Accounting Problems on Consignment

Consignment: Problem and Solution # 1.

Raja Mills Ltd. of Ahmedabad sent 100 pieces shirting to Fancy Stores,
Delhi, on consignment basis. The consignees are entitled to receive 5
per cent commission plus expenses. The cost to Raja Mills Ltd. is Rs
600 per piece.

Fancy Stores, Delhi, pay the following expenses:

ADVERTISEMENTS:

Railway Freight, etc. Rs 1,000

Godown Rent and Insurance Rs 1,500

Raja Mills Ltd., draw on the consignees a draft for Rs 30,000 which is
duly accepted. It is discounted for Rs 28,650. Later Fancy Stores,
Delhi, report that the entire consignment has been sold for Rs 78,000.
Show journal entries and the important ledger accounts in the books
of the consignor.
In the Books of Consignee:
Consignment: Problem and Solution # 2.
1,000 toys consigned by Roy & Co. of Calcutta to T. Nu of Rangoon at
an invoice cost of Rs 150 each. Roy & Co. paid freight Rs 10,000 and
insurance Rs 1,500. During the voyage 100 toys were totally damaged
by fire and had to be thrown overboard. T. Nu took delivery of the
remaining toys and paid Rs 14,400 as customs duty.
T. Nu sent a bank draft to Roy & Co. for Rs 50,000 as advance
payment and later sent an account sales showing that 800 toys had
been sold at Rs 220 each. Expenses incurred by T. Nu on godown rent
and advertisement, etc., amounted to Rs 2,000 T. Nu was entitled to
commission of 5 per cent. One of the credit customers could not pay
for 5 toys. Prepare the Consignment Account, T. Nu’s account and
Profit and Loss Account in the books of Roy & Co., assuming that
nothing has been recovered from the insurers due to a defect in the
policy. T. Nu settled his account immediately.
Consignment: Problem and Solution # 3.
The Swastik Oil Mills, Mumbai consigned 5,000 kg. of castor oil to
Dass of Kolkata on 1st January, 2012. The cost of the oil was Rs 460
per kg. The Swastik Oil Mills paid Rs 2,00,000 for packing, freight and
insurance. During transit 125 kg. were accidentally destroyed for
which the insurers paid, directly to the consignors, Rs 45,000 in full
settlement of the claim.

ADVERTISEMENTS:

Dass took delivery of the consignment on the 10th January. On 31st

March, 2012 Dass reported that 3,750 kg. were sold at Rs 600, the
expenses being on godown rent Rs 30,000, on advertisement Rs
40,000 and on salesmen’s salaries Rs 64,000. Dass is entitled to a
commission of 3 per cent plus 1½ per cent del credere. A party which
had bought 500 kg. was able to pay only 80% of the amount due from
it.

Dass reported a loss of 50 kg, due to leakage. Assuming that Dass paid
the amount due by bank draft, show the accounts in the books of both
the parties. Books of accounts are closed by the parties on 31st March.
Consignment: Problem and Solution # 4.
H. Ltd. forwarded on 1st December, 2011, 50 pressure cookers to Kale
of Mumbai to be sold on behalf of H. Ltd. The cost of one pressure
cooker was Rs 1,200 but the invoice price was Rs 1,600. H. Ltd.
incurred Rs 2,000 on freight and insurance. Kale received the
consignment on 14th December, 2011 and accepted a 3 months’ draft
drawn upon him by H. Ltd. for Rs 40,000. Kale paid Rs 1,050 as rent
and Rs 250 as insurance and by 31st March had disposed of 40
pressure cookers at Rs 1,640 each. Kale is entitled to a commission of
5 per cent on sales including a del credere commission of 1%. Kale sold
10 pressure cookers son credit and was not able to recover sale
proceeds of one pressure cooker because of insolvency of the debtor.

You are required to:

(i) Prepare all the ledger accounts in the books of H Ltd; and

(ii) Pass journal entries for all the transactions relating of

consignment.
Consignment: Problem and Solution # 5.
Punjab Cycle Co. of Ludhiana consigned 100 tricycles to Kanpur Cycle
Co. of Kanpur costing Rs 1,500 each, invoiced at Rs 2,000 each. The
consignor paid freight Rs 10,000 and insurance in transit Rs 1,500.
During transit, 10 tricycles were totally damaged.

Kanpur Cycle Co. took delivery of remaining tricycles and paid Rs

1,530 for octroi duty. Kanpur Cycle Co. sent a bank draft to Punjab
Cycle Co. for Rs 50,000 as advance and later on sent an account sales
showing that 80 tricycles had been sold @ Rs 2,200 each. Expenses
incurred by Kanpur Cycle Co. on godown rent were Rs 2,000. Kanpur
Cycle Co. is entitled to a commission of 5% on invoice price and 25%
on any surplus of sale price over invoice price. Insurance claim was
settled at Rs 14,000.

Prepare consignment account, consignee’s account and accidental loss

account in the books of the consignor.
Consignment: Problem and Solution # 6.
A Co. Ltd., manufacturers and dealers in edible oil, consigned to their
Bangalore agent, 250 crates of oil (each crate containing 12 one-kilo
sachets) in March, 2012. The consignment was sent at 20% over the
cost price of Rs 120 per kilo. A bill was drawn on the agent for 80% of
the value of the consignment which was met on presentation.
Expenses incurred by the company by way of freight and insurance
came to Rs 12,000.
The agent received the consignment by lorry and sold in March 2012,
225 crates @ Rs 180 per kilo. He found that 125 sachets had got
damaged in transit—the manufacturer accepted this as a normal loss—
and these were sold to consumers at Rs 80 per sachet. The insurance
company settled the loss claim for Rs 2,500.

