jan. 14 To Commission A/c 2,000
Jan. 14 To Bank A/c (Balance) 11,500
20,000 20,000

Commission Account

2018 Rs. 2018 Rs.

Jan. 31 To Profit & Loss A/c 2,000 Jan. 28 By Bush & Co. 2,000

Check Your Progress C

1. Fill in the blanks.
i) All expenses incurred by the consignee are………… to Consignment
Account.
ii) When the defective goods are returned by the consignee, the consignor
debits it to ………….Account.
iii) When there is no del-credre commission, bad debts are borne by
the …..............…….
iv) Consignment Account is similar to……………Account.
v) Consignee passes …………..entry for closing stock.
vi) Commission Account is a …………Account.
2. Explain why the consignee does not pass any entry for
a) Goods sent on consignment
24
 b) Profit or loss on consignment, and Consignment Accounts – I

c) Closing stock.

.........................................................................................................

.........................................................................................................

.........................................................................................................

.........................................................................................................

15.4 DIRECT RECORDING IN THE LEDGER

You know for each consignment, the Consignor prepares the Consignment Account,
the Goods Sent on Consignment Account and the Consignee’s Account in his
books, whereas the consignee prepares the Consignor’s Account and the
Commission Account in his books. Sometimes, you may be asked to prepare the
ledger accounts directly i.e., without passing any journal entries, You should therefore
learn how to prepare these accounts directly.

You should debit the Consignment Account with the cost of goods consigned,
expenses incurred by the consignor, expenses incurred by the consignee and the
Consignee’s commission; and credit it with sales (both cash and credit) and the
goods returned by the Consignee. The Consignee’s Account will be debited with
the sales made by him and credited with his expenses, commission and the
remittances made to the Consignor.

The Consignor’s Account in the books of Consignee is just the reverse of

Consignee’s Account in Consignor’s books. It is debited with the expenses incurred
by the Consignee, the commission due to him and the remittances made to the
Consignor on account; and credited with the total amount of sales.

Look at illustration 4 and see how the consignment transactions are recorded
directly in the ledger accounts.

Illustration 4

On January 1, 2018, Gursharan & Co. of Delhi consigned 50 cases of glassware

costing Rs. 40,000 to Singh & Co. of Calcutta for sale on commission @ 5%
on gross sale proceeds. Gursharan & Co. paid Rs. 500 for freight and carriage
and Rs. 600 for packing. Singh & Co. took the delivery of goods on January
5, 2018 and paid Rs. 300 for clearing charges, Rs. 200 for carriage, Rs. 50 for
miscellaneous expenses, and Rs. 100 for godown rent.

They sold 15 cases @ Rs. 1,000 each, 25 cases @ Rs. 1,200 each and 10 cases
@ Rs. 1,100 each.

On April 5, 2018 Singh & Co. sent a bank draft for Rs. 15,000 to Gursharan
& Co. on account. On April 10, 2018 Singh & Co. forwarded an Account Sales
together with a bill of exchange for the balance due.

Prepare the necessary ledger accounts in the books of both the parties. 25
Consignments and Joint
Ventures

Solution :
Books of Gursharan & Co.
Consignment to Singh &Co’s Account
Dr. Cr.

Date Particulars Amount Date Particulars Amoun

2018 Rs. 2018 Rs.

Jan. 1 To Goods Sent on 40,000 Apr. 10 By Singh & Co. (Sales) 56,000
Consignment A/c
“ 1 To Bank A/c
Freight and Carriage 500
Packing 600 1,100
Apr.10 To Singh & Co. (Expenses)
Clearing charges 300
Carriage 200
Misc. Expenses 50
Godown Rent 100 650
“ 10 To Singh & Co. (Commission) 2,800
“ 10 To Profit & Loss A/c
(Profit transferred) 11,450
56,000 56,000

Goods Sent on Consignment Account

2018 Rs. 2018 Rs.

Apr.10 To Trading A/c 40,000 Jan. 1 By Consignment to
Singh & Co. A/c 40,000

Singh & Co’s Account

2018 Rs. 2018 Rs.

Apr. 10 To Consignment to 56,000 Apr. 5" By Bank A/c 15,000
Apr. 10" By Consignment to Singh 650
& Co. A/c (Expenses)
Apr. 10" By Consignment to Singh 2,800
& Co. A/c to (Commission)
Apr. 10 By Bills Receivable A/c
(Balance) 37,550
56,000 56,000

26
 Books of Singh & Co. Consignment Accounts – I
Gursharan& Co. Account

2018 Rs. 2018 Rs.

Apr. 5" To Bank A/c 15,000 Apr. 10 By Bank A/c (Sales) 56,000
10" To Cash A/c (Expenses) 650
10" To Commission A/c 2,800
10 To Bills Payable A/c 37,550
56,000 56,000

Commission Account

2018 Rs. 2018 Rs.

Apr. 10 To Profit & Loss A/c 2,800 Apr. 10 By Gursharan & Co. A/c 2,800
2,800 2,800

15.5 UNSOLD STOCK

In illustration 4, you saw that Singh & Co. sold all the goods consigned to them.
But, in practice, you will find that at the time of submitting the Account Sale, a
part of goods consigned will still be unsold and will be lying with the consignee.
In order to calculate the true profit or loss on consignment, the unsold stock
should be valued and accounted for. Let us therefore, learn first how the unsold
stock is valued.
15.5.1 Valuation of Unsold Stock
You know that valuation of unsold stock is usually done at cost. In case of
consignment, cost of stock would include the cost at which the goods are consigned
plus the proportionate non-recurring expenses i.e., all those expenses incurred till
the goods reach the godown of the consignee. You should note that all non-
recurring expenses, whether incurred by the consignor or by the consignees, are
to be taken into account. In the absence of details of expenditure incurred by the
consignee, all expenses incurred by him are to be taken as recurring expenses and
thus are not to be considered in the calculation of closing stock. In other words,
while valuing the closing stock we add such proportionate expenses to the cost
price that have been incurred upto the time the goods are brought to the place
of the consignee. Any other expenses paid by the consignor or the consignee after
this point will not be considered, as these expenses do not add to the value of
the goods. Such expenses are godown rent, selling expenses, carriage outwards,
godown insurance, discount etc.
Following expenses are usually added for calculation of closing stock:
Carriage and Freight
Loading Charges
Customs Duty
Clearing Charges
Dock Dues 27
Consignments and Joint Carriage paid upto the Godown
Ventures
Unloading Charges
Following are the expenses which are not considered for calculation of
closing stock:
Godown Rent
Discount
Bad Debts
Insurance of the Goods in the Godown
Selling and Distribution Expenses.
You will notice that all expenses incurred by the Consignor are considered for
valuation of the closing stock. The problem arises only in case of Consignee’s
expenses. The Consignee’s expenses which are to be included in the value of
closing stock are those expenses which are incurred till the goods reach the
godown of the Consignee. Any other expenses incurred thereafter are ignored for
purposes of closing stock valuation.
Look at illustration 5 and see how the unsold stock is valued.
Illustration 5
A sent goods worth Rs. 10,000 to B and paid Rs. 1,200 for packing and Rs.
800 for insurance. B took the delivery of the goods and paid Rs. 2,000 for
freight, Rs. 400 for cartage and unloading, Rs. 600 for godown rent, Rs. 400 as
selling expenses and Rs. 800 for insurance. B sold three fourth of the goods for
Rs. 1,800. Calculate the value of closing stock.
Solution
1 Cost of Unsold Stock: Rs. 2,500 (1/4 of 10,000)
2 Non-recurring Expenses:
Incurred by Consignor Rs. 2,000 (1,200 + 800)
Incurred by Consignee Rs. 2,400 (2,000 + 400)
Rs. 4,400
3 Value of Closing Stock

Cost of Unsold Stock

Cost of Unsold Stock  (Non  recurnng Expenses  )
Cost of Goods Consigned

= Rs. 2,500 +( 4,400  2,500/10,000)

= Rs.2,500+ 1,100
= Rs. 3,600
Note : The godown rent, selling expenses and insurance being recurring expenses
have not been included in the value of closing stock

15.5.2 Accounting Treatment of Unsold Stock

Since the value of unsold stock affects the profit or loss on any consignment, its
valuation and recording in the books of Consignor is very important. It is shown
on the credit side of Consignment Account for which the following journal entry
28 will be passed.
 Consignment Stock A/c Dr. Consignment Accounts – I
To Consignment A/c
(Being the value of closing stock)
The Consignee, however, will not pass any entry for the closing stock. It is
because he is not the owner of the goods and does not pass any entry even when
he receives or returns the goods.
Look at ilustration 6 and see how the closing stock is valued and treated in the
books of account.
Illustration 6
On January 1, 2018 Universal Sports, Delhi consigned 180 cases of sports goods
costing Rs. 360 each to Gemini Sports, Mumbai. They paid Rs 360 for insurance
and Rs. 1,800 for freight. Gemini Sports are entitled to a commission of 10% on
gross sales. Gemini Sports received the consignment on January 15 and sent a
60 days bill for Rs 10,000 to Universal Sport. The Bill was discounted for Rs.
9,000 .
On opening the cases, the Consignee found 10 cases of wrong description and
returned them, paying return freight of Rs. 400. Gemini Sports sold 120 cases @
Rs 600 each for cash and 20 cases @ Rs. 700 each on credit. Gemini Sports
spent Rs. 720 on clearing charges and Rs. 600 on carriage outwards. They
incurred bad debts amounting to Rs 400. The accounts were settled on June 30,
and the balance remitted by cheque. Show necessary ledger accounts in the
books of both the parties.
Solution :
Books of Universal Sports
Consignment Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan. 1 To Goods Sent on 64,800 Jan. 15 By Goods Sent on 3,600
Consignment A/c Consignment A/c (Returns)
“ 1 To Bank A/c (Expenses) Jan. 30 By Gemini Sports
Insurance 360 Cash Sales 72,000
Freight 1,800 2,160 Credit Sale 14,000 86,000
“ 15 To Gemini Sports 400 “ 30 By Consignment Stock A/c 11,280
(Freight on goods returned)
Jun 30 To Gemini Sports (Expenses)
Clearing Charge 720
Carriage Outward 600 1,320
“ 30 To Gemini Sports
(Bad Debts) 400
“ 30 To Gemini Sports
(Commission) 8,600
“ 30 To Profit & Loss A/c
(Profit transferred) 23,200
1,00,880 1,00,880
29
Consignments and Joint Gemini Sport Account
Ventures

2018 Rs. 2018 Rs.

June 30 To Consignment A/c 86,000 Jan.15 By Bills Receivable A/c (Advance) 10,000
(Sales) 15 By Consignment A/c 400
(Freight on returns)
30 June By Consignment A/c 1,320
(Expenses)
30" By Consignment A/c 400
(Bad Debts)
30" By Consignment A/c 8,600
(Commission)
30" By Bank A/c 65,280
86,000 86,000

Goods Sent on Consignment Account

2018 Rs. 2018 Rs.

Jan. 15 To Consignment A/c 3,600 Jan. 1 By Consignment A/c .64,800
June 30 To Trading A/c 61,200
64,800 64,800

Books of Gemini Sports

Universal Sports Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan. 15 To Bills Payable A/c 10,000 June 30 By Cash A/c (Cash Sales) 72,000
“ 15 To Cash A/c 400 June 30 By Debtors A/c 14,000
(Freight on returns) (Credit Sales)
June30 To Cash A/c 1,320
(expenses)
“ 30 To Debtors A/c 400
(Bad Debts)
“ 30 To Commission A/c 8,600
“ 30 To Bank A/c 65,280
86,000 86,000

Commission Account
2018 Rs. 2018 Rs.
June 30 To Profit & Loss A/c 8,600 June 30 By Universal Sports 8,600

Working Notes:
1. Closing Stock Valuation:
Closing Stock Units
 Cost price
No. of Closing UnitsNumber of Closing + (Non-recurring
Units
per Unit (Non  recurring 
Expenses
Expenses
No. of Units Consigned
30
 = 30 x 360 + (2,880 x 30/180) Consignment Accounts – I

= 10,800 + 480
= Rs. 11,280.
(Non-recurring Expenses include all the expenses of Consignor and clearing
charges paid by the Consignee)
2. Goods Returned to the Consignor : The goods returned are to be valued
at Cost Price only. They should not include any other expenses. However,
all the expenses incurred by the Consignee to return the goods should be
considered as the expenses on that consignment. So the Consignment Account
is debited and the Consignee’s Account is credited with the amount of
expenses incurred on returns.
Check Your Progress D
1. Tick the correct alternative
a) The cost of consignment stock is the cost at which the goods are
consigned plus
i) the non-recurring expenses
ii) proportionate non-recurring expenses
iii) all the recurring expenses
b) Non-recurring expenses are the expenses incurred
i) after the goods reach the godown of the consignee
ii) in transportation
iii) till the goods reach the godown of the consignee
c) Consignment stock is shown on’
i) credit side of Consignee’s Account
ii) credit side of Consignment Account
iii) debit side of Consignor’s Account
d) Goods returned by the Consignee should be charged to the Consignment
Account at
i) cost price
ii) market price
iii) cost or market price whichever is lower
e) Expenses incurred in forwarding the defective goods should be debited to
i) Profit and Loss Account
ii) Consignment Account
iii) Goods Sent on Consignment Account 31
Consignments and Joint
Ventures 15.6 LOSS OF GOODS
Under Consignment arrangement, when goods are transferred from one place to
another, there is a possibility of loss in transit. The loss can also take place in the
godown of the Consignee. The loss may occur due to factors like evaporation,
leakage, mishandling etc., or due to some accident or theft. Such losses can be
broadly divided into two types :
a) Normal Loss
b) Abnormal Loss.
Let us discuss the exact nature of these losses and their accounting treatment.

15.6.1 Normal Loss

It is a loss which is due to the inherent nature of the goods consigned. It may arise
in the process of loading and unloading of goods, breaking of bulk pieces into
smaller ones, weighing, due to evaporation, processing, etc. For example, while
loading or unloading or weighing coal, some part is bound to fall down in powdered
form. Similarly, the petroleum products are bound to loose weight due to
evaporation or leakage. This type of loss is unavoidable. It can be reduced to
some extent but cannot be eliminated altogether. Since this loss occurs in the
ordinary course of business and is on account of inherent characteristics of the
goods, it is called a normal loss. Normal loss is not shown separately in the
books of accounts. The cost of normal loss is spread over the remaining units,
thereby increasing the cost per unit of the goods. For example 10,000 tons of
coal is sent on consignment costing Rs. 100 each. The normal wastage is i.e., 200
tons. Let us see how normal loss leads to an inflated cost price per unit.
Total Cost of 10,000 = Rs. 10,00,000 (10,000  100)
Total units = 10,000 tons
Normal Loss = 200 tons
Remaining units = 9,800 tons
Rs. 10,00,000 will now be the cost of 9,800 tons as the cost of normal loss is
borne by the remaining units. The cost per unit will therefore be 10,00,000/9,800
= Rs. 102.04 approximately.
As stated earlier, no separate entry is passed for the normal loss. The effect of
this is reflected in the valuation of closing stock only.
If the consignee is able to sell all the goods so that there is no stock left unsold,
the question of normal loss becomes irrelevant. The problem arises only when
some goods are left unsold with the consignee. In that case, we shall first calculate
the inflated cost per unit as explained above, and then the closing stock shall be
valued by multiplying the number of units in stock with the inflated cost per unit.
The value of closing stock can also be computed directly (without calculating the
inflated cost per unit) with the help of the following formula.

