Ch-1 Accounting For Consignment - PDF
Ch-1 Accounting For Consignment - PDF
CONSIGNMENT ACCOUNTS
Consignment
The sales activity of any business can be organized in different ways. With the customers
spread all over, the business entity cannot afford to have only minimum selling points nor can
it have its own resources to have the outlets all over. The business volumes cannot be limited
in any case. The core competence of a manufacturing company is to produce a good quality
product. It creates a network of its own outlets, dealers, commission agents, institutions etc to
distribute its products efficiently and effectively. Thus the selling may be handled directly
through own salesmen or indirectly through agents. In case of direct selling, the company
usually has depots all over. The stocks are transferred to these depots and from their finally
sold to ultimate customers. This involves huge expenses and problems of maintaining the
same on a permanent basis. Hence, the firm could appoint agents to whom stocks will be
given. These agents distribute the products to ultimate customers and receive commission
from the manufacturer. One such way of indirect selling is selling through consignment
agents. The relationship between consignor and consignee is that of Principal-Agent
relationship.
Consignment takes place where goods are transferred from the owner (consignor) to an agent
(consignee) for the purpose of sale by the consignee on behalf of the consignor. It is
important to understand that the relationship of principal (consignor) and agent (consignee)
exists. Because of this agency relationship, ownership of the goods does not transfer to the
consignee.
The consignee, as the selling agent, is entitles to a commission for selling the goods;
expenses may be incurred by both parties; and periodically or on completion of the
consignment, settlement is effected between the parties. If any goods remain unsold then they
are generally returned to the consignor.
Consignment is a fairly common commercial transaction, perhaps more common than many
people may think. Examples include:
A manufacturer supplies stock of a new product on consignment to a local distributor.
A primary producer forwards produce on consignment to an agent.
A car sales yard in a prominent position may accept motor vehicles on consignment
from other motor dealers or from the general public.
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expenses incurred by the consignee, commission due and the net amount owing to the
consignor.
The following example shows a specimen of an account sale (Account sales of 100 Sony
Radios consigned to Mayuran Traders, Colombo by Alagu Traders, Jaffna.
Particulars Amount (LKR)
Sale Proceeds:
100 Radios sold at Lkr 9000 each 18,00,000
Less: Expenses:
Freight 5,000
Carriage 2,100
Godown rent and selling expenses 4,300 (11,400)
17,88,600
Less: Commission @10% on sale proceeds
(18,00,000 × 10/100) (1,80,000)
16,08,600
Less: Advance (Bank Draft) (2,00,000)
Balance due to Alagu traders remitted 14,08,000
E & O.E. For Mayuran Traders
Colombo MAYURAN
31st January, 2010 Managing Partner
Advance against Consignment: Until the goods are sold by the consignee, he is not
indebted to the consignor and is not expected to pay for them. This results in a part of the
consignor's Capital being locked up for a period. To overcome his difficulty, the consignee
often remits a sum of money in advance to the consignor. This may be done in the form of an
acceptance of a bill of exchange drawn by the consignor on the Consignee or a simple bank
draft. An advance is readily sent against consignment by the consignee to the consignor when
the consignment goods have become popular in the consignee‘s place.
Pro-forma Invoice: When goods are consigned to an agent they are generally accompanied
by a document called a ‗Pro-forma invoice’ giving indication of the price of the goods at
which the consignee ought to sell the goods. Pro-Forma Invoice is a statement which is
similar to that of an invoice, but it is called proforma because it does not make the consignee
responsible to pay the amount named therein.
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The consignor generally mentions a higher price than his cost so that consignee does
not know the profit of the consignor.
Features of Consignment
The following are the salient features of consignment:
1. Objects: Goods are forwarded by the consignor to the consignee with an objective of
sale at a profit.
2. Ownership: In consignment, the consignee does not buy the goods. He merely
undertakes to sell them on behalf of the consignor. Hence, the ownership in the goods
remains with consignor till it is sold by the consignee.
3. Relationship: The relationship between the consignor and the consignee is that of a
principal and an agent, and not of a debtor and creditor. An agent becomes in debited
for amounts realized on behalf of the principal.
4. Risk: The consignor should bear all the risks connected with the goods until it is sold.
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But if goods remain unsold, the consignee will send them back to the Consignor and the
Consignor will pay the Consignee all the expenses he has incurred in keeping the goods in
safety and in attempting to push the goods in the market.