Agent incurred expenses of Rs 5,000 on his own account

(unconnected with the liability under the agreement) and Rs 3,000 on
consignor’s account. He is entitled to a commission of 5% on sales
effected. By 15th April, 2012, the agent remitted the balance due to
him to the company.

Draw the accounts in the book of A Co. Ltd., to record the above
transactions.
Consignment: Problem and Solution # 7.
On 31st March, 2012 Ramji Dayalji P. Ltd., a trading organisation
owned inventory costing Rs 3 lakhs of which inventory valued Rs 1
lakh was with consignees. It also had in its possession inventory
valued at Rs 10 lakhs belonging to its own principals.

During the year ended 31st March, 2012 Ramji Dayalji P.

Ltd.:
(a) Purchased inventory worth Rs 50 lakhs of which 80% was
despatched to its consignees, the transportation cost being 5% of the
value of goods sent;

(b) Received from its principals inventory of Rs 150 lakhs;

(c) Sold 90% of own goods received and lying with itself at 20%
margin on sales;

(d) Sold on behalf of principals 95% of goods available at 120% of the

value thereof. Ramji Dayalji P. Ltd. is entitled to commission at 10% of
such sales.

The consignees sold at 125% of their per unit landed cost (consignees
spending nil) 95% of goods available with them and were entitled to
commission at 10% of sales.

You are asked to work out the various figures for recording in the
revenue statement of Ramji Dayalji P. Ltd. for the year ended 31st
March, 2012. Prepare the revenue statement.
Consignment: Problem and Solution # 8.
The Kochi Consignment Account in the books of Remi of Kottayam
showed a debit balance of Rs 1,500 representing the cost of 10 pieces
of fancy goods on 1st April, 2011. The invoice value of each piece was
Rs 175. On 1st May, 2011 Ranaji sent a further consignment to Cochin
of 40 pieces, costing Rs 160 each, invoiced proforma at Rs 180 each.
The freight and other charges amounted to Rs 210.

On 21st March, 2012, the Kochi Agent sent an Account Sales showing
that 8 pieces from the old stock realised Rs 140 each and 25 pieces
from the second consignment realised Rs 200 each and 15 pieces
remained in stock unsold. Two pieces from the old stock, being
unsaleable at Kochi, were returned to Mumbai, for which the Kochi
Agent sent a separate debit note for Rs 30, being expenses incurred by
him as packing and freight.

The Kochi Agent is entitled to a selling commission of 10 per cent

which covers all our-of-pocket expenses in respect of the consignment
Show the necessary account in the books of the consignor, supposing
that he closes his accounts on 31st March.
Consignment: Problem and Solution # 9.
In the Sales Ledger of Disposal Goods Co., the following
account appears:

Upon inquiry, you find that the debit to Sunderam of Rs 12,000

represented goods costing Rs 10,000 delivered to him on the
understanding that he will try to dispose of them in his own market, or
others-wise return them. For his services, he is to be allowed a
commission of 10 per cent on all sales effected, out of which he is to
defray expenses that he may incur.
On 31st March, 2012, when Disposal Goods Co. make up their annual
accounts, it transpires that Sunderam has sold half the goods at the
prices at which they were invoiced to him, but is doubtful about his
ability to dispose of the remainder. He, therefore, proposes to offer his
customers a special trade discount of 20 per cent and to waive any
further sales commission. To this Disposal Goods Co. agreed.
Sunderam was not able to recover Rs 200 of sales ex-consignment.

(1) Show the necessary corrective entries in the firm’s journal.

(2) Set out Sunderam’s account as it will appear when the journal
entries have been posted, and

(3) State clearly the resultant profit or loss on the matter.

Solution:
It is obvious that the relationship between Disposal Goods Co. and
Sunderam is that of principal and agent. Hence, Sunderam should not
have been debited with the goods sent to him, nor is the debit
regarding expenses proper.

If the accounts had been prepared properly, they would have

appeared as follows:
Consignment: Problem and Solution # 10.
C. Ltd. of Mumbai consigned 100 diesel engines to Zahir of
Dacca on 1st April, 2011 on the following terms:
(i) Zahir to get 12½ % commission of the sale price up to Rs 12,500
per engine; for engines sold at above this price, Zahir was to share the
profit equally with C. Ltd.—for the purpose the Bangladesh Taka was
to be considered as worth 90 paise.

(ii) Zahir was to meet all expenses after the engines reached Dacca and
was to guarantee all debts.

(iii) C. Ltd. was to guarantee trouble-free performance for one year—

any expenses in this regard borne by Zahir were to be immediately
reimbursed to him. Further, C. Ltd. was to post an engineer at Dacca
for the purpose.

The cost of each diesel engine to C. Ltd. was Rs 9,000; C. Ltd., paid Rs
1,000 on freight per engine and packing and 1% ECGC Commission
(on the basis of Rs 12,500 per engine) which covered 75% of the loss
that may arise because of the failure of the foreign buyer/agent to
remit the amount due.

C. Ltd. considered Rs 1,000 as a fair estimate for maintenance during

the warranty period—Rs 400 for the first six months and Rs 600 for
remaining period.

Zahir reported a sale of 80 engines (average date 1st Oct. 2011). Of

these, 50 had been sold at Taka 15,000 and 30 Taka 13,000; of the
latter he had not been able to recover the amount in respect of 10
engines, he had spent Taka 35,000 on maintenance for which
reimbursement had been made by C. Ltd. when the Taka was worth 87
paise. Zahir had remitted Taka 10,00,000 when the value was 88
paise. The monthly cost of the engineer posted at Dacca was Rs 4,000
starting from 1st November, 2011.

Prepare the engineer Account in the Books of C. Ltd., reconing

exchange loss or profit separately on the basis of 90 paise to a Taka.