Unsold Units
Total Cost of Goods Consigned 
Remaining Units
Look at illustration 7 and see how the closing stock is valued when there is
normal loss.
32
Illustration 7 Consignment Accounts – I

Ram consigned 2,000 tons of coal at Rs. 50 per ton to Shyam of Delhi. He paid
Rs. 20,000 as freight. Due to normal wastage 1,950 tons only were received by
Shyam. He paid Rs. 5,000 as unloading charges. Goods sold were 1,300 tons.
You are required to calculate the value of closing stock.
Solution :
Rs.
Cost of 2,000 tons of coal at Rs. 50 per ton 1,00,000
Add:
Freight paid by the Consignor 20,000
Unloading charges paid by the consignee 5,000
Total Cost of Goods 1,25,000
Unsold units: Tons.
Total Units 2,000
Units Lost 50
Remaining Units 1,950
Units Sold 1,300
Units Unsold 650
Value of Closing Stock: Rs.
Cost of 2,000 tons = = 1,25,000
Cost of 1,950 (2,000 —50) tons = 1,25,000
Inflated Cost per ton = 1,25,000 Rs.64.10
1950 tons
Value of Closing Stock = Number of unsold unitsInflated cost per unit
= 650 tons  64.10
Rs. 41,665
Alternatively
Value of clossing Stock =

Unsold Units
Total Cost of Goods Consigned 
Remaining Units
650
 Rs.1, 25, 000 
1, 950
= Rs. 41,667

15.6.2 Abnormal Loss

The loss which occurs due to negligence, inefficiency or some accident is treated
as abnormal loss. For example, loss of goods due to fire, floods, earth quakes,
riots, war, theft etc. Such a loss does not occur on account of inherent nature of
the product, but on account of the operation of certain external forces. 33
Consignments and Joint Abnormal loss is calculated in the same manner as the value of closing
Ventures
stock. Inother words, in order to calculate the 33 abnormal loss, all the
proportionate non-recurring expenses incurred upto the point of loss are also
added to the cost of abnormal loss units. The formula for calculation of abnormal
loss is as follows:
Cost of Abnormal Loss Units =
No. of Abnormal Loss Units  Cost Per Unit +
No. of Abnormal Loss Units
Non-recurring Expenses upto the Point of Loss 
No. of Units Consigned

Since the abnormal loss is not incidental to the consignment, it should be shown
separately in the books of accounts. The total abnormal loss is credited to the
Consignment Account. The following entry is passed in the books of the Consignor:
Abnormal Loss A/c Dr.
To Consignment A/c
(Being loss on account of ...)
Such an abnormal loss may be
i) Uninsured
ii) Partially Insured
iii) Fully Insured
i) When the abnormal loss is Uninsured: In case the abnormal loss is not
insured with an insurance company, the total amount of the loss is transferred
to Profit & Loss Account by passing the following entry.
Profit & Loss A/c Dr.
To Abnormal Loss A/c
(Being Abnormal Loss transferred to P & LA/c)
ii) When the abnormal loss is partially insurred : In case the abnormal loss
is insurred and the claim is admitted for a part of the loss, then the following
entry is passed
Insurance Company’s A/c Dr.
Profit & Loss A/c Dr.
To Abnormal Loss A/c
(Being partial claim admitted)
Insurance Company will be debited with the amount of claim admitted and
only the balance amount (total loss minus the claim) is transferred to Profit
& Loss Account.
iii) When the abnormal loss is fully insured: In case the loss is fully insured
and the total ‘claim’ is admitted by the insurance company, the following
entry will be passed.
Insurance Company’s A/c Dr.
To Abnormal Loss A/c
(Being claim fully admitted)
Nothing is transferred to the Profit & Loss Account as the claim for the whole
amount of loss had been admitted by the insurance company. No loss is to be
borne by the Consignor. Look at illustration 8 and see how abnormal loss is
34 calculated and treated in the books of accounts.
Illustration 8 Consignment Accounts – I

Philips Radio Company consigned 100 transistors to their agent Paul Radios,
Delhi. The cost price of each transistor is Rs. 75. The Consignor paid Rs. 200
for freight, Rs. 50 for cartage and Rs. 400 for insurance. Five transistors were
totally destroyed in transit. The insurance claim of Rs. 300 was admitted by the
insurance company. The Consignee took the delivery of 95 radios and spent Rs.
190 for clearing charges, Rs. 95 for cartage, Rs. 250 on godown rent and Rs.
150 as selling expenses. They sold all the units at Rs 100 each. Paul Radios are
entitled to 5% commission on total sales. The balance due was remitted by way
of a bank draft. Calculate the abnormal loss and prepare necessary ledger accounts
in the books of both the parties.
Solution
Abnormal Loss = Number of Abnormal Loss Units Cost Price Per Unit +

Abnormal Loss Units

(Non-recurring expenses before loss  )
Total Units
= 5  75 + (650  5/100)
= 375 + 32.50
= Rs. 407.50 say Rs. 408

Books of Philips Radio Company

Consignment Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs
To Goods Sent on Consignment A/c 7,500 By Abnormal Loss A/c 408
To Bank A/c (Expenses) 650 By Paul Radios (Sales) 9,500
To Paul Radios (Expenses) 685
To Paul Radios (Commission) 475
To Profit & Loss A/c 598
(Profit transferred)
9,908 9,908

Paul Radio’s Account

Rs. Rs
To Commission A/c 9,500 By Consignment A/c 685
(Sales) (Expenses)
By Consignment A/c 475
(Commission)
By Bank A/c 8,340
9,500 9,500
35
Consignments and Joint Goods Sent on Consignment A/c
Ventures
Rs. Rs.
To Trading A/c 7,500 By Consignment A/c 7,500
7,500 7,500

Abnormal Loss Account

Rs. Rs.
To Consignment A/c 408 By Insurance Company A/c 300
By Profit & Loss A/c 108
408 408

Books of Paul Radio

Dr. Philips Radio’s Account Cr.
Rs. Rs
To Bank A/c (Expenses) 685 By Bank A/c (Sales) 9,500
To Commission A/c 475
To Bank A/c 8,340
9,500 9,500

Commission Account

Rs. Rs.
To Profit & Loss A/c 475 By Philips Radio A/c 475
475 475

Effect of abnormal loss on valuation of closing stock: The value of closing

stock is also effected in case of abnormal loss. Abnormal loss may occur either
in the godown of the Consignee or in transit. Let us see the effect of abnormal
loss on the closing stock under both situations. When the abnormal loss occurs
in the godown of the Consignee, the valuation of closing stock is not effected
because the expenses incurred after reaching the godown of the Consignee are
not to be taken into account for the purpose. Hence, the normal formula will be
followed for the valuation of closing stock. Look at illustration 9 and see how
the abnormal loss and the value of closing stock is calculated when the abnormal
loss occurs in the godown of the Consignee.
Illustration 9
Vanaspati Ltd. consigned 5,000 kg. of vanaspati ghee to Ashoka Dealers,
Chandigarh. Each kg.of ghee costs Rs. 8. Vanaspati Ltd. paid Rs 50 for carriage,
Rs. 250 for packing and Rs. 200 for insurance in transit.
After three months from the date of the consignment of goods, Ashoka Dealers
reported that 3,500 kg. of ghee was sold @ Rs. 9.50 per kg. and expenses were
Rs. 500 on godown rent and Rs. 750 on salesmen salary. Ashoka Dealers are
entitled to a commission of 5% on sales. 500 kg. of ghee was accidentally
destroyed in the godown. Insurance claim of Rs. 3,500 was admitted. Prepare
36 the necessary ledger accounts in the books of both the parties.
Solution: Consignment Accounts – I

Books of Vanaspati Ltd.

Consignment Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
To Goods Sent on Consignment A/c 40,000 By Abnormal Loss A/c 4,050
By Ashoka Dealers (Sales) 33,250
To Bank A/c (Expenses) 500 By Consignment Stock A/c 8,100
To Ashoka Dealers (Expenses) 1,250
To Ashoka Dealers (Commission) 1,662
To Profit & Loss A/c 1,988
45,400 45,400

Ashoka Dealer’s Account

Rs. Rs.
To Consignment A/c 33,250 By Consignment Stock A/c 1,250
(Expense)
By Consignment Stock A/c 1,662
(Commission)
By Balance c/d 30,338
33,250 33,250

Good Sent on Consignment Account

Rs. Rs.
To Trading A/c 40,000 By Consignment A/c 40,000

Abnormal Loss Account

Rs. Rs.
To Consignment A/c 4,050 By Insurance Company’s A/c 3,500
By Profit & Loss A/c 550
4,050 4,050

37
Consignments and Joint
Ventures Note:Abnormal loss has been worked out as follows:
Cost of 500 units = Rs. 4,000 (500  8)
Add : proportionate non-recurring expenses Rs. 50 (500/5,000 500)
Abnormal Loss = Rs. 4050
Books of Ashoka Dealers
Vanaspati Ltd’/s Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs
To Bank A/c (expenses) 1,250 By Bank A/c (Sales) 33,250
To Commission A/c 1,662
To Balance c/d 30,338
33,250 33,250

Commission Account

Rs. Rs
To Profit & Loss A/c Rs.1,662 By Vanaspati Ltd Rs.1,662

You have learnt that when abnormal loss occurs in the godown of the Consignee,
the closing stock valuation is not affected. But it is not so when the abnormal loss
occurs in transit. The closing stock valuation is also affected due to abnormal loss
in transit because some non recurring expenses may be incurred after the loss has
taken place. Hence, when such loss occurs in transit, you will have to distinguish
between the non-recurring expenses incurred before the loss and the non-recurring
expenses incurred after the loss. The non-recurring expenses incurred before the
loss relate to the total units consigned whereas the non-recurring expenses incurred
after the loss relate to the remaining units (total units minus abnormal loss units)
only. So the expenses before the loss will be proportionately divided amongst the
total units, whereas the expenses incurred after the loss will be proportionately
divided amongst the remaining units. Look at illustration 10 and see how closing
stock and abnormal loss are calculated and treated when such a loss occurs in
transit.
Illustration 10
On June 10, 2018, Modi & Co., Patiala consigned 500 cases of goods costing
Rs. 150 each to Sethi & Co., Calcutta. On the same date, the Consignor paid
Rs. 2,500 for freight and carriage, Rs. 1,000 as loading charges, and Rs. 1,200
for insurance. On July 1, 2018 the Consignee paid Rs. 1,800 for clearing
charges, Rs. 1,750 for warehousing and storage charges, and Rs. 900 for packing
and selling expenses. He also remitted a bank draft for Rs. 15,000 as an advance
against the consignment. On July 5, 2018 they sold 275 cases at Rs. 200 each.
Sethi & Co. are entitled to 5% commission on the gross proceeds of sales. It is
found that 50 cases have been lost in transit. Sethi & Co submitted an Account
Sale on July 10, 2018. Prepare the necessary ledger accounts in the books of the
38 Consignor.
Solution Consignment Accounts – I

Books of Modi & Co.

Consignment Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs

June10 To Goods Sent on Consignment A/c 75,000 July,10 By Sethi & Co. 55,000
(500 cases) (Sales of 275 cases)
“ 10 To Bank A/c 4,700 “ 10 By Abnormal loss A/c
(Consignor’s Expenses) (Loss in transit 50 cases) 7,970
July,10 To Sethi & Co. 4,450 “ 10 By Consignment 28,595
(Consignee’s Expenses) Stock A/c
“ 10 To Sethi & Co. 2,750
(Commission)
“ 10 To Profit & Loss A/c 4,665
(transfer of profit)
91,565 91,565

Sethi & Co. Account (Consignee)

2018 Rs. 2018 Rs

July,10 To Consignment A/c 55,000 July, 1" By Bank A/c 15,000
(Sale proceeds) (Advance)
10" By Consignment A/c 4,450
(Consignment expenses)
10" By Consignment A/c 2,750
(Commission)
10 By Balance c/d 32,800
55,000 55,000

Good Sent on Consignment Account

2018 Rs. 2018 Rs

July 10 To Trading A/c 75,000 July 10 By Consignment A/c 75,000

Notes:
1. All expenses incurred by the Consignor and the clearing charges incurred by
the Consignee are non-recurring expenses.
2. Abnormal Loss:
Number of Abnormal Loss Units  Cost Price Per Unit

(
+ Non-recurnng Expenses up to the point of loss 
Abnormal Loss Units
Total Units Consigned ) 39
Consignments and Joint 50
Ventures = (50  150) + (4,700  )
500
= 7,500 + 470 = Rs. 7,970
3 Valuation of Closing Stock:
Number of Closing Units = 175
Cost Price Per Unit = Rs. 150
Cost of Unsold stock = 175  150 = Rs. 26,250
Non-recurring expenses before loss = Rs. 4,700 (2,500 + 1,000 + 1,200)
Since these expenses are incurred on total consignment i.e., 500 units, the
proportionate amount of expenses for consignment stock will be
175
4,700  = Rs. 1,645
500
Non-recurring expenses after loss of Rs. 1,800 i.e., clearing charges of the
consignee, as they are incurred after the consignment reaches the consignee. They
would relate to 450 units (500—50). Hence, the proportionate amount of these
expenses for consignment stock will be 1,800  175/450 = Rs. 700
Now the value of closing stock will be as follows:
Cost of unsold stock (1751150) = Rs. 26,250
Add proportionate Expenses
i) Before loss = Rs. 1,645
ii) After loss = Rs. 700
Value of Unsold stock = Rs. 28,595
The above method of valuation of closing stock can be put in the form of a
formula which is as follows:
Number of Unsold Units  Cost price per unit
Unsold Units
+ Non-recurring expenses before loss 
Total Units

Unsold Units
+ Non-recurring expenses before loss 
Total Units — Abnormal Loss Units

15.6.3 Where Normal and Abnormal Losses Occur

Simultaneously
In the illustration done earlier you had either the normal loss or the abnormal loss
on the consignment. But it is quite possible that both normal and abnormal losses
occur simultaneously in connection with the same consignment. In such a situation,
the abnormal loss will be calculated in the same manner as discussed in sub-
section 15.6.2. But, the valuation of closing stock needs special attention as the
normal loss is also involved. In order to calculate the value of closing stock, the
following procedure will be followed:
40
i) Take the total cost of goods consigned and add all the non-recurring expenses Consignment Accounts – I
incurred by the Consignor as well as the Consignee.
ii) Deduct the quantity and cost of abnormal loss from the total number of
goods consigned and the cost as obtained in (i) above respectively.
iii) Deduct the quantity of normal loss from the quantity worked out in (ii) above
without making any adjustment in cost.
iv) How you will be left with the cost of goods of the good units with the
Consignee. Calculate cost per unit of these units by dividing the cost (remaining
after deducting the cost of abnormal loss) by the number of good units.
v) Multiply the number of unsold units with the cost per unit obtained in (iv)
above to arrive at the value of unsold stock.
Look at iIllustration 11 and see how cost of abnormal loss and the value of unsold
stock are calculated when the normal and abnormal losses occur simultaneously.
Illustration 11
Deepak Oil Mills, Cochin consigned 2,500 kg. of castor oil to Madhu & Co.
Varanasi on April 1, 2018. The cost of oil was Rs. 18 per kg. The consignor
paid Rs. 900 towards carriage, freight and insurance in transit. During transit 250
kg. oil was accidentally destroyed for which the insurance company paid Rs.
2,200 in full settlement of the claim directly to the Consignor.
Madhu & Co. took delivery of the consignment on April 10 and accepted a bill
drawn on them by Deepak oil Mills of Rs. 5,000 for 2 months, On June 30,
2018, Madhu & Co. reported that 1,750 kg. were sold at Rs. 25 per kg. The
expenses of the consignee were Rs. 1,850 towards godown rent, advertisement
and salaries of salesmen. Madhu & Co. charged a commission of 3% plus 2%
delcredre commission. Madhu & Co. further reported a loss of 20 kg. due to
leakage. Prepare the necessary ledger accounts in the books of the Consignor.
Books of Deepak Oil Mills
Consignment Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Goods Sent on Consignment A/c By Madhu & Co. (Sale proceeds of
(2,500 kg) 45,000 1,750 kg) 43,750
To Bank A/c By Abnormal Loss A/c
(Consignor’s expenses) 900 (250 kg) 4,590
To Madhu & Co.
(Consignee’s expenses) 1,850 By Consignment Stock A/c 8,892
To Madhu & Co.
Commission 3% = 1,313
Del credre 2% = 875 2,188
To Profit & Loss A/c (Balance) 7,294
57,232 57,232
41
Consignments and Joint Abnormal Loss Account
Ventures

Rs. Rs.
To Consignment A/c 4,590 By Bank A/c (amount from Insurance Co.) 2,200
(Sales)
By Profit and Loss A/c (Balance) 2,390
4,590 4,590

Madhu& Co. Account

Rs. Rs.
To Consignment A/c 43,750 By Consignment A/c (Expenses) 1,850
By Consignment A/c (Commission) 2,188
By Bank A/c (Advance) 5,000
By Balance 34,712
43,750 43,750

Goods Sent on Consignment Account

Rs. Rs.
To Trading A/c 45,000 By Consignee A/c 45,000

Working Notes:
i) Abnormal Loss

Number of Abnormal Loss Units Cost Price Per Unit

Abnormal Loss Units
(Non recurring
 expenses before loss 
Total Units
250
 ( 250 1 8)  ( 900 )  4,500 90 Rs.4,590
2,500
ii) Value of Closing Stock
Number of units Cost
Total Quantity and Cost of Oil 2,500 45,000
Add : Non-recurring Expenses — 900
Total 2,500 45,900
Less : Abnormal Loss 250 4,590
2,250 41,310
Less Normal Loss 20 —
Good Units 2,230 41,310
No. of Units sold 1,750

42 Number of unsold units (2,230-1750) = 480 units

 Consignment Accounts – I
Now value of closing stock (480 units) will be

= 41,310  480/2,230

= Rs. 8,892

Check Your Progress E

1 Fill in the blanks

i) Losses occur either due to inherent nature of the product or due to

operation of ………….

ii) Loss of weight due to evaporation is a …………….loss.

iii) Normal loss affects the valuation of …………………..

iv) Abnormal loss is ………………to Consignment Account.

v) Insurance claim is ………………to Abnormal Loss Account.

vi) The amount of loss not accepted by the insurance company is transferred
to ………………Account

2. How will you treat abnormal loss if

a) loss is fully insured: ……………………..

b) loss is uninsured: ……………………..

c) loss is partly insured:……………………..