Expenses on Consignment
i. Non-recurring expenses: The expenses which do not arise repeatedly for a particular
consignment are called non-recurring expenses. Non-recurring expenses are incurred for
bringing goods to the godown of the consignee. Such expenses are generally incurred on
the consignment as a whole. The non-recurring expenses are incurred partly by the
consignor and partly by the consignee. The consignor usually incurs expenses, such as
packing, cartage, loading charges, freight, etc., on sending the goods to the consignee. But
the consignee usually incurs expenses, such as dock dues, customs duty, clearing charges,
etc., on receiving the goods from the consignor.
ii. Recurring expenses: The indirect expenses incurred repeatedly on the same consignment
are called recurring expenses. Recurring expenses are incurred after the goods have
reached the consignee‘s place or godown. Advertising, discount on bills, commission on
collection of cheques, travelling expenses of salesman, bad debts, etc., are some examples
of recurring expenses incurred by the consignor. On the other hand, godown rent, godown
insurance, sales promotion, etc., are the examples of recurring expenses incurred by the
consignee.
In addition to the consignment account, the consignor also prepares the personal account of
the consignee to ascertain the amount due by the consignee. This account is debited with the
amount of sales affected by the consignee and credited with the amount of any advance
received from him, expenses incurred by him and commission payable on sales. The balance
in this account is the amount due by the consignee. Let us see the entries in the books of
consignor as well as consignee.
The Consignment account in the books of consignor will ultimately show the net profit or loss on
account of consignment business. It must be noted that a separate consignment account must be
opened for different agents. This will enable him to know profit or loss on each consignment.
(a) In case consignee does not get del Consignor‘s Personal A/c...Dr
credere commission, all bad debts have Consignment debtors A/C…….……...Cr
to be borne by the consignor himself.
(b) In case del credere commission is paid Bad debts A /c…………….Dr
to the consignee, bad debts are to be Consignment debtors A/C…………....Cr
borne by him.
When the bills payable accepted in favor of the Bills payable A /c………...Dr
consignor is met on the due date Bank A/c…….………………….….....Cr
Unsold stock in possession of the consignee No Entry
Profit or loss on consignment No Entry
*Note: The discount on bills may be accounted for in one of two ways;
As a normal operating expenses item and charged against the profit and loss account;
or
As a special expense item related to the consignment and therefore charged to the
consignment account.
The method of accounting depends on whether the advance is
interpreted as a method of financing the business generally or whether it is regarded as
a transaction particularly related to the consignment activity.
consignee)
To Stock Reserve (Difference in the xx By Stock Reserve (Difference between Xx
value of closing stock marked at the cost and pro-forma invoice price on
Pro-forma invoice or loaded price the opening balance of consignment)
& cost price)
To Goods Sent on Consignment xx By General Profit and Loss Account xx
(Difference between cost price and (For consignment loss)
Pro-forma invoice price on the
goods returned by the consignee)
To General Profit and Loss Account xxx
(For Consignment profit)
Illustration: 1
Aju stores of Jaffna consigned on 1st January, 2010, 50 cases of goods at Lkr.200 each to
Riyash Traders of Warakkapola for sale on commission at 10% on gross sales. Aju stores
paid Lkr.500 for packing, freight and insurance. Riyash Traders took delivery of the goods on
11th January, 2010, after accepting a 15 days bill for Lkr. 5,000 and paid Lkr. 150 for
carriage. They sold 40 cases of goods @ Lkr. 250 and balance for Lkr. 260 each. Their sales
expenses amounted to Lkr. 200. On 31st January, 2005, Riyash Traders forwarded an account
sale together with a draft for the balance.
Prepare account sales rendered by Riyash Traders and also give
journal entries and ledger accounts in the books of Aju stores and Riyash Traders.
Solution:
Account sales of 50 cases of goods received and sold on behalf of Aju stores, Jaffna.
Particulars Amount(LKR)
Sale Proceeds:
40 cases sold at Lkr 250 each 10,000
10 cases sold at Lkr 260 each 2,600 12,600
Less: Expense:
Carriage 150
Sales expenses 200
Commission @ 10% 1,260 (1,610)
Net proceeds 10,990
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Ledgers
Ledgers
Aju Stores A/c
Dr Cr
Bank A/c (Expenses) 350 Bank A/c (Sale proceeds) 12,600
Bills payable A/c 5,000
Commission A/c 1,260
Bank A/c (amount remitted) 5,990
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12,600 12,600
expenses of both the consignor and the consignee to be added to purchase price is calculated
as a proportion of the total relevant expenses of the whole consignment.