15.7 LET US SUM UP

Consignment is a kind of arrangement where the manufacturer or a trader sends
goods to his agents for sale. The agents sell goods on behalf of the manufacturer
or the trader. The person who sends the goods is called the Consignor and the
person to whom the goods are sent is called the Consignee. The relationship
between the Consignor and the Consignee is that of a Principal and an Agent.
While sending goods to the Consignee, the Consignor sends a proforma invoice
which gives full details about the goods Consigned. After the goods have been
sold, the Consignee prepares an Account Sales, giving full details about the
number of units sold, the price at which they have been sold, and the expenses
and commission due to him. The Consignee is entitled to commission for the
services rendered to the Consignor. The commission can be ordinary or special
commission.
In order to work out the profit or loss on each consignment and the amount due
from each Consignee, the Consignor prepares Consignment Account, Goods
Sent on Consignment Account and Consignee’s Personal Account in his ledger for
each consignment. The Consignee on the other hand, mainly prepares two accounts
in his books viz., Commission Account and Consignor’s Personal Account. This 43
Consignments and Joint helps him to know the amount due to the Consignor and his income from
Ventures
commissions.
Sometimes the Consignee is not able to sell all goods consigned to him. He is left
with some unsold stock, the cost of which must be shown on the credit side of
the Consignment Account before calculating the profit on consignment. The cost
of the unsold stock shall include the proportionate amount of non-recurring
expenses.
When goods are consigned, it is possible that some goods are lost in transit or
destroyed while it is lying in the Consignee’s godown. Such losses may occur
either due to the inherent nature of goods or due to some accident. The first is
called normal loss and the second is called abnormal loss.
The normal loss is not shown anywhere in the books of account. It simply inflates
the cost per unit of the goods consigned and, therefore, affects the revaluation of
closing stock and the profit. But the abnormal loss requires special treatment in
the books of account of the Consignor. The cost of such loss is worked out in
the same manner as the cost of unsold stock and credited to the Consignment
Account. Any amount received from the insurance company must be subtracted
from the abnormal loss before it is transferred to the Profit and Loss Account.

15.8 KEY WORDS

Account Sales: A statement submitted by the Consignee to the Consignor giving
account of the sale proceeds, details of various expenses incurred, and the
commission due to him.
Consignee: A person to whom the goods are sent on consignment basis.
Consignment: Goods sent by a producer or a trader to his agents for sale on
their behalf and at their risk.
Consignor: A person who sends the goods to his agents on consignment basis.
Del Credre Commission: Commission paid by the Consignor to the Consignee
for bearing the risk of bad debts arising out of credit sales made by him on behalf
of the Consignor.
Over-riding Commission: The commission over and above the normal commission
paid to the Consignee for extra services provided by him or excess price realized
by him.
Proforma Invoice: A statement prepared by the Consignor and sent to the
Consignee giving details of goods consigned.
Normal Loss: Loss caused in the ordinary course of things due to evaporation,
leakage, brakeing the bulk into pieces etc.
Abnormal Loss: Loss caused on account of storm, fire, accident theft etc.

15.9 SOME USEFUL BOOKS

Maheshwari, S.N. 2018. Introduction to Accounting.Vikas Publishing House: New
44 Delhi.
Patil, V.A. and J.S. Korlahalli. 2012. Principles and Practice of Accounting, R. Consignment Accounts – I
Chand & Co. : New Delhi.
William Pickles. 1992. Accountancy, R.L.B.S. and Pitman: London.
Gupta, R.L. and M. Radhaswamy. 2018. Advanced Accountancy, Sultan Chand
& Sons; New Delhi

15.10 ANSWERS TO CHECK YOUR PROGRESS

A 1. a) ii b) i c) ii d) ii
2. i) False ii) True iii) True iv) False v) True
B 3. i) Errors and Omissions Excepted.
ii) Del Credre Commission iii) Recurring iv) security v) Non-
recurring
C 1. i) debited ii) Goods Sent on Consignment iii) Consignor
iv) Trading and Profit & Loss Account. v) no vi) nominal
D 1. a) ii b) iii c) ii d) i e) ii
E 1. i) external forces ii) normal iii) closing stock
iv) credited v) credited vi) Profit & Loss

15.11 TERMINAL QUESTIONS/EXERCISES

Questions
1. “Consignment is the same thing as sale”. Discuss.
2 What is an ‘Account Sales’? How do you prepare it? State how it is useful
to the Consignor?
3 Distinguish between
a) Non-recurring and Recurring Expenses
b) Ordinary Commission and Del Credre Commission
c) Account Sales and Invoice
4. List the expenses taken into account while valuing the unsold stock.
5. What is the difference between normal loss and abnormal loss? Give
examples.
6. What procedure is followed for valuation of closing stock when the abnormal
and normal losses occur simultaneously.
Exercises:
1. ‘X’ & Co. Bombay consigned 250 Weston T.V. sets to ‘Y’ & Co. Banglore.
Each T.V. set costs Rs. 7,500. Y & Co. received the consignment and sold
the sets as follows:
45
Consignments and Joint 160 T.V. sets at Rs. 9,000 each on cash basis and 90 T.V. sets at Rs.
Ventures
10,500 each on credit basis.
The Consignor is allowed 5% normal commission and 2.5% del credre
commission to the Consignee on the sales effected by him.
Compute total commission due to Y & Co.
(Answer: Normal Commission Rs. 1,19,250; Del Credre Commission Rs.
59,625)
2. Harish & Co. Lucknow, consigned goods valued at Rs. 1,25,000 to Dinesh
Enterprises, Ahmedabad. Harish paid Rs. 1,800 towards freight, insurance
and crriage. Dinesh received the consignment and accepted a bill for Rs.
50,000. He paid Rs. 1,500 for freight, Rs. 2,200 for carriage and godown
rent, and Rs. 2,500 as salesmans salaries. The Consignee is allowed to take
7% commission on the total sales. Consignee sold all goods for Rs. 1,68,000.
Balance owed by Dinesh was remitted by a bank draft. Prepare an Account
Sales.
(Answer: Balance due from the consignee: Rs. 1,00,040)
3. On January 1, 2018Gopal Enterprises, Hyderabad sent 50 radio sets to
Rakesh & Co., Bombay invoiced at Rs. 1,200 per set and incurred the
following expenses in relation to the consignment: dock dues Rs.2,000; customs
duty Rs. 1,000 and frieght Rs. 2,300. Rakesh & Co. remitted Rs. 20,000
by bank draft on January 5, 2018. It sold all the sets at Rs 1,500 each by
January 31, 2018 and incurred Rs. 2,500 as godown rent. Commission is
allowed at 5% on sales. The Consignee sent the Account Sale and enclosed
a bank draft for the balance.
Journalise the above transactions in the books of the Consignor and the
Consignee. Also prepare necessary ledger accounts and calculate the profit
on consignment.
(Answer: Profit on consignment Rs. 3,450; Balance due from the Consignee
Rs 48,750)
4. Krishna of Bombay consigned goods costing Rs. 2,50,000 to Kajriwal of
Jodhpur.
Krishna paid Rs. 1,500 for carriage and Rs. 5,250 for freight and insurance.
Kajriwalis entitled to a commission of 5% on all sales in addition to 2% del
credre commission. Krishna draws on Kajriwal a bill for Rs. 80,000, payable
two months after date, which later accepts. The bill is discounted with the
bank for Rs. 79,000. An Account sale received from Kajriwal stating that
the goods had been sold for Rs. 3,10,000 (Rs.1,60,000 on credit and Rs.
1,50,000 for cash), while expenses incurred by him were: unloading Rs.
1,250; godown rent Rs. 2,500 and insurance Rs. 500. A bank draft was
enclosed for the balance due. Kajriwal could not recover Rs. 2,500 from a
customer to whom goods were sold on credit.
Pass Journal entries in the books of the Consignor and the Consignee and
prepare ledger accounts.
46
 Hints : i) Discount will not be debited to Consignment Account Consignment Accounts – I

ii) Bad Debts will be borne by the Consignee and debited to his
commission account.
iii) Del Credre commission is computed on total sales.
(Answer: Profit on consignment Rs. 27,300; Amount due from Consignee
Rs. 2,04,050.)

5 Kabir of Jhansi consigned to Moses of Cochin 400 chairs on April 10,

2018. The Cost of each chair was Rs. 250. The Consignor paid Rs. 2,000
for cartage, freight etc., on April 12, 2018, and drew a bill on the Consignee
as an advance against the consignment at 3 months for Rs. 60,000. Later,
it was discounted at their bank at 5%. The Consignee sold all the goods on
July 1, 2018 and submitted an Account Sales showing that the goods
realisedRs. 1,20,000. He incurred Rs. 1,000 on carriage inwards and Rs.
550 on selling and other expenses. He was allowed to take 5% commission
on the total sales. You are required to show ledger accounts for the above
transactions in the books of the Consignor and the Consignee.

(Answer : Profit Rs. 10,450)

6. ‘X’ of Bangalore consigned 100 bags of cement for sale to his agent ‘Y’.
Cost price of each bag is Rs. 120. ‘X’ immediately drew a 4 months bill for
Rs. 5,000 on the latter and discounted it with bank at 6% per annum. ‘X’
paid Rs. 800 on packing and Rs. 250 for carriage. ‘Y’ spent Rs. 300 as
selling expenses. The Consignee returned 5 bags. He realised 20 bags at Rs.
130 per bag and 50 bags on credit at Rs. 140 per bag and took the balance
in his own stock at Rs. 135 per bag.

Consignee is entitled to get commission of 3% and 2% delcredre commission

on credit sales. ‘Y’ recovered all money from debtors except Rs. 500.
Prepare the necessary ledger accounts in the books of both parties.

(Answer : Loss Rs. 204)

7. Grover Enterprises, Delhi sent 100 bicycles to Khan Enterprises, Patna.

Cost of each cycle was Rs. 640. Grover incurred Rs. 1,500 for freight and
Rs. 1,100 for insurance in transit. Khan paid Rs. 650 for cartage and 2,000
towards godown rent and selling expenses. 20 bicycles remained unsold at
the end. The remaining bicycles realisedRs. 800 per cycle. Calculate the
value of unsold stock.

(Answer: Cost of unsold stock Rs. 13,450)

8. Kiran Bros. on January 1, 2018 consigned sports materials costing Rs.

10,000 to their agent Kabir Agency. Kiran Bros. paid Rs. 200 for freight
and Rs. 100 for insurance and other charges. Consignee received the
delivery by paying Rs. 150 for non-recurring expenses on January 15, 2018.
He sent an account sale on February 20, 2018 showing that 20% of
the stock realised Rs. 3,200 and 30% of the stock was sold on credit for
Rs. 3,600. 47
Consignments and Joint One customer from whom Rs. 500 was due became insolvent and only 25%
Ventures
of the debt could be recovered. Consignee is entitled to a commission of
5% on sales. Pass journal entries and prepare the necessary ledger accounts.
(Answer: Profit Rs. 860: Stock Rs. 5,225)
9. Srikanth consigned 2.500 kg. of coconut oil costing Rs. 50,000. Expenses
incurred were Rs. 1,400. Consignee spent Rs. 2,000 on unloading and
cartage. 100 kg. of oil was lost due to natural deterioration and 1,500 kg.
were sold. Calculate the cost of stock at the end?
(Answer : Cost of Stock Rs. 20,025)
10. Kapur of Lucknow consigned 200 bags of rice, each costing Rs. 300 to Jam
Traders of Bombay on April 1, 2018. The Consignor paid Rs. 2,000
towards freight and insurance. 30 bags were damaged in transit. The
Consignee received on May 31, 2018 Rs. 2,000 on account of the damaged
bags from the Insurance Company. On May 31, 2018 the Consignee reported
that 140 bags were sold at Rs. 375 per bag. The Consignee incurred Rs.
2,000 for godown rent and selling expenses. The Consignee is allowed 10%
commission on the sale proceeds. You are required to prepare the ledger
accounts in the books of Mr. Kapur assuming that Jam Traders remit the
balance by bank draft on May 31, 2018.
(Answer : Profit Rs. 1,850 : Accidental Loss Rs. 9,300)
11. Dinesh of Delhi consigned 200 sewing machines costing Rs. 150 each to
Chander of Calcutta. He paid Rs. 2,800 on insurance and received an
advance of Rs 20,000 from Chander. 30 machines were damaged in transit.
Chander took the delivery of the remaining goods and paid Rs. 1,700 for
unloading the consignment. He sold 50 machines @ Rs. 270 each for cash
and 100 machines @ Rs, 300 each on credit. Chander could not realise Rs.
2,000 from his debtors. Chander recovered Rs. 1, 500 from the insurance
company. He sold damaged machines for Rs. 2,300. Chander is entitled to
an ordinary commission @ 5% and 3% delcredre commission. The accounts
were settled and balance remitted by bank draft. Show the necessary ledger
accounts in the books of Dinesh.
Hint: i) Sale of damaged stock as well as the amount recovered from
insurance company will he credited to Abnormal Loss Account
and debited to Chander’s Account.
ii) Commission on sale proceeds of damaged goods @ 5% will be
debited to Abnormal Loss Account and credited to Chander’s
Account.
(Answer :Abnormal Loss Rs. 4,920; Value of Unsold Stock Rs, 3,480;
Profit Rs. 13,920; Balance due from ChanderRs. 22,005)
12. SohnaVanaspati, Faridabad consigned 10,000 kg. of ghee to Krishna Dealers
of Delhi at Rs. 16 per kg. The Consignor paid Rs. 950 as carriage, Rs.
250 as freight and Rs. 400 as insurance. In transit, 1,000 kg. of ghee was
accidentally destroyed for which an amount of Rs. 8,000 was recovered
from the insurance company in full settlement.
48
Krishna Dealers reported that 8,000 kg. of ghee was sold @ Rs. 20 pe kg. Consignment Accounts – I
They spent Rs. 500 on salesmen salary and Rs. 200 on godown rent, The
Consignee is entitled to a commission of 5% on sales. Krishna dealers
reported a shortage of 40 kg. due to leakage. Prepare necessary ledger
accounts in the books of both the parties.
(Answer: Profit Rs. 22,443; Abnormal Loss Rs. 16,160; Closing stock Rs.
15,583)

Note : These questions will help you to understand the unit better. Try to
write answers for them. But, do not submit your answers to the
University for assessment. These are for your own practice only.

49
Consignments and Joint
Ventures UNIT 16 CONSIGNMENT ACCOUNTS-II
Structure
16.0 Objectives
16.1 Introduction
16.2 Concepts of Invoice Price
16.3 Calculation of Cost Price and Invoice Price
16.4 Loading
16.4.1 What is Loading
16.4.2 Items which Involve Loading
16.4.3 Adjustment of Loading

16.5 Accounting for Goods Sent at Invoice Price

16.6 Let Us Sum Up
16.7 Key Words
16.8 Some Useful Books
16.9 Answers to Check Your Progress
16.10 Terminal Questions/Exercises

16.0 OBJECTIVES
After studying this unit, you should be able to:
 explain the meaning of invoice price and the reasons for consigning goods
at invoice price,;
 compute cost price and invoice price in different situations,
 explain the meaning of loading and pass necessary entries for its adjustment
in consignment account; and
 prepare books of the consignor and the consignee based on invoice price.

16.1 INTRODUCTION
In Unit 15, you have learnt about the recording of tranactions relating to
consignments in books of both the Consignor and the Consignee. You know
that the goods sent on consignment are recorded in Consignment Account at
cost price. Sometimes, the Consignor does not want to reveal the cost of goods
to the Consignee and, therefore, invoices the goods at a price which is higher
than the cost price. Such price is known as ‘invoice price’ and the difference
between the invoice price and the cost price is called ‘loading’. In such a
situation, the entry for goods sent on consignment is also recorded at the invoice
price which would need an adjustment for loading at the time of computing
the profit on consignment. In this unit, you will learn how Consignment Account
is prepared when the goods are consigned at invoice price and how the necessary
adjustments are made at the time of working out the profit on consignment.
50
 Consignment Accounts-II
You will also learn how the invoice price is calculated when the loading is given
in the form of a percentage at the cost price or the invoice price.

16.2 CONCEPTS OF INVOICE PRICE

In Unit 15, you learnt that when the Consignor sends goods on consignment
to the Consignee, he records it in his books at cost and the same is reflected
in the proforma invoice.
Sometimes, the consignor does not want the Consignee to know the actual cost
of goods sent to him. Therefore, consigne the goods at a price other than the
cost price. Such price would generally be higher than the cost. It is called the
invoice price. In other words, the invoice price is equal to the cost price plus
a certain amount of profit.
Apart from the intention of not revealing the cost of goods to the Consignee
there are a number of other reasons why the Consignor Consignees the goods
at invoice price. These are:
i) The Consignee will not able to assess the profit earned on consignment
and therefore may not demand a higher commission.
ii) If the Consignee know about the actual cost of goods, he may resort to
some dishonest practices such as buying goods for himself at a lower price
and then selling them at a higher price in the market.
iii) It would give a fair idea to the Consignee of the minimum price at which
he is to sell the goods.
You should note that invoice price is not the same thing as selling price. The
invoice price is the price at which the Consignor sends the goods to the
Consignee, whereas the selling price is the price at which the Consignee sells
the goods to the customers. Let us take an example in order to clearly understand
the difference between the three prices i.e., the cost price, the invoice price
and the selling price. Suppose, Gopal consigns goods worth Rs. 15,000 to his
agent Ashok at an invoice price of Rs. 18,000. Ashok sells the goods at Rs.
20,000. In this example, the cost price (CP) of the goods is Rs. 15,000, the
invoice price (IP) of the goods is Rs. 18,000, and the selling price (SP) of
the goods Rs, 20,000.
You will observe that the IP is higher than CP whereas SP is higher than the
CP as well as the IP, and that the SP and the IP are not the same. If, however,
the Consignor directs the Consignee to sell the goods at invoice price itself,
then the SP and the IP will be the same.

16.3 CALCULATION OF COST PRICE AND

INVOICE PRICE
You know the relationship between the invoice price (IP), the cost price (CP)
and the profit. This can be expressed in the form of an equation as follows.
IP = CP + Profit
With the help of the above equation, you can find out the missing figure i.e.,
if any two figures are given, the third one can be worked out. For example,
51
Consignments and Joint if the CP is given as Rs. 150 and the profit as Rs. 50, the invoice price will
Ventures
be
IP = CP + Profit
= 150 + 50
= Rs. 200
Similarly, if invoice price and profit are given as Rs. 200 and Rs. 50 respectively,
the cost price will be
IP = CP + Profit
200 = CP + 50
CP = 200 - 50
= Rs. 150
In the above examples, the profit is given as an absolute Figure. But, in many
cases the profit may be given in the form of a percentage either on cost price
or on invoice price. In that case, the calculation of missing price may become
difficult. Of course, if the percentage of profit is based on the price, the figure
of which is given, you may not face much problem. But if the percentage of
profit is based on the price, the figure of which is not given, you may find
it difficult to work out the profit and so also the missing price. Let us take
different situations where the profit is given in the form of a percentage and
we have to work out the missing price. These situations are:
1. CP is given and Profit is given as a percentage of CP, you have to work
out IP
2. CP is given and Profit is given as a percentage of IP, you have to work
out IP
3. IP is given and Profit is given as a percentage of IP, you have to work
out CP
4. IP is given and Profit is given as a percentage of CP, you have to work
out CP
Let us take them one by one and find out the missing figure with the help
of examples.
1. CP is given and the profit is given as a percentage on CP
Suppose the CP of a product is Rs. 200 which is invoiced at 20% profit
on cost. The IP will be calculated as follows:
IP = CP + Profit

20
IP  200  (  200)
100
IP = 200 + 40
IP = Rs. 240

52
2. CP is given and the profit is given as percentage on IP Consignment Accounts-II

Suppose CP of a product is Rs. 200 which is invoiced at 20% profit

on IP. Now IP will be calculated as follows:
Let us assume that the IP is X
IP = CP + Profit

20
X  200  (  X)
100

20
X  200  X
100

20
X X  200
100

100X  20X
 200
100

80
X  200
100

200  100
X  Rs.250
80

So the IP is Rs. 250 and the Profit is Rs. 50. Now you can verify that
the profit is 20% on invoice Price.

20
Profit =  IP
100

20
Profit =  250
100
Profit = Rs. 50
3. IP is given and the profit is given as percentage of IP: Suppose the
IP of a product is Rs. 500 and Profit is 25% on IP. The missing figure
i.e., the CP is worked out as follows :
IP = CP + Profit
500 = CP + 25  500
100
500 = CP + 125
CP = 500—125
CP = Rs. 375
4. IP is given and the profit is given as a percentage of CP: Suppose
the IP is Rs. 600 and Profit is 20% on CP then CP will be calculated
as follows:
53
Consignments and Joint Let us assume CP to be X
Ventures
IP = CP + Profit

20
600  X  X
100
100X  20X
600 
100
120
600  X
100
600 100
X
120
X = Rs.500
So the CP is Rs. 500 and Profit is Rs. 100. Now you can verify that
the profit is 20% on cost.

20
Pr ofit   CP
100

20
  500
100
= Rs. 100

16.4 LOADING
16.4.1 What is Loading?
You know that the invoice price is obtained by adding a certain amount of
profit to the cost price. The amount of profit which is added to the cost in
order to arrive at the invoice price is called loading. In other words, loading
is the difference between the invoice price and the cosi price.
Loading = IP  CP
For example, if the invoice price is Rs. 10,000 and the cost price is Rs. 7,500,
the amount of loading will be :
Loading = IP - CP or Number of units  (IP per unit  CP per unit)
= 10,000  7,500
= Rs. 2,500.
If the invoice price or the cost price is given and the proft (loading) is given
in the form of a percentage, either on IP or CP, the loading can be worked
out directly in the same manner as we worked out the IP or CP in the examples
under Ssection 16.3 earlier.

16.4.2 Items which Involve Loading

Loading is usually involved in all such items which are recorded at the invoice
54 price in the Consignment Account. These items are:
1 Opening Stock Consignment Accounts-II

2 Goods Sent on Consignment

3 Goods Returned by the Consignee
4 Closing Stock.
You have to compute the loading in respect of all the above items and make
necessary adjustments in books of the Consignor.

16.4.3 Adjustment of Loading

You know the profit is the difference between selling price and cost price. In
Consignment Account prepared earlier, the goods sent on consignment and the
other related items, were shown at cost. Hence you had no problem in computing
the profit. But, when the goods sent on consignment and other related items
are shown in the Consignment Account at invoice price, it becomes necessary
to adjust the loading in the Consignment Account so as to bring down the invoice
price to the level of cost. If such adjustment is not done, the profit figure will
be incorrect. There is also a possibility that the Consignment Account shows
loss because the difference between the selling price and the invoice price is
generally small which cannot cover all expenses. Look at figure 16.1 and see
the difference between the actual profit and the profit without adjustment. The
profit thus calculated will be the difference between sales and invoice price.
Fig. 16.1

Rs.
Cost price 15,000
Invoice Price 18,000 Rs. 3,000 Loading
Sale Price 20,000 Rs. 2,000 Profit without
adjustment Rs. 5,000 Actual Profit
From Figure 16.1 it is clear that if no adjustment is made, the profit will be
Rs. 2,000 whereas the actual profit is Rs. 5,000. Therefore, in order to calculate
the actual profit earned on any consignment, all the items shown at invoice price
are to be brought down to the level of cost by adjusting the amount of loading
on each of them. Let us now take the items involving loading one by one and
see how the necessary adjustments are made.
1. Opening Stock : Opening stock is always shown on the debit side of
Consignment Account. In case the stock is shown at invoice price, the
difference between the invoice price and the cost price of the stock will
be shown on the credit side of the Consignnt Account by passing the
following journal entry.
Stock Reserve A/c Dr.
To Consignment A/c
(Being unloading on opening stock)
2. Goods Sent on Consignment : Goods sent on Consignment are shown
on the debit side of Consignment Account. In order to nullify the effect
of invoice price, the difference between the invoice price and the cost price 55
Consignments and Joint in respect of goods sent on consignment will be shown on the credit side
Ventures
of the Consignment Account by passing the following journal entry.
Goods Sent on Consignment A/c Dr.
To Consignment A/c
(Being unloading on goods sent on consignment)
3. Goods Returned by the Consignee : As the return of goods is shown
on the credit side of Consignment Account, the adjustment for the loading
will be made on the debit side of Consignment Account with the help of
the following journal entry:
Consignment A/c Dr.
To Goods Sent on Consignment A/c
(Being loading on goods returned)
4. Closing Stock: Since closing stock is shown on the credit side of
Consignment Account, the adjustment for the loading will be made on
the debit side with the help of the following journal entry.
Consignment A/c Dr.
To Stock Reserve A/c
(Being unloading on closing stock)

Thus you will observe that the adjustment entry for loading in the
Consignment Account is made on the opposite side of the original entry.
For example, the closing stock is shown on the credit side of the
Consignment Account, whereas its adjustment is shown on the debit side
of the Consignment Account. This is how the effect of loading in
Consignment Account is neutralised and the invoice price is brought down
to the cost level. You should remember that the adjustment for loading
is to be made in the books of the Consignor only. The Consignee does
not record any entries for the items involving loading. Therefore no
adjustment is needed in consignee’s books.

Check Your Progress A

1. State whether the following statements are True or False.

i) Consignor always consigns goods at invoice price .

ii) Sending goods at invoice price shall result in less profit in the
Consignment Account, if no adjustment is made for the loading.

iii) Invoice price is always equal to selling price.

iv) Consignor consigns the goods at invoice price to conceal the actual
profit earned on consignment.

v) Loading on closing stock will be nullified by debiting Stock Reserve

Account and crediting Closing Stock Account

vi) All the entries of adjustment for loading are recorded in the books
of Consignee.
56
2. What is Loading? Consignment Accounts-II

.................................................................................................................

.................................................................................................................

.................................................................................................................

3. Name the items that involve loading.

.................................................................................................................

.................................................................................................................

.................................................................................................................

4. Work out the following problems:

i) Cost price of a fan is Rs. 500 and loading is Rs. 100. What is the
invoice price.

ii) Cost price of a watch is Rs. 150. It is consigned at 33.33% above

cost. Find out the invoice price.

iii) Cost price of a bicycle is Rs. 500. It is invoiced at a profit of 20%

on invoice price. What is the invoice price?

iv) A ceiling fan is consigned at an invoice price of Rs. 250. Invoice

price is cost plus a profit of 10% on the invoice price. What is the
cost price.

v) Invoice price of a chair is Rs. 300, which is 20% above cost. Find
out its cost price.

5. Find out the loading in the following cases:

i) Goods costing Rs. 1,800 are invoiced at Rs. 2,200.

ii) Cost price Rs. 600 invoiced at a profit of 20% above cost.

iii) Cost price is Rs. 600 invoiced at a profit of 20% on invoice price.

iv) Invoice price is Rs. 600 involving profit of 20% on invoice price.

v) Invoice price is Rs. 600 involving profit of 20% above cost.

16.5 ACCOUNTING FOR GOODS SENT AT

INVOICE PRICE
You have learnt about the concept of invoice price, the calculation of loading
involved and the adjustment entries to be passed in respect of all items involving
loading. As for the recording of transactions for goods consigned at invoice
price, the treatment in books of the Consignee is not affected at all. Even in
the books of the Consignor all entries remain the same. But, the amounts with
which the four items involving loading (opening stock, goods sent on consignment,
57
Consignments and Joint goods returned by the Consignee, and closing stock) will reflect the invoice
Ventures
price. Then, at the time of working out the profit on consignment, you will have
to pass the necessary adjustment entries for the loading involved in respect of
all the four item as stated earlier. Look at Illustrations 1 to 4 and see how
various consignment transactions have been recorded when goods are invoiced
at the invoice price.
Illustration 1
Ages Cycle Co., Delhi sent 100 bicycles on January 1, 2018 to Murugan
Enterprises, Madras. The cost of each bicycle was Rs. 500 and it was invoiced
at Rs. 600. Ages Cycle Co. incurred Rs. 2,000 on freight and insurance and
received Rs. 30,000 as advance from Murugan Enterprises. Murugan Enterprises
paid Rs. 1,000 as octroi and carriage, Rs. 800 as rent and Rs. 600 as insurance.
By June 30, 2018 they had sold 100 bicycles for Rs. 62,500. Murugan
Enterprises are entitled to a commission @ 10% on the proforma invoice price
and 20% of any surplus realised over and above the invoice price. Murugan
Enterprises remitted the amount due from them by a bank draft.
You are required to prepare ledger accounts in the books of both parties
Solution:
Books of Ages Cycle Co.
Consignment to Madras Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
2018 2018
Jan. 1 To Goods Sent on 60,000 Jan.30 By Murugan Enterprises 62,500
Consignment A/c (IP) (Sales)
“ 1 To Bank A/c (Expenses) 2,000 “ 30 By Goods Send on
Consignment A/c
(Loading) 10,000
“ 30 To Murugan Enterprises 2,400
(Consignee’s expenses)
“ 30 To Murugan Enterprises 6,500
(Commission)
“ 30 To Profit & Loss A/c 1,600
(Profit transferred)
72,500 72,500

58
 Consignment Accounts-II
Murugan Enterprise’s Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan 30 To Consignment 62,500 Jan. 1 By Bank A/c (advance) 30,000
to Madras A/c
(sales) Jan. 30 By Consignment to
Madras (expenses) 2,400
Jan. 30 By Consignment to 6,500
Madras (expenses)
Jan. 30 By Bank A/c (Balance) 23,600
62,500 62,500

Goods Sent on Consignment Account

2018 Rs. 2018 Rs.

Jun 30 To Consignment to 10,000 Jan. 1 By Consignment to 60,000
Madras A/c (loading) Madras A/c (IP)
Jun 30 To Trading A/c 50,000
60,000 60,000

Books of Murugan Enterprise

Ages Cycle Co. Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jan 1 To Bank A/c (advance) 30,000 Jan. 30 By Bank A/c (sales) 62,500
“ 1 To Bank A/c (expenses) 2,400
Jun 30 To Commission A/c 6,500
Jun 30 To Bank A/c (Balance) 23,600
62,500 62,500

Commission Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

Jun 30 To Profit and Loss A/c 6,500 Jun 30 By Ages Cycle Co. 6,500 59
Consignments and Joint Working Notes
Ventures
1. Loading on Goods Sent on Consignment Rs.
Total cost of 100 bicycles (500  100) 50,000
Total Invoice price of 100 bicycles (600  100) 60,000
Loading involved (IP-CP) 10,000
2. Commission Rs.
10% on Proforma Invoice Price of Rs. 60,000 6,000
20% on Surplus realised (Rs. 62,500-60,000=2,500) 500
6,500
3. Since there are no opening and closing stocks and the goods returned by
the Consignee, the adjustment for loading has been made only in respect
of the goods sent on consignment.
Illustration 2
Raj Traders of Ludhiana consigned 100 computers costing Rs. 20,000 each
to Bahadur of Gauhati at 10% above cost. Raj Traders incurred Rs. 500 for
packing and other charges on each computer. The Consignee received the
consignment by paying Rs. 1,500 for railway charges, Rs. 1,300 for insurance
and Rs. 200 for carriage. He submitted an Account Sales as follows:
20 Computers sold at Rs. 25,000 each for cash
50 Computers sold on credit at Rs. 30,000 each
10 taken for his own stock at Rs. 25,000 each
Consignee remitted the balance after deducting his commission at 10% on sales.
Assuming that original entries are made at invoice price and consignment stock
is valued at invoice price, write necessary accounts in the books of RajTraders.
Solution:
Books of Raj Traders
Consignment to Gauhati Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Goods Sent on 22,00,000 By Bahadur (Sales) 22,50,000
Consignment A/c (IP)
To Bank A/c 50,000 By Consignment Stock A/c 4,50,600
(Consignor’s expenses)
To Bahadur 3,000 By Goods Sent on
(Consignee’s expenses) Consignment A/c
(Loading on goods sent) 2,00,000
To Bahadur (Commission) 2,25,000
To Stock Reserve A/c
(Loading on closing stock) 40,000
To Profit & Loss A/c
(Profit transferred) 3,82,600
29,00,600 29,00,600
60
 Goods Sent on Consignment Account Consignment Accounts-II

Rs. Rs.
To Consignment A/c (loading) 2,00,000 By Consignment A/c (IP) 22,00,000
To Trading A/c 20,00,000
22,00,000 22,00,000

Bahadur of Gauhati Account

Rs. Rs.
To Consignment A/c 22,50,000 By Consignment A/c (Expenses) 3,000
(Sale proceeds) By Consignment A/c(Commission) 2,25,000
By Balance c/d 20,22,000
22,50,000 22,50,000

Stock Reserve Account

Rs. Rs.
To Balance c/d 40,000 By Consignment A/c 40,000
(Loading)

Working Notes
1. Calculation of Invoice Price per computer
Cost price of each computer Rs. 20,000
Invoice price 10% above the cost price
Invoice price = Cost price + 10% of cost price

 20, 000 + 10  20, 000

100
= 20,000 + 2000
= Rs. 22,000
2. Calculation of closing stock: While calculating closing stock, proportionate
non-recurring expenses are added, as you learnt in the previous unit.
Rs.
Total invoice price of 20 computers (Rs. 22,000  20) 4,40,000
Add: proportionate non-recurring expenses by the
Consignor 50,000
Consignee 3,000
Total 53,000
Proportionate Expenses (Rs. 53,000  20/100) 10,600
Closing Stock 4,50,600
61
Consignments and Joint 3. Calculation of loading:
Ventures
Invoice price per computer 22,000
Cost price per computer 20,000
Loading (IP- CP) per computer 2,000
Total loading on goods sent on consignment 2,00,000
Total loading on closing stock of 20 computers (200  20) 40,000
Illustration 3
Ram Das of Hyderabad consigned goods costing Rs. 72,000 to Prakash of
Cochin at a pro-. forma invoice price which is cost plus a profit of 1/6th on
invoice price. The Consignor paid Rs. 1,800 as insurance and other charges.
Prakash received the goods and paid Rs. 3,000 for freight and other charges.
He was allowed 3% commission on gross sales. Three fourths of the goods
1
were sold at 33 % profit on cost, half of which were credit sales. Half of
3
the balance was stolen, but the stock being insured, a claim was lodged for
Rs. 8,000 and was settled for Rs. 7,000. Balance of stock was valued at
proforma invoice price. Write up the Consignment and the Abnormal Loss
Accounts.