The balance of consignment stock account is a current asset
(appears in the asset side of Balance Sheet). At the commencement of the next financial
period, consignment stock will be transferred to the consignment account, as a debit to
enable the profit or loss on the sale of the remainder of the consignment to be determined.
Illustration: 2
Suppose the Consignor sends to the Consignee, 2,000 Samsung mobile at Lkr.40 per unit and
pays Costa duty, Lkr.3, 000; marine insurance, Lkr.1, 500. The Consignee pays, at the time of
taking delivery, unloading charges of Lkr.500. The Consignee also pays godown rent Lkr.450
and advertisement Lkr.1, 500.if you assume that 400 Samsung mobile remain unsold, the
value of its will be calculated as follows;
LKR
400 Samsung mobile, i.e., 400 @ Rs.40 16,000
th
1/5 of Lkr.3,000, Costa duty 600
1/5th of Lkr.1,500, Marine Insurance 300
1/5th of Lkr.500, unloading charges paid by the Consignee 100
Total value of unsold Stock 17,000
The rule regarding valuation is cost or market price whichever is lower. In the market price
of the unsold stock is more than Rs.17, 000, it will be valued at Rs.17, 000. If however, the
market price is less than Rs.17, 000, it will be valued at the market price. Any loss or
depreciation of stock should be duly taken into account.
The unsold stock valued in the above manner will now be brought into books by
passing an entry, as
Consignment Stock A/c ……………..Dr
Consignment A/c………………………….…. Cr
Note: If the pro-forma invoice was made out at a price higher than the cost, stock will also be
valued at invoice and not at cost. But it is wrong to show unsold stock in Balance Sheet at a
figure higher than the cost. Hence for the difference (i.e., difference between value of stock at
invoice price and value of stock at cost) reserve must be created, entry is as follows;
Consignment A/c ……………………..Dr
Stock Reserve A/c……………………….….. Cr
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Illustration: 3
Y consigns goods to X valued at 8000 cost price. Expenses incurred by Y are: freight 40;
insurance 100; cartage 20.Commission is allowed at 5% on sales. An advance of 5000 is
made by the consignee. X incurs the following expenses: duty 80; cartage inward 40;
advertising 200; and cash sales amounted to 7600. At balance date one-quarter of the goods
are unsold. Calculate the value of unsold goods.
LKR
¼ th of cost price (Lkr 8,000) 2,000
¼ th of consignor‘s expenses [Lkr 160 (freight 40; insurance 100; cartage 20)] 40
th
¼ of consignee‘s relevant expenses [Lkr 120 (duty 80; cartage inward 40)] 30
Total value of unsold Stock 2,070
Illustration: 4
Ramu of Cochin consigned goods of the cost of Lkr.10000 to his agent, Ajith of Agra and
incurred Lkr.2000 for packing, forwarding and freight. Ajith took delivery of the goods after
spending Lkr.3000 for duty and clearing charges. He sold 3 / 4 th of the goods for Lkr.15000
for which he was entitled to a commission of 5%. His sales expenses amounted to Lkr.300.
Prepare consignment account after showing the valuation of unsold stock.
Solution:
Valuation of stock:
LKR
Cost of stock at pro forma invoice = 10,000 * ¼ 2500
Add: proportionate non-recurring expenses:
Incurred by Ramu 2,000
Incurred by Ramu 3,000
5,000 * ¼ 1,250
Value of stock 3,750
Consignment to Agra A/c
Dr Cr
Goods sent on Consignment A/c 10,000 Ajith A/c 15,000
Bank A/c (Packing charges) 2,000 (Sale proceeds)
Ajith A/c (Duty + selling charges) 3,300 Stock on consignment 3,750
Ajith A/c: Commission 750
P & L A/c (Transfer) 2,700
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18,750 18,750
Illustration: 5
Prasana Furniture‘s, Palghat consigned 100 chairs of Lkr 800 each to their agent Sudharaka
Furniture‘s at Kelaniya for sale on commission at 5% on gross sale effected. Expenses at
Palghat were Lkr.1500 for carriage and Lkr.