Solution:
Consignment to Cochin Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Goods Sent on 86,400 Prakash (Sales) 72,000
Consignment A/c
To Bank A/c 1,800 By Abnormal Loss A/c 9,600
(Consignor’s expenses)
To Prakash 3,000 By Consignment Stock A/c 11,400
(Freight and other charges) (Unsold stock)
To Prakash 2,160 Goods Sent on Consignment A/c 14,100
(Commission on Sales) (Loading)

To Stock Reserve A/c 1,800

(Loading on closing stock)
To Profit & Loss A/c 12,240
(Profit transferred)
1,07,400 1,07,400

62
 Abnormal Loss Account Consignment Accounts-II

Rs. Rs.
To Consignment to Cochin A/c 9,600 By Bank A/c (Insurance) 7,000
By Profit & Loss A/c
(Balance transferred) 2,600
9,600 9,600

Working Note:
1. Invoice Price of the Goods Sent:
Cost price (CP) of the Goods = Rs 72,000
Let IP be X
IP = CP + Profit
1
X  72, 000  X
6
1
X  X  72, 000
6
6X  X
 72, 000
6
5X
 72, 000
6
6
X  72, 000   Rs. 86,4000
5
Therefore IP = Rs. 86,400
2. Sale of price of 3/4 of the goods: (3/4th of the goods sold at a profit
of 33.3% on cost) CP of 3/4th goods (72,000 × 3/4) = Rs. 54,000

1 100
Add 33 % of cost as profit = (54, 000  ) = Rs. 18000
3 300
Sales = Cost Price + Price + Profit
= Rs. 54,000 + 18,000 = Rs. 72,000
3. Value of closing stock:
Invoice Prince of Goods Consigned Rs. 86,400
IP of stock left unsold (86,400  1/4) Rs.21,600
Less: 1/2 of the unsold stock lost in transit Rs, 10,800
(21,600  1/2)
IP of stock with the consignee after the loss Rs. 10,800
(21,600-10,800)
63
Consignments and Joint Add proportionate expenses 600
Ventures (1/8  4,800)
Value of closing stock 11,400
4. Cost of Goods Lost (Abnormal Loss)
Goods lost is half of the goods unsold i.e.,
1/2  1/4 = 1/8th of goods consigned
CP of abnormal loss (1/8  72,000) 9,000
Add proportionate non-recurring expenses (1/8  4,800) 600
Cost of Abnormal Loss 9,600
5. Loading on Closing Stock: Rs.
IP (1/8 of 86,400) 10,800
CP (1/8 of 72,000) 9,000
Loading 1,800
Illustration 4
Verma Bros. of Bombay consigned goods at the invoice price of Rs. 1,00,000
which is 25% above cost price, to their agent Kabir Agency, Ahmedabad. The
consignor incurred Rs. 5,000 for carriage and freight and Rs. 3,500 for
insurance. Verma Bros. received Rs. 25,000 as advance against the consignment.
The Consignee is allowed 3% commission on all sales. Any goods taken by
the Consignee himself or lost through Consignee’s negligence shall be valued
at cost plus 25% and no commission would be allowed on them. The Consignee
sold 4/5th of the goods consigned for Rs. 1,40,000. Goods of the invoice price
of Rs. 10,000 were taken by the Consignee and the remaining goods were
lost through his negligence. The Consignee paid Rs. 2,500 for advertisement
and selling expenses. Prepare necessary accounts in the books of the Consignor.
Solution:
Consignment to Ahmedabad Account
Consignment to Cochin Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Goods Sent on Consignment A/c 1,00,000 By Kabir Agency (Sales) 1,40,000
To Bank A/c (expenses) 8,500 By Kabir Agency
(CP of goods taken) 9,000
To Kabir Agency (Consignee’s expenses) 2,500 By Kabir Agency (Stock lost) 9,000
To Kabir Agency (Commission) 4,200 By Goods Sent on
Consignment A/c(Loading) 20,000
To Profit & Loss A/c (Profit transferred) 62,800
1,78,000 1,78,000
64
 Kabir’s Account Consignment Accounts-II

Rs. Rs.
To Consignment to Ahmedabad A/c 1,40,000 By Bank A/c (Advance) 2,5000
(sales)
To Consignment to Ahmedabad A/c 9,000 By Consignment to Ahmedabad A/c
(Expenses) 2,500
To Consignment to Ahmadabad A/c 9,000 By Consignment to Ahmedabad A/c 4,200
(Balance) (Commission)
By Balance c/d 1,26,300
1,58,000 1,58,000

Working Notes
1. Calculation of CP of Goods Consigned
IP of the Goods Sent is Rs. 1,00,000 which is 25% above cost.
The CP shall be calculated as follows.
IP = CP + P (25% on CP)
Let CP be X

25
1,00,000 = X + X
100

1
1,00,000 = X + X
4

4X  X
1,00,000 =
4
5X
1,00,000 =
4

1, 00, 000  4
X
5

X = 80,000
CP= Rs. 80,000

2. Value of goods taken by the Consignee

IP of goods taken = Rs. 10,000
CP of goods taken

4
(10000  ) = Rs. 8,000
5
65
Consignments and Joint 12.5
Ventures = 8.000 +
8000
These are to be valued at the cost plus 12.5% on cost. Hence, its value
will be = 8,000 + 1000 = Rs. 9,000
3. Value of goods lost due to Consignee’s negligence It will be worked
in the same manner as the value of goods taken by the consignee.

16.6 LET US SUM UP

In order to conceal the actual profit earned on consignment, sometimes the
Consignor invoices the goods to the Consignee at a price which is higher than
the cost, This is called invoice price (IP). The difference between the invoice
price (IP) and the cost price (CP) is called loading. This affects four items shown
in the Consignment Account viz (i) goods sent on Consignment; (ii) goods
returned by the Consignee; (iii) opening consignment stock, and (iv) closing
consignment stock. In order to work out the actual profit, the effect of loading
on all these has to be nullified, otherwise the Consignment Account will show
profit which is less than the profit actually earned.
Loading can be found out by subtracting CP from IP. The calculation of loading
is simple when both CP and IP are given. But it needs special attention when
the loading is given as a percentage of CP or IP and only the figure of IP or
CP is given. In such a situation, the formula will be IP = CP+P is used for the
calculation of loading or the cost price, or the invoice price, whichever is not
given. For the adjustment of loading involved in different items, we have to pass
the necessary journal entries in the books of the Consignor. However, the books
of the Consignee are not affected by this because his books do not include
an entry in respect of the four items involved.

16.7 KEY WORDS

Invoice Price : The price at which the Consignor invoices the goods to the
Consignee. It is usually higher than cost price.
Loading : Difference between the Invoice Price and the Cost Price.

16.8 SOME USEFUL BOOKS

Maheswari, S .N. 2018. Introduction to Accounting, Vikas publishing House,
New Delhi.
Patil, V.A. and J.S. Korlahalli, 2018, Principles and Practice of Accouiiring, R.
Chand & Co. New Delhi.
William Pickles. 2018 Accountancy, E.L. B.S. and Pitman: London.
Gupta R.L. and M. Radhaswamy. 2018. Advanced Accountancy. Sultan Chand
& Sons: New Delhi.

16.9 ANSWERS TO CHECK YOUR PROGRESS

1. i) False ii) True iii) False iv) True v) False vi) False
66
2. Difference between IP and CP Consignment Accounts-II

3. i) goods sent on consignment ii) goods returned by the Consignee

iii) opening consignment stock iv) closing consignment stock
4. i) Rs. 600 ii) Rs. 200 iii) Rs. 625
iv) Rs. 225 v) Rs. 250
5. i) Rs.400 ii) Rs. 120 iii) Rs. 150
iv) Rs. 120 v) Rs. 100

16.10 TERMINAL QUESTIONS/EXERCISES

Questions
1. What do you understand by invoice price? Give reasons for consigning
the goods at the invoice price.
2. What is loading? How do you compute it? Give examples.
3. Name items which are recorded at the invoice price in the Consignment
Account. Give journal entries passed for the adjustment of loading in respect
of each item.
Exercises
1. Vijay & Co. of Kolhapur consigned 2,000 bicycles on July 18, 2018 to
Chaudhari of Madras for sale on the following conditions.
a) Cycles may be sold at invoice price or above

1
b) Chaudhari is entitled to a commission of 7 % on invoice price of
2
goods sold and 20% on an excess over the invoice price.
The cost of each cycle was Rs. 300 and it was invoiced at cost
1
plus 33 % at cost. Vijay & Co. incurred Rs. 20,000 on freight and
3
insurance. Chaudhari received the consignment on July 14, and accepted
a 3 months bill drawn on him by Vijay & Co. for Rs. 2,00,000. Chaudhari
paid Rs. 8,000 as custom duty and Rs. 5,000 as insurance and rent for
the godown. They sold 1,600 cycles at Rs. 500 each. Give ledger accounts
as they would appear in the books of Vijay & Co. and Chaudhari.

(Answer: Profit Rs. 2,12,600; Stock at invoice price Rs. 1,65,600; Amount
due from Shri Chaudhary Rs. 5,07,000)

2. On June 10, 2018, Raj & Co. of Bombay consigned 100 cases of Red
Wine to Singham Bros. of Ceylon. The cost of the consignment amounted
to Rs. 7,500 but the goods were charged at invoice price so as to show
a profit of 25% on invoice price. On the same date, the Consignor paid
Rs. 600 for freight and insuranèe. On July 1, the Consignee paid Rs. 1,000
for import duty, Rs. 200 for dock dues, and remitted a bank draft for
Rs. 4,000 as an advance against the consignment. On July 15, they sold
67
Consignments and Joint 80 cases for Rs. 10,500. Singham Bros. are entitled to a commission of
Ventures
5% on gross proceeds of sales as their remuneration. Show the entries
in the books of the Consignor and the Consignee, assuming that the
Consignee has remitted the balance due from them by draft.

(Answer : Profit Rs. 2,535; Value of stock Rs. 2,360)

3. Modi Textiles, Delhi consigned to Vinod Enterprises, Calcutta 100 cotton
bales. The invoice price of each bale was Rs. 1,500 which includes 20%
profit on invoice price. The Consignor paid Rs. 2,500 for insurance and
Rs. 4,000 for carriage and freight. The Consignee received cotton bales
and sold 75 bales for cash and realised Rs. 1,12,500. He incurred Rs.
1,800 on godown rent and was allowed 10% conmission on sales. 5 cotton
bales were spoiled in godôwn and they are to be valued at 50%
depreciation. Show Consignment Account in the books of Modi Textiles.
Hint: The damaged goods are also to be included in stock and they will
be valued at 50% of the invoice price and the proportionate
expenses.
(Answers: Profit Rs. 1,412; Value of stock Rs. 35,212 (including Rs. 3,912
for damaged goods); Amount due from the Consignee Rs. 99,450)
4. On January 1, 2018 the Consignment to Ceylon A/c in the books of Unique
Clock Makers showed a debit balance of Rs. 3,750. This is represented
by the invoice value of 50 clocks which is 25% above cost.
On January 7, they sent another consignment of 2,500 clocks at the invoice
price of Rs. 75 each which was 25% above cost. They paid Rs. 1,000
for packing, Rs. 500 for insurance and Rs. 3,000 for carriage and freight.
Rama watch Co. the Consignee, received the clocks on January 21 and
paid Rs. 3,000 for custom duty, clearing, etc. They also sent a bank draft
for 50% of the invoice price of the goods received. On June 15, they
returned 50 clocks which were found defective.
By December 31, 2018 they sold the opening stock of 50 clocks at Rs.
85 each on credit and 2,400 clocks of the new Consignment at Rs. 90
each. Their expenses were: advertising Rs. 2,000, salaries Rs. 2,000, and
service charges Rs. 250.
The Consignee is entitled to a commission of 8% on sales. The Consignee
could not recover Rs. 250 on account of credit sales. Show the necessary
ledger accounts in the books of both the parties.
(Answer: Profit Rs. 43,780; Value of closing stock Rs. 3,900; Amount
due from Consignees Rs. 1,01,630)
5. ‘A’ of Agra consigned 100 units of a commodity to ‘D’ of Delhi. The
goods were invoiced at Rs. 150 per unit so as to yield a profit of 50%
on cost. A incurred Rs. 1.000 on freight and insurance, while D incurred
Rs. 500 on freight and Rs. 800 on rent. Before December 31. 2018 he
sold 50 units for cash at Rs. 160 per unit and 20 units on credit for Rs.
175 per unit. He retained his commissions at 5% and 1% del credre on
all sales and remitted the balance on December 31, 2018. D noticed that
10 units were damaged on account of bad packing and could sell them
68
 only for Rs. 80 per unit. A debtor for Rs. 1,000 to whom goods were Consignment Accounts-II
sold on credit became insolvent and only 50 paise in a rupee could be
recovered. Prepare necessary ledger accounts in the books of ‘A’ and
‘D’. 
(Answer: Profit Rs. 1,960; Abnormal Loss Rs. 398; Value of stock
Rs. 3,300)

Note : These questions will help you to understand the unit better. Try to
write answers for them. But, do not submit your answers to the
University for assessment. These are for your own practice only.

69
Consignments and Joint
Ventures UNIT 17 JOINT VENTURE ACCOUNTS
Structure
17.0 Objectives
17.1 Introduction
17.2 What is a Joint Venture?
17.3 Joint Venture and Consignment
17.4 Joint Venture and Partnership
17.5 Accounting Treatment
17.5.1 Recording in the Books of one Co-venturer
17.5.2 Recording in the Books of all Co-venturers
17.5.3 Memorandum Joint Venture Account Method
17.5.4 Separate Set of Books

17.6 Let Us Sum Up

17.7 Key Words
17.8 Some Useful Books
17.9 Answers to Check Your Progress
17.10 Terminal Questions/Exercises

17.0 OBJECTIVES
After studying this unit, you should be able to:
 explain the meaning and importance of a joint venture;
 distinguish joint venture from partnership and consignment;
 record joint venture transactions in the books of one venture;
 record joint venture transactions in the books of all venturers;
 prepare Memorandum Joint Venture Account; and
 prepare separate set of books for the joint venture business.

17.1 INTRODUCTION
In Units 15 and 16 you have studied how various transactions related to the
consignments are recorded in the books of the concerned parties. The basic
objective of preparing the Consignment Account is to ascertain the profit or
loss on each consignment. Similarly, when some persons join hands to carry
out a specific job or a project (called joint venture), each person (called co-
venturer) would like to ascertain his share of profit or loss from the joint venture
business. For this purpose, they record the transactions related to the joint
venture business in their own books or prepare a separate set of books
altogether. In this unit, you will learn how various transactions related to the
joint venture business are recorded whenseparate set of books are prepared
70
and when the co-venturers decide to record them in their own books without Joint Venture Accounts
preparing a separate set.

17.2 WHAT ISA JOINT VENTURE ?

When two or more persons join together to carry out a specific business venture
and share  the profits on an agreed basis, it is called a ‘joint venture’. Each
one of them who join as a party to the joint venture is called ‘Co-venturer’.
No firm name is normally used for the joint venture business because its duration
is limited to a short period. During this period, the - co-venturers are free to
carry on their own business as usual, unless agreed otherwise. The
Business relationship amongst the co-venturers comes to an end as soon as
the venture is completed. Thus a joint venture is some kind of a temporary
partnership between two or more persons who have agreed to jointly carry
out a specific venture. The joint ventures are quite common in construction
business, consignment, sale and purchase of property, underwriting of shares and
debentures, etc. For example, A and B agreed to construct a college building
for which they pooled their resources and skill. A provided Rs. 6 lakh and B
Rs. 4 lakh as capital. They completed the building and shared the profits in
the ratio of their contributions to capital. In this example, joining hands by A
and B to construct a building is a joint venture. A and B are co-venturers. They
will share the profits in the ratio of 6 and 4 (same as the ratio of their capitals).
This venture will be closed once the construction of the college bulding is
completed.
From the above discussion, the essential features of a joint venture can be listed
as follows:
1. It is formed by two or more persons.
2. The purpose is to execute a particular venture or project.
3. No specific firm name is used for the joint venture business.
4. It is of a temporary nature. Hence, the agreement regarding the venture
automatically stands terminated as soon as the venture is completed.
5. The co-venturers share profit and loss in the agreed ratio. However, in
the absence of any other agreement between the co-venturers, the profits
and losses are to be shared equally.
6. During the tenure of joint venture, the co-venturers are free to continue
with their own business unless agreed otherwise.
The main advantages of a joint venture are:
1. Sufficient Resources: Since two or more persons pool their resources,
there is sufficient capital available.
2. Ability and Experience:In joint venture the different venturers may be
having different skills and experience. The benefit of their common wisdom
will be available to the venture.
3. Spreading of Risk: The co-venturers agree to share the profits and
losses in a particular ratio. This implies that the risk is also borne by them
in that ratio. 71
Consignments and Joint
Ventures 17.3 JOINT VENTURE AND CONSIGNMENT
Even though both consignment and joint venture are in the nature of an agreement
between different parties, there are many points of difference between the two.
The main points of difference are as follows:
Consignment Joint Venture
1 Normally two persons are Number of co-venturers is usually two,
involved, the Consignor and but it may also be more than two.
the Consignee.
2 The relationship between the The relationship between co-venturers
Consignor and the Consignee is that that of partnership.
is of Principal and Agent.
3 The arrangement may continue The relationship comes to an end as
for a long time, soon as the venture is completed.
4 The funds are provided by All the co-venturers contribute to
the Consignor. a common pool.
5 The consignee acts merely as The co-venturers have equal authority
an agent and he has to follow to take decisions.
instructions of the Consignor.
6 Consignment is generally Joint Venture may be for sale of goods
concerned with the sale of or for carrying on any other activity
movable goods. like construction of building, investment
in shares, etc.
7 The profit belongs to the The profit is shares by all the co
Consignor only. The Consignee ventures.
is entitled only to his
commission.
8 The Consignor owns the goods. There is joint ownership.
9 There is only one method of There are four methods of maintaining
maintaining the accounts for accounts for the joint venture.
consignment transactions.

17.4 JOINT VENTURE AND PARTNERSHIP

Though joint venture is in the nature of a temporary partnership but in the strict
legal sense it is not a partnership. Both in joint venture and partnership some
business is carried on by two or more persons and the profits are shared by
all of them. But, there are some basic differences between the two. They are
as follows:

Partnership Joint Venture

1 A partnership firm always There is no need for firm name.
has a name.
2 It is of a continuous nature. It comes to an end as soon as the
72 work is completed.
 3 Separate set of books have There is no need for a separate set Joint Venture Accounts
to be maintained. of books, the accounts can be
maintained even in one of the co-
venturer’s books only.
4 No partner can carry on The co-venturers are free to carry on
a similar business. the business of a similar nature.
5 Though the registration of There is no need for registration at all.
partnership is not compulsory
but it is considered desirable.
6 A minor can also be admitted A minor cannot be a co-venturer as
to thebenefits of the firm. he is incompetent to enter into a
contract.
Check Your Progress A
1. A & B enter into a joint venture for the construction of a building. They
contributed Rs. 2,00,000 and Rs. 3,00,000 respectively. They agreed to
share the profits or losses in the ratio of their contribution to capital. The
profit for the joint venture is Rs. 45,000. State (i) the names of the co-
venturers, and (ii) each co-venturer’s share of profit. 
i) ..............................................................................................................
ii) .............................................................................................................
2. State whether each of the following statements is True or False.
i) A joint venture is a partnership formed under the Indian Partnership
Act
ii) A joint venture has a definite life.
iii) Joint venture is the same thing as consignment.
iv) Joint venture agreement must be registered .
v) Co-venturers share the profits in the agreed ratio.

17.5 ACCOUNTING TREATMENT

Broadly speaking, accounts of a joint venture business can be kept in any one
of the following four ways:
1. In the Books of One Co-venturer: In case the business is not very large,
only one of the venturers may be entrusted with the task of recording
the transactions in his books. In that case, all other co-ventures will send
their contribution to such venturer and he will open a Joint Venture Account
and the personal accounts ofother co-venturers in his books.
2. In the Books of All the Co-venturers: When all Co-venturers are
working actively, each one of them shall open a Joint Venture Account and
the personal accounts of other Co-venturers in his books. In such a situation,
each Co-venturer informs others about the transactions undertaken by him
so that they can incorporate them in their books.
73
Consignments and Joint 3. Memorandum Joint Venture Account: Sometimes each Co-venturer
Ventures
records only such transactions as are directly concerned with him. In that
case, he cannot work out the profit or loss because his books do not include
all transactions of the joint venture. Hence, for calculating the profit or loss
of the joint venture, a Memorandum Joint Venture Account has to be
prepared by incorporating all transactions related to the joint venture.
Thereafter the Joint Venture Account is completed and closed.
4. Separate Set of Books: Sometimes, for the sake of convenience, a
separate set of books are maintained for the joint venture. Under this system,
a Joint Bank Account, a Joint Venture Account and the personal accounts
of all the co-venturers are to be opened in the independent set of books
of account.
Let us now study these methods one by one in detail.

17.5.1 Recording in the Books of One Co-venturer

If the joint venture business is not very large, the task of recording transactions
can very well be entrusted to one of the Co-venturers. He will prepare a Joint
Venture Account and the personal accounts of other Co-venturers. The Joint
Venture Account is prepared for ascertaining the profit or loss of the joint venture.
The personal account of other co— venturers are prepared to find out the amount
due from them. As stated earliest, each co-venturer is also entitled to carry on
his own business and these transactions will be in addition to what he records
in respect of his own business. The following journal entries are passed in his
books before preparing the necessary accounts of the joint venture.
1. When the co-venturers send their contribution:
Cash/Bank A/c Dr.
To Co-venturer’s Personal A/c 
2. When the goods are purchased for the joint venture:
Joint Venture A/c Dr.
To Cash/Bank A/c
3. When the goods are supplied from his own stock by the Co-venturer
who is recording the transactions:
Joint Venture A/c Dr.
To Purchases A/c
Here we are crediting Purchases Account because he is supplying the goods
from his own stock at cost. But if the goods are supplied by him at a
price other than the cost price, we shall credit the Sales Account instead
of the Purchases Account.
4. When the goods are supplied by other Co-venturers:
Joint Venture A/c Dr.
To Co-venturer’s Personal A/c 
5. When some expenditure is incurred on account of the joint venture:
Joint Venture A/c Dr.
To Cash/Bank A/c
But, if expenses are paid by a Co-venturer other than the one who is
recording the transactions, then the entry will be:
74
 Joint Venture A/c Dr. Joint Venture Accounts
To Co-venturer’s Personal A/c
Here we have debited the Joint Venture Account because it is an expenditure
on account of the joint venture business.
6. When the Co-venturer recording the transactions sells the goods:
a) For cash sales:
Cash/Bank A/c Dr.
To Joint Venture A/c
b) For credit sales:
Debtor’s Personal A/c Dr.
To Joint Venture A/c
7. When cash is received from debtors:
Cash/Bank A/c Dr.
To Debtor’s Personal A/c 
8. When some cash discount is allowed to the debtor making payment,
or some bad debts are incurred:
Joint Venture A/c Dr.
To Debtor’s Personal A/c 
9. When sales are made by other Co-venturers:
Co-venturer’s Personal A/c Dr.
To Joint Venture A/c
10. When some cash or bills receivable are received from other co-
venturers on account of sales made by them:
Cash/Bank/Bills Receivable A/c Dr.
To Co-venturer’s Personal A/c 
11. When the Co-venturers recording the transactions is entitled to some
commission or salary:
Joint Venture A/c Dr.
To Commission/Salary A/c
Joint Venture Account is debited as it is an expenditure related to the joint
venture business.
12. When the unsold stock ofjoint venture is taken over by the co-
venturer recording the transactions:
Purchases A/c Dr.
To Joint Venture A/c
If the unsold stock is taken over by some other Co-venturer, the journal
entry will be:
Co-venturer’s Personal A/c Dr.
To Joint Venture A/c
After passing the above entries, the Joint Venture Account is prepared. The
balance of this account will show either profit or loss which is to be shared
by all the Co-venturers in their profit sharing ratio. This will require the following
further entries: 75
Consignments and Joint a) If it shows profit:
Ventures
Joint Venture A/c Dr.
To Profit & Loss A/c
(his own share)
To Co-venturers’ Personal A/cs 
(individually for their shares)
b) If it results in loss:
Profit & Loss A/c Dr.
(his own share of loss)
Co-venturers’ Personal A/c Dr.
(individually for their shares)
To Joint Venture A/c
After closing the Joint Venture Account, we have to find out the amount due
to other Co-venturers. When this amount is sent to them, we record the following
entry.
Co-venturers’ Personal A/c Dr.
To Cash/Bank A/c
Look at illustration 1, it shows the journal entries as well as the different accounts
in the ledger of the Co-venturer who is recording the transactions relating to
the joint venture business in his books.
Illustration 1
Rajesh and Suresh entered into a contract to construct a building for Rs.
4,00,000. Rajesh and Suresh contributed Rs. 2,00,000 and Rs. 1,50.000
respectively. They agreed to share profits and losses in the ratio of 4:3. It was
decided that the work will be looked after by Rajesh who will be paid 5%
commission on contract price in addition to his share of profits. Rajesh purchases
the necessary materials for Rs. 3,20,000 and paid Rs. 9,000 for expenses.
Rajesh also contributed building materials worth Rs. 20,000 from his own stock.
Rs. 5,000 remained to be paid for wages.
Suresh took over the stock of materials for an agreed valuation of Rs. 16,000.
The building was completed and the contract money was duly received.
Record the above transactions in the books of Rajesh and show the Joint Venture
Account and Suresh’s Account assuming that the outstanding wages were paid
by Rajesh.
In the Books of Rajesh
Journal Entries
Date Particulars L.F. Dr. Cr.
Amount Amount
Cash A/c Dr. 1,50,000
To Suresh (Being cash received 1,50,000
from Suresh)
Joint Venture A/c Dr. 3,20,000
To Cash A/c
(Being materials purchased) 3,20,000
76
 Joint Venture A/c Dr. 9,000 Joint Venture Accounts
To Cash A/c 9,000
(Being expenses paid)
Joint Venture A/c Dr. 20,000
To Purchases A/c 20,000
Being material supplied from
personal stock)
Joint Venture A/c Dr. 5,000
To Outstanding Wages A/c 5,000
(Being outstanding wages)
Joint Venture A/c Dr. 20,000
To Commission A/c 20,000
(Being Commission @ 5%)
Cash Account Dr. 4,00,000
To Joint Venture 4,00,000
(Being the contract price received)
Suresh Dr. 16,000
To Joint Venture A/c 16,000
(Being goods taken over by Suresh)
Joint Venture A/c Dr. 42,000
To Profit & Loss A/c 24,000
To Suresh (Being the profit shared) 18,000
Outstanding Wages A/c Dr. 5,000
To Cash A/c 5,000
(Being wages paid by Rajesh)
Suresh Dr. 1,52,000
To Cash A/c 1,52,000
(Being the amount due paid)
Joint Venture Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Cash A/c (Purchases) 3,20,000 By Cash A/c 4,00,000
To Cash A/c (Expenses) 9,000 By Suresh 16,000
To Purchase A/c 20,000
(Material supplied)
To Outstanding Wages A/c 5,000
To Commission A/c 20,000
To Profit transferred to :
Profit & Loss A/c 24,000
Suresh 18,000 42,000
4,16,000 4,16,000
77
Consignments and Joint Suresh’s Account
Ventures

Rs. Rs.
To Joint Venture A/c 16,000 By Cash A/c 1,50,000
To Cash A/c 1,52,000 By Joint Venture A/c 18,000
1,68,000 1,68,000

Illustration 2
Anand and Prakash entered into a joint venture agreement to share the profits
and losses in the ratio of 2:1. Anand supplied goods worth Rs. 60,000 to
Prakash and incurred expenses amounting to Rs. 2,000 for freight and insurance.
During transit, the goods costing Rs. 5,000 were damaged and a sum of Rs.
3,000 was received from the insurance company. Prakash reported that 90%
of the remaining goods were sold at a profit of 30% of their original cost.
Towards the end of the venture, a fire damaged the balance stock lying unsold
with Prakash. The goods were not insured and Prakash agreed to compensate
Anand by paying in cash 80% of the aggregate of the original cost of such
goods, plus proportionate expenses incurred by Anand. Apart from the joint
venture share of profit, Prakash was also entitled to a commission @ 5% on
net profits of the joint venture after charging such commission. Selling expenses
incurred by Prakash amounting Rs. 1,000. Prakash had earlier remitted an
advance of Rs. 10,000. Prakash paid the balance due to Anand by a bank
draft. You are required to prepare the Joint Venture Account, and Prakash’s
Account in Anand’s books. 
Solution:
In the Ledger of Anand
Joint Venture Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Purchase A/c 60,000 By Bank A/c 3,000
(Goods Supplied) (Insurance)
To Bank A/c (expenses) 2,000 By Prakash (Sales) 64,350
To Prakash (expenses) 1,000 By Prakash (agreed 4,546
value of damaged goods)
To Prakash (Commission- 424
5/105 of Rs. 8,896)
To Profit transferred to
Profit & Loss A/c 5,648
Prakash 2,824 8,472
71,896 71,896

78
 Prakash’/s Account Joint Venture Accounts

Rs. Rs.
To Joint Venture A/c (Sales) 64,350 By Bank A/c (Advance) 10,000
To Joint Venture A/c 4,546 By Joint Venture A/c 1,000
(Claim for damaged goods) (Expenses)
By Joint Venture A/c 424
(Commission)
By Joint Venture A/c 2,824
(Profit)
By Bank A/c 54,648
(Balance received by draft)
68,896 68,896

Working Notes: Rs.

1. Calculation of Sales:
Cost of goods sent 60,000
Less Damage in transit 5,000
Cost of remaining goods 55,000
Cost of goods sold (90% of Rs. 55,000) 49,500
Add Profit 30% of Rs. 49,500
14,850
Sales 64,350
2. Loss by fire borne by Prakash: Rs.
Cost of goods in stock (10% of 55,000) 5,500

Add Proportionate Expenses = 183

Total Loss 5,683

80% of this loss (5683  80/100) 4,546
3. Abnormal loss on account of damage in transit relates to the joint venture.
Hence no calculation is needed.

17.5.2 Recording in the Books of all Co-venturers

Under the second method, all transactions relating to the joint venture are
recorded in the books of all the Co-venturers. In order to complete the Joint
Venture Account in the books of all Co-venturers, each Co-venturer sends the
necessary information about his dealings to the other Co-venturers. There is
not much of a difference in the recording of transactions between the first and
the second method. We will be having similar entries in the joint venture accounts
79
Consignments and Joint in each Co-venturer’s books, who shall all open the personal accounts of other
Ventures
Co-venturers. Look at illustration 3 to clearly understand the recording of
transactions under the second method.
Illustration 3
Arvind and Babloo entered into a joint venture agreeing to share profits and
losses equally.
The following transactions took place during the course of venture:
Rs.
Arvind bought goods for cash 2,550
Babloo bought goods for cash 7,000
Arvind paid storage charges 500
Babloo paid freight and insurance 800
Babloo sold goods for cash 7,000
Babloo received 3% commission on sales 210
Sales made by Arvind 5,000
Commission payable to Arvind 150
Babloo took over the unsold stock 560
Prepare the necessary ledger accounts in the books of Arvind and Babloo
assuming that the accounts are finally settled between them.
Solution:
Ledger of Arivind
Joint Venture Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Cash A/c 2,500 By Babloo (sales) 7000
(goods purchased)
To Babloo (goods purchased) 7,000 By Cash (sales) 5,000
To Cash A/c (expenses) 500 By Babloo 560
(stock taken over)
To Babloo (expenses) 800
To Babloo (commission) 210
To Commission A/c 150
To Profit transferred to:
Babloo 700
Profit & Loss A/c 700 1,400
12,560 12,560
80
 Babloo’s Account Joint Venture Accounts

Rs. Rs.
To Joint Venture A/c (sales) 7,000 By Joint Venture A/c 7,000
(goods purchased)
To Joint Venture A/c 560 By Joint Venture A/c 800
(stock taken over) (expenses)
To Cash A/c 1,150 By Joint Venture A/c 210
(balance due paid) (commission)
By Joint Venture A/c 700
(share of profit)
8,710 8,710

Ledger of Babloo
Joint Venture Account
Dr. Cr.
Rs. Rs.
To Arvind (Goods purchased) 2,500 By Cash A/c (Sales) 7,000
To Cash A/c (Good) 7,000 By Arvind (Sales) 5,000
To Arvind (Expenses) 500 By Purchases A/c 560
(Stock taken over)
To Cash A/c (Expenses) 800
To Commission A/c 210
To Arvind (Commission) 150
To Profit transferred to:
Arvind 700
Profit & Loss A/c 700 1,400
12,560 12,560

Arvind’s Account
Rs. Rs.
To Joint Venture A/c (sales) 5,000 By Joint Venture A/c 2,500
(goods purchased)
By Joint Venture A/c 500
(expenses)
By Joint Venture A/c 150
(commission)
By Joint Venture A/c 700
(share of profit)
By Cash A/c 1,150
(Balance due received)
5,000 5,000
81
Consignments and Joint 17.5.3 Memorandum Joint Venture Account Method
Ventures
In the method discussed above, each Co-venturer records all transactions
relating to the joint venture in the Joint Venture Account opened in his books.
But, under the Memorandum Joint Venture Account Method, each Co-
venturer will record only those transactions relating to the joint venture which
are directly concerned with him, and not those of others. Under this method,
each Co-venturer opens a Joint Venture Account including the name of the
other Co-venturer. For example, if ‘A’ and ‘B’ are partners in a joint venture,
then in the books of ‘A’ it will be termed as ‘Joint Venture with ‘B’ Account’
and in the books of ‘B’ it will be termed as ‘Joint Venture with ‘A’, Account’.
Each Co-venturer will record only such transactions which are actually effected
by him. For example, if goods are purchased by ‘A’ for the joint venture, it
will be recorded only by A and not by other Co-venturers. Similarly, if goods
are sold by  ‘B’, it will be recorded in the books of ‘B’ only. This account
is in the nature of a personal account and, therefore, will not disclose the profit
or loss of the venture. For that purpose we prepare an additional account called,
‘Memorandum Joint Venture Account’. This is like Profit and Loss A/c. 
Let us say ‘A’ and ‘B’ enter into a joint venture and certain transactions have
taken place for which the following entries will be passed in each Co-venturer’s
books.
1. A purchases goods for cash:
This transaction shall be recorded in the books of A only. The entry will
be:
Joint Venture with B A/c Dr.
To Cash A/c
2. A incurs some expenditure on account of the joint venture:
It shall be recorded in A’s books only. The entry will be: 
Joint Venture with B A/c Dr.
To Cash A/c
3. B sells goods for cash:
No entry will be made in A’s books. But the following entry will be made
in B’s books: 
Cash Account Dr.
To Joint Venture with A A/c
4. B sends money to A:
a) It shall be recorded in B’s books as follows: 
Joint Venture with A A/c Dr.
To Cash/Bank A/c
b) It shall be recorded in A’s books as follows:
Cash/Bank A/c Dr.
To Joint Venture with B A/c
82
As stated earlier, for ascertaining the profit or loss on the joint venture, we Joint Venture Accounts
prepare a Memorandum Joint Venture Account. This account is prepared exactly
on the pattern of Profit & Loss Account. Since this account does not form
part ofthe double entry system, the word ‘Memorandum’ is prefixed. 
The method of preparing this account is very simple. It is prepared on the basis
of information supplied by all the Co-venturers. The debit entries appearing in
the personal accounts of all Co-venturers are written on the debit side of the
Memorandum Account and the entries appearing on the credit side of those
accounts are shown on the credit side of the Memorandum Joint Venture
Account. However, you should remember that the transactions which do not relate
to an item of expense or income are to be excluded from this Memorandum
Account. The difference in the totals of the debit side and the credit side
represents profit or loss. The profit or loss thus calculated is then shared by
the Co-venturers in the agreed profit sharing ratio.
Each Co-venturer will record only his share of profit or loss. In the event
of profit, the entries shall be:
In the books of A
Joint Venture with B A/c Dr.
To Profit & Loss A/c
In the books of B
Joint Venture with A A/c Dr.
To Profit & Loss A/c
In the event of Loss the entries shall be reversed as follows :
In the books of A
Profit and Loss A/c Dr.
To Joint Venture with B A/c
In the books of B
Profit and Loss A/c Dr.
To Joint Venture with A A/c
In the end, each venturer balances the ‘Joint Venture with .....Account’ in his
books and settles the account by paying or receiving cash. Look at illustration
4 carefully to understand the preparation of Memorandum Joint Venture Account.
Illustration 4
Prem of Delhi and Satish of Calcutta entered into a joint venture for the purchase
and sale of goods. The profits and losses are to be shared in the ratio of 2:1.
Prem purchased goods for Rs. 40,000 and sent them to Satish paying Rs. 3,000
for freight and insurance. Prem also incurred sundry expenses amounting to Rs.
400. Satish sold goods for Rs. 55,000 and incurred Rs. 6,000 as expenses.
Unsold stock valued at Rs. 7,000 was taken over by Satish. Satish remitted
the balance due to Prem by a bank draft.
Each party’s ledger contains a record of his own transactions in the Joint Venture
Account. Prepare (a) Memorandum Joint Venture Account, (b) Joint Venture
with Satish’s Account in Prem’s ledger, and (c) Joint Venture with Prem’s Account
in Satish’s ledger. 
83
Consignments and Joint Solution:
Ventures
Ledger of Prem
Joint Venture with Satish Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Bank A/c (purchases) 40,000 By Bank A/c 51,800
(In final settlement)
To Bank A/c (freight & ins.) 3,000
To Bank A/c (Sundry Exp.) 400
To Profit & Loss A/c 8,400
(share of profit)
51,800 51,800

Ledger of Satish
Joint Venture with Prem Account
Dr. Cr.

Rs. Rs.
To Bank A/c (expenses) 6,000 By Bank A/c (sales) 55,000
To Profit & Loss A/c 4,200 By Purchases A/c 7,000
(stock taken over)
To Bank A/c (final settlement) 51,800
62,000 62,000

Memorandum Joint Venture Account

Rs. Rs.
To Prem: By Satish
Goods 40,000 Sale Proceeds 55,000
Freight insurance 3,000 Stock taken over 7,000 62,000
Sundry Expenses 400 43,400
To Satish (expenses) 6,000
To Profit transferred to
Prem 8,400
Satish 4,200 12,600
62,000 62,000

Interest in Joint Venture Transactions : When the Co-ventures invest money

in joint venture business and received back the amounts on different dates, it
is quite usual for them to agree to calculate interest at a certain rate. Each
Co-venturer is entitled to received interest on the amounts invested by him
84
and pay interest on the amounts received by him. You should remember that Joint Venture Accounts
only the net interest receivable from or payable to the Co-venturer is recorded
in the Joint Venture Account. Thus, the net amount of interest is also taken
into account before ascertaining the profit or loss on joint venture. For clarification
look at illustration 5.
Illustration 5
Anand and Bimal enter into a joint venture sharing profits and losses equally.
Anand purchased goods for Rs. 5,000 for cash and Bimal spent Rs. 1,000
on freight, etc., on January 1, 2018. On the same day, Bimal bought goods
for Rs. 10,000 on credit. Further expenses were incurred as follows:
On 1-2-2018
On 1-3-2018 Rs 500 by Anand
Sales were made by each one of them as follows:
15-1-2018 Rs. 3,000 by Anand
31-1-2018 Rs. 6,000 by Bimal
15-2-2018 Rs. 3,000 by Anand
1-3- 2018 Rs. 4,000 by Bimal
Creditors for goods were paid as follows:
1-2-2018 Rs. 5,000 by Anand
1-3-2018 Rs. 5,000 by Bimal
On March 31, 2018 the balance of stock was taken over by Bimal at Rs.
9,000. The accounts between the Co-venturers were settled by cash payment
on this date. The Co-venturers are entitled to interest at 12% per annum. Prepare
necessary ledger accounts in the books of venturers as per Memorandum Joint
Venture Account Method.
Solution:
Memorandum Joint Venture Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Anand (Cost of goods) 5,000 By Anand (Sales) 6,000
To Bimal (Cost of goods) 10,000 By Bimal (Sales) 10,000
To Bimal (Freight etc.) 1,000 By Bimal (Interest) 50
To Anand (expenses) 500 By Bimal (Stock taken) 9,000
To Bimal (expenses) 1,500
To Anand (interest) 135
Anand 3,457
Bimal 3,458 6,915
25,050 25,050

85
Consignments and Joint Anand’s Ledger
Ventures
Jont Venture with Bimal Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2018 Rs. 2018 Rs.
Jan. 1 To Bank A/c (Purchases) 5,000 Jan. 15 By Bank A/c (sales) 3,000
Feb. 1 To Bank A/c (creditors) 5,000 Feb. 15 By Bank A/c (sales) 3,000
Mar. 1 To Bank A/c (expenses) 5,00 Mar. 15 By Bank (Final settlement) 8,092
Mar. 31 To Interest A/c 135
Mar. 31 To Profit & Loss A/c 3,457
14,092 14,092

Bimal’s Ledger
Jont Venture with Anand Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2018 Rs. 2018 Rs.
Jan. 1 To Bank A/c (freight) 1,000 Jan. 31 By Bank (sales) 6,000
Feb. 1 To Bank A/c (expenses) 1,500 Mar. 31 By Bank (sales) 4,000
Mar. 1 To Bank A/c (creditors) 5,000 Mar. 31 By Goods (stock taken over) 9,000
Mar. 31 To Profit & Loss A/c 3,458 Mar. 31 By Interest 50
Mar. 31 To Bank A/c (Amount 8,092
in final settlement)
19,050 19,050

Calculation of Interest
Payments by Anand
Date Amount Months Product

1-1-18 Rs.5,000 3 15,000 (5,000 3)

1-3-18 Rs. 500 1 500 (500 1)

1-2-18 Rs. 5,000 2 10,000 (5,000 2)

25,500
12 1
Interest = 25,500    Rs. 255
100 12
86
Receipts by Anand Joint Venture Accounts

1 1
15-1-18 Rs. 3,000 2 7,500 (3,000  2 )
2 2

1 1
15-2-18 Rs. 3,000 1 4,500 (3,000  1 )
2 2
12,000

12 1
Interest  12,000    Rs.120
100 12
Net Interest due to Anand = 255 — 120 = Rs. 135 
Payments by Bimal
1-1-18 Rs. 1,000 3 3,000 (1000  3)
1-2-18 Rs. 1,500 2 3,000 (1,500  2)
1-3-18 Rs. 5,000 1 5,000 (5,000  1)
11,000

12 1
Interest  11,000    Rs.110
100 12
Receipts by Bimal
31-1-18 Rs. 6,000 2 12,000 (6,000 2)
1-3-18 Rs. 4,000 1 4,000 (4,000 1)
16,000

12 1
Interest  16,000    Rs.160
100 12

Net Interest Due from Bimal

= 160—110 = Rs.50 

Check Your Progress-B

1. Put a tick 3 ( ) against the right answer.

a) The goods supplied from his stock at cost by the Co-venturer

maintaining the accounts, are debited to

i) Sales Account

ii) Purchases Account

iii) Stock Account

b) In Memorandum Joint Venture Account Method, the co-venturer

records 87
Consignments and Joint i) His transactions only
Ventures
ii) Other Co-venturers’ transactions only 
iii) All the transactions of the Joint Venture
c) Memorandum Joint Venture Account is prepared to find out
i) Amount due from the Co-venturers
ii) Profit or 1oss on the joint venture
iii) None of the above
d) The share of profit of the Co-venturer maintaining the records is
credited to
i) Profit and Loss Account
ii) His personal account
iii) None of the above
e) Any bad debts incurred on account of joint venture are debited to
i) Bad Debts Account
ii) Debtor’s Personal Account
iii) Joint Venture Account

17.5.4 Separate Set of Books

So far, you have studied the methods of recording joint venture transactions
where no separate set of books were maintained. Now we shall study another
method where Co-venturers agree to keep separate set of books for recording
the joint venture transactions. When separate set of books are maintained, the
joint venture transactions are recorded as a separate accounting entity on the
basis of double entry principles. Under this method, the following accounts are
opened:
1. Joint Bank Account
2. Joint Venture Account
3. Personal accounts of each Co-venturer
Joint Bank Account is a real account like the ordinary Bank Account. All the
Co-venturers pay or deposit their contribution in this account. The Joint
Venture Account is like a profit and loss account which shows all the
expenses and incomes of the joint venture.Thepersonal accounts of the Co-
venturers simply show their contributions in theform of goods, cash or expenses
and the amounts received by them.
Let us now see the various journal entries which are normally recorded under
this method.
1. When co-venturers contribute their share of capital:
Joint Bank A/c Dr.
To Co-venturers Personal A/c
88
2. When a Co-venturer contributed in the form of goods: Joint Venture Accounts
Joint Venture A/c Dr.
To Co-venturers Personal A/c
3. When purchases are made for joint venture: .
a) If on cash:
Joint Venture A/c Dr.
To Joint Bank A/c
b) If on credit:
Joint Venture A/c Dr.
To Creditor’s Personal A/c 
Note that when goods are purchased for the joint venture business, you
will debit the joint venture account not the Purchases Account.
4. When expenses are incurred on account of joint venture:
a) If paid out of Joint Bank Account
Joint Venture A/c Dr.
To Joint Bank A/c
b) If paid by a co-venturer
Joint Venture A/c Dr.
To Co-venturer’s Personal A/c  
5. When goods are sold:
a) For cash sales:
Joint Bank A/c Dr.
To Joint Venture A/c
b) For or credit sales:
Debtor’s Personal A/c Dr.
To Joint Venture A/c
6. When creditors are paid:
Creditors’ Personal A/c Dr.
To Joint Bank Account
7. When amounts are received from debtors:
Joint Bank A/c Dr.
To Debtor’s Personal A/c 
8. Any commission, interest, etc. payable to a Co-venturer:
Joint Venture A/c Dr.
To Co-venturer’s Personal A/c 
9. Unsold stock taken over by a Co-venturer:
Co-venturer’s Personal A/c Dr.
To Joint Venture A/c
10. Now if we balance the Joint Venture Account, it will disclose the amount
of profit or loss made on the joint venture which is to be shared by the
Co-venturers in their profit sharing ratio. The entries for the distribution
of profit and loss will be as follows:

89
Consignments and Joint a) In case of profit:
Ventures
Joint Venture A/c Dr.
To Co-venturers’ Personal A/cs 
b) In case of loss:
Co-venturers’ Personal A/c Dr.
To Joint Venture A/c
11. This closes the Joint Venture Account. After transferring the amount of profit
or loss to the Co-venturer’s personal accounts, you can find out the amount
payable to each one of them. When the payment is made, the journal entry
will be as follows:
Co-venturers’ Personal A/cs Dr.
To Joint Bank A/c
You will notice that the balance in the Joint Bank Account will be sufficient
to pay-off all the Co-venturers, and when the above entries are passed
all the accounts will be closed.
12. Treatment of cash discount When : some cash discount is llowed by the
creditors, it will be an item of gain for the joint venture. Hence it is credited
to the Joint Venture Account. The journal entry will be:
Creditor’s Personal A/c Dr.
To Joint Venture A/c
Similarly, when some cash discount is allowed to the debtors, it will be
an item of loss for the joint venture and, therefore, is debited to the Joint
Venture Account. The journal entry will be:
Joint Venture A/c Dr.
To Debtor’s Personal A/c
The same entry is passed in case of bad debts. Look at illustration 6
and see how the concerned accounts are prepared when separate set of books
are maintained for the joint venture business.
Illustration 6
Vikas and Salil entered into a joint venture to construct a building for a joint
stock company. The contract price was settled at Rs. 25 lakh, payable Rs.
20 lakh in cash and the balance in the form of fully paid equity shares of the
company. They opened a Joint Bank Account wherein Vikas deposited Rs. 6
lakh and Salil paid in Rs. 3 lakh. They agreed to share the profits and losses
in the ratio of 2:1
They purchased materials for Rs. 3 lakh for cash and Rs. 10 lakh worth on
credit from Anil. They paid Rs. 4,50,000 for wages. etc., and Rs. 70,000 for
other expenses.Vikas and Salil supplied materials worth Rs. 2,00,000 and Rs.
80,000 respectively. Architect’s fees of Rs. 10,000 was paid by Vikas. The
contract was duly completed and the price received as stipulated. Anil was paid
Rs. 9,80,000 in full settlement. Vikas agreed to take up the shares of the
company at a valuation of Rs. 4,40,000. Salil took over the remaining material
at an agreed value of Rs. 70,000.
Separate books are maintained for joint venture business. Prepare the necessary
90 ledger accounts.
Solution : Joint Venture Accounts
Joint Venture Account
Dr. Cr.

Particulars Amount Particulars Amount

Rs. Rs.
To Joint Bank A/c (Material) 3,00,000 By Joint Bank A/c 20,00,000
To Anil (Credit purchases) 10,00,000 By Equity Shares A/c 5,00,000
To Joint Bank A/c (Wages) 4,50,000 By Anil (Discount) 20,000
To Joint Bank A/c (Expenses) 70,000 By Salil (Material 70,000
taken over)
To Vikas (Material) 2,00,000
To Salil (Material) 80,000
To Vikas (Architects fee) 10,000
To Equity Shares A/c (Loss) 60,000
To Profit transferred to:
Vikas 2,80,000
Salil 1,40,000 4,20,000
25,90,000 25,90,000

Joint Bank Account

Rs. Rs.
To Vikas 6,00,000 By Joint Venture A/c (Material) 3,00,000
To Salil 3,00,000 By Joint Venture A/c (Wages) 4,50,000
To Joint Venture A/c 20,00,000 By Joint Venture A/c (Expenses) 70,000
By Anil (creditor paid) 9,80,000
By Vikas 6,50,000
By Salil 4,50,000
29,00,000 29,00,000

Vikas’s Account

Rs. Rs.
To Equity Shares A/c 4,40,000 By Joint Bank A/c 6,00,000
To Joint Bank A/c 6,50,000 By Joint Venture (Material) 2,00,000
By Joint Venture(Architect fees) 10,000
By Joint Venture (Profit) 2,80,000
10,90,000 10,90,000

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Consignments and Joint Salil’s Account
Ventures
Rs. Rs.
To Joint Venture (Material) 70,000 By Joint Bank A/c 3,00,000
To Joint Bank A/c 4,50,000 By Joint Venture A/c (Material) 80,000
By Joint Venture A/c (Profit) 1,40,000
5,20,000 5,20,000

Equity Shares Account

Rs. Rs.
To Joint Venture 5,00,000 By Vikas 4,40,000
By Joint Venture A/c 60,000
(Loss transferred)
5,00,000 5,00,000

Anil’s Account

Rs. Rs.
To Joint Bank A/c 9,80,000 By Joint Venture A/c 10,00,000
(Materials)
To Joint Venture A/c (Discount) 20,000
10,00,000 10,00,000

Underwriting of Shares: Let us now take an illustration where the Co-venturers

agreed to underwrite the shares or debentures of a limited company.Underwriting
means agreeing to buy shares that are not subscribed by the public. For this
service, they receive some commission which may be paid partly in the form
of shares of the company and partly in cash. The shares thus received are sold
to the public or taken over by the Co-venturers at an agreed price. Look at
illustration 7 and see how accounts are prepared for the jointventure of
underwriting the shares when separate set of books are maintained.
Illustration 7
A and B enter into a joint venture to guarantee the subscription at par of 1,00,000
shares of Rs. 10 each of a limited company, and sharing profits and losses
in the ratio of 4.5. The terms with the company are : 4.5% commission payable
in cash and 6,000 fully paid shares of the company. They agreed to pay expenses
in connection with the issue of shares. The expenses incurred are advertisement
Rs. 5,000; printing and stationery Rs. 2,000 and postage Rs. 600. All expenses
are paid by A. The public subscribed to 88,000 shares only. The remaining
shares under the agreement were duly taken up by A and B who provided
the necessary cash equally. The commission is received in cash and is shared
by the Co-venturers in the ratio 4:5. The entire holding of the joint venture
is then sold in the market through brokers as follows: 25% at a price of Rs. 9
per share; 50% ata price of Rs. 8.75 per share, 15% at a price of Rs. 8.50 per
92 share, and the remaining 10% is taken over by A and B equally at an agreed
price of Rs. 8 per share. Prepare the Joint Venture Account, Joint Bank Account, Joint Venture Accounts
Shares Account, and the accounts of A and B showing the final settlement.
Solution
Joint Venture Account
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To A By Joint Bank A/c (commission) 45,000
Advertisement 5,000 By Shares A/c (commission)
Printing 2,000
Postage 600 7,600
To Shares A/c (loss on sale) 23,400
To Profit transferred to :
A 29,600
B 44,400 74,000
1,05,000 1,05,000

Joint Bank Account

Rs. Rs.
To A (contribution) 60,000 By Shares A/c 1,20,000
To B (contribution) 60,000 By A (commission) 20,000
To Joint Venture A/c (commission) 45,000 By B (commission) 25,000
To Shares A/c (sale for cash) By A (final settlement) 70,000
25% 40,500 By B (final settlement) 72,200
50% 78,750
10% 22,950 1,42,200
3,07,200 3,07,200

Shares Account
Particulars Amount Particulars Amount
Rs. Rs.
To Joint Bank A/c 1,20,000 By Joint Bank A/c (Sale of shares) 40,500
To Joint Venture (Commission) 60,000 By Joint Bank A/c (Sale of shares) 78,750
By Joint Bank A/c (Sale of shares) 22,950
By A (shares taken over) 7,200
By A (shares taken over) 7,200
By Joint venture A/c (Loss) 23,400
1,80,000 1,80,000

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Consignments and Joint
Ventures A’s Account
Particulars Amount Particulars Amount
Rs. Rs.
To Joint Bank A/c (Commission) 20,000 By Joint Venture A/c (Expenses) 7,600
To Shares A/c 7,200 By Joint Venture A/c (Contribution) 60,000
To Joint Bank A/c (Final settlement) 70,000 By Joint Venture A/c (Profit) 29,600
97.200 97.200

B’s Account
Particulars Amount Particulars Amount
Rs. Rs.
To Joint Bank A/c (Commission) 25,000 By Joint Bank A/c (Contribution) 60,000
To Shares A/c 7,200
To Joint Bank A/c (Final settlement) 72,200 By Joint Venture A/c (Profit) 44,400
1,04,400 1,04,400

Working Notes
1.. Distribution of commission received in cash
4 ½ % of 10,00,000 = Rs. 45,000
A’s share 4/9  45,000 = Rs. 20,000
B’s share 5/9   45,000 = Rs. 25,000
2. Treatment of shares received:
Shares received by way of commission 6,000
Shares not subscribed by public 12,000
Total no. of shares received 18,000
a) Sold for Cash Rs.
25% of 18,000 i.e... 4,500 shares sold @ Rs. 9 per share 40,500
50% of 18,0o0 i.e.. 9,000shares sold @ Rs. 8.75per share 78,750
15% of 18,000 i.e.. 2,700 shares sold @ Rs. 8.50
per share 22,950
b) Divided amongst A and B
10% of the remaining shares i.e. 1,800 shares are taken over equally by
A & B at an agreed price of Rs. 8 per share.
A: 900 shares @ Rs. 8 per share Rs. 7,200
B: 900 shares @ Rs. 8 per share Rs. 7,200

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Check Your Progress C Joint Venture Accounts

1. What is the need for maintaining separate set of books for the joint venture?
................................................................................................................
................................................................................................................
................................................................................................................
2. Fill in the blanks
i) Joint Bank Account is like a …………………… Account.
ii) When Co-venturers’contribution is in the form of goods …………..
Account is debited.
iii) All the amounts paid out of joint bank are credited to
……………..Account. 
iv) Co-Venturers’ contribution in cash is debited to Joint Bank Account
and credited to …………………………Account. 
v) In underwriting of shares, the ....................shares are taken over by
the underwriters.

17.6 LET US SUM UP

Joint Venture is a temporary partnership between two or more persons who
have agreed to undertake jointly a specific project or a job. On the completion
of the project or the job, the joint venture will automatically come to an end.
The joint venture differs from consignment and partnership in many ways.
The accounts for the joint venture business can be kept in four ways: (i) all
recording be done in the books of one co-venturer only, (ii) the accounting
records be maintained by each one of them in their own books, (iii) each Co-
venturer records his own transactions relating to the joint yenture and on the
completion of the project a Memorandum Joint Venture Account is prepared
to find out the profit or loss, and (iv) separate set of books of accounts may
be maintained for the joint business and a joint account be opened in the bank.
Under the first method, only one Co-venturer records the joint venture
transactions who opens a Joint Venture Account and the personal accounts of
other co-venturers. Under the second method, each Co-venturer opens a Joint
Venture Account and the personal accounts of other Co-venturers. The Joint
Venture Account serves the purpose of Profit and Loss Account. Under the
third method, no Joint Venture Account is maintained. Each Co-venturer simply
opens the personal accounts of other Co-venturers and for ascertaining the profit
or loss of the venture, a Memorandum Joint Venture Account is prepared.
When any of the above three methods is followed, no separate books are
maintained for the Joint Venture business. All transactions are recorded in the
books of the Co-venturers themselves. Under the fourth method, a separate
set of books are prepared for the joint venture business treating it as a separate
accounting entity, and all transactions are recorded strictly according to the
double entry system. The main accounts prepared under this method are (i)
Joint Venture Account, (ii) Joint Bank Account, and (iii) the personal accounts
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Consignments and Joint of the Co-venturers. In this case also, the Joint Venture Account serves the
Ventures
purpose of a Profit and Loss Account.

17.7 KEY WORDS

Co-venturer: Persons who are parties to the agreement for carrying out the
joint venture business.
Joint Venture: A temporary partnership between two or more persons who
agree to carry out a specific job or a project.
Memorandum Joint Venture Account: An account prepared for ascertaining
the profit or loss of a joint venture where no Joint Venture Account is prepared
by Co-venturers.
Underwriting: An undertaking to take up the shares which are not subscribed
by the public.

17.8 SOME USEFUL BOOKS

Maheshwari.S.N. 2018. Introduction to Accounting,Vikas Publishing House: New
Delhi. 72.
Patil V. A. and J. S.Korlahalli, 2018 Principles and Practice of Accounting
R. Chand & Co., New Delhi.
William Pickles. 1992. Accountancy, E.L.B.S. and Pitman, London.
Gupta, R.L. and M. Radhaswamy. 2018. Advanced Accountancy Sultan Chand
& Sons. New Delhi

17.9 ANSWERS TO CHECK YOUR PROGRESS

A 1. i) A and B ii) A’s share Rs. 18,000 and B’s share Rs. 27,000
2. i) False ii) True iii) False v) False v) True
B 1. a) ii b) i c) ii d) i e) iii
C 2. i) Bank ii) Joint Venture iii) Joint Bank iv) Co-venturers’
Personal Accounts v) unsubscribed

17.10 TERMINAL QUESTIONS/EXERCISES

Questions
1. State the salient features of joint venture. Distinguish it from consignment.
2. “Joint Venture is a temporary partnership”. Comment and explain how does
it differs from the partnership?
3. Explain briefly various methods of recording the joint venture transactions
without maintaining separate set of books.
4. Explain the separate set of books method for maintaining joint venture
accounts.

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Exercises Joint Venture Accounts

1. Mohan and Sohan were partners in a joint venture sharing profits and losses
in the ratio of 3:2. Mohan supplied goods of the value of Rs. 6,000 and
incurred an expenditure of Rs. 200. Sohan supplied goods of the value
of Rs. 5,000 and his expenses were Rs. 300. Sohan sold all the goods
for a sum of Rs. 18,000. Sohan is entitled to a commission of 4% on
sales and he settled his account by sending a bank draft to Mohan.
Pass necessary journal entries in the books of both the parties.
(Answer :Profit on Joint VentureRs. 5,780 Commission Rs. 720)
2. ‘A’ of Banglore enters into a joint venture with ‘B’ of Bombay to ship
cotton bales to ‘C’ in Japan. A sends cotton of the value Rs. 30,000,
pays railway freight etc. Rs. 1,500 and sundry expenses R. 1,575. B sends
goods valued at Rs. 20,750 and pays freight and insurance Rs. 1200,
dock dues Rs. 200, customer charges Rs. 500, and other sundry expenses
Rs. 500. A advances to B Rs. 6,000 on account of the venture. B receives
Account sale and remittance of net proceeds from C for the whole of
the goods amounting to Rs. 80,000.
Show the Joint Venture Account and the personal accounts of the Co-
ventures in the books of A and B
(Answer: Profit on joint venture Rs. 23,775; Balance due to A Rs. 50,962.
50)
3. Sundar, Bindia and Gora entered into a contract with Mohindra Ltd. for
the construction of a building at a cost of Rs. 5,00,000 payable Rs.
4,00,000 in cash and Rs. 1,00,000 in debentures. They share profits and
losses equally.
Sunder, Bindia and Gora contributed Rs. 60,000. Rs. 75,000 and Rs.
40,000 respectively. All these amounts were deposited in a Joint Bank
Account. Sundar paid Rs. 7,000 to the architect. Bindia purchased
concrete mixture for Rs. 25,000 and Gora brought a motor truck for Rs.
20,000 for joint venture work. They purchased plant for Rs. 24,000, materials
for Rs. 2,40,000 in cash and paid Rs. 1,95,000 as wages. After construction
of the building, Sundar took over the remaining material for Rs. 14,000
and Bindia took over mixture for Rs. 12,000. Gora took over the motor
truck for Rs. 8,000. The plant was sold for Rs. 6,000. When full price
was received form the contractee, Sundar took over the debentures for
Rs. 80,000. Prepare Joint Venture Account, Joint Bank Account and the
Co-venturer’s personal accounts. 
(Answer: Profit Rs. 9,000. Sundar will bring in Rs. 24,000 and Bindia
will get Rs. 91,000 and Gora Rs. 55,000. Joint bank total Rs. 605,000)
4. Ajay and Banwari doing business separately as building contractors
undertake jointly to construct a building for a newly setup company with
Rs. 1,00,000 payable, Rs,80,000 in cash and Rs. 20,000 in fully paid
shares of the company. A Joint Bank Account is opened in their names,
Ajay paying in Rs. 25,000 and Banwari Rs. 15,000. They are to share
profits and losses in the proportion of 2:1. Their transactions were as
follows : 97
Consignments and Joint Rs.
Ventures
Paid wages 30,000
Bought material 70,000
Materials supplied by Ajay 5,000
Materials supplied by Banwari 4,000
Architect’s fee paid by Ajay 2,000
The contract was completed and the price (cash and shares) duly received.
The joint venture was closed by Ajay taking up all the shares of the company
at an agreed value of Rs. 16,000 and Banwari taking up the stock of
materials at an agreed value of Rs. 3,000. Show the necessary ledger
accounts.
(Answer: Loss Rs. 12,000; Payments to Ajay Rs. 8,000 and Banwari
Rs. 12,000)
5. A, B and C enter into a Joint Venture for the construction of a building
for a joint stock company. The contract price is Rs. 2,00,000. Incidental
expenses paid by the co-venturers will be reimbursed to the extent of actual
expenditure or Rs. 10,000 whichever is less. A spends Rs. 8,000, B Rs.
10,000 and C Rs. 12,000. The profits and losses are to be shared equally,
but C, being a technical person, is entitled to a commission of 10% on
the profit of the venture after charging such commission. Joint Bank Account
is opened wherein A deposits Rs. 40,000, B Rs. 30,000 and C Rs. 30,000.
B gives his own plant to the venture for Rs. 16,000. Materials worth Rs.
40,000 and wages of Rs. 60,000 are paid out of the Joint Bank Account.
On completion of the contract, the company paid the agreed contract price
(keeping Rs. 20,000 as retention money). The contract price was paid
Rs. 60,000 in cash and the balance in equity shares of the company of
Rs. 10 each at an agreed value of Rs. 12 per share. The shares were
subsequently sold in the market @ Rs. 13 per share. A took over the
unused materials at Rs. 2,000. B took over the plant at an agreed value
of Rs. 4,000 and the retention money was taken over by C at Rs. 14,000.
Show necessary ledger accounts in the books of the joint venture.
Hint: Contract price received is Rs. 1,80,000, out of which Rs. 60,000
in Cash and Rs. 1,20,000 worth of shares @ Rs. 12 per share. So, the
number of shares received is Rs. 1,20,0000 12 = 10,000 shares.
(Answer: Profit Rs. 60,000; Final settlement A Rs. 66,000, B Rs. 72,000;
and C Rs. 52,000)
6. Devendra and Ravindra entered into a joint venture involving the buying
and selling of old railway materials, the profit or loss to be shared equally.
The cost of the goods purchased was Rs. 42,500 which was paid by
Devendra who drew a bill on Ravindra at two months for Rs. 30,000.
The bill was discounted by Devendra at a cost of Rs. 240.
The transactions relating to the joint venture were (a) Devendra paid Rs.
300 for carriage, Rs. 500 for commission on sales and Rs. 200 travelling
expenses, (b) Ravindra paid Rs. 100 for travelling expenses and Rs. 150
for sundry expenses, (c) sales made by Devendra amounted to Rs. 20,000,
and (d) sales made by Ravindra were Rs. 30,000.
98
 Goods costing Rs 1,000 and Rs. 1,500 (being unsold stock) were retained Joint Venture Accounts
by Devendra and Ravindra respectively, and these were charged to them
at prices so as to show the same gross profits as made on the total sales.
Devendra was credited with a sum of Rs. 400 to cover the cost of
warehousing and insurance. The expenses in connection with the bills were
to be treated as a charge against the joint venture.
Show the necessary accounts in the books of each party and prepare the
Memorandum Joint Venture Account
(Answer: Profit on Joint Venture Rs. 8,735; Payment by Devendra to
RavindraRs. 2,742.50; Rate of Gross profit 25%; Stock taken over by
Devendra valued at Rs. 1,250 and Ravindra at Rs. 1,875)
7. Akash and Vijay enter into a joint venture on January 1, 2018. Akash bought
goods costing Rs. 4,000 and on the same day he received a cheque from
Vijay for Rs. 1,500. Akash and Vijay incurred expenses as follows:
Akash Vijay
February 1 300
April 1 300
March 1 400
May 31 1400
Vijay sold the goods, in two months, namely, on April 1 Rs. 4,800 and
on June 30 Rs. 2400. They share profits and losses equally and interest
was to beallowed at5% per annum. On June 1, Vijay gives Akash a three
months bill for Rs. 2,500 and on June 30, the venture was completed and
the accounts settled by cheque between the parties. Calculate interest in
months and show the necessary accounts.
(Answer: Profit: Akash Rs. 368.70 and Vijay Rs. 368.70; Akash will charge
Rs. 100 as interest and Vijay will pay Rs. 47.50 as interest)

Note : These questions will help you to understand the unit better. Try to
write answers for them. But, do not submit your answers to the
University for assessment. These are for your own practice only.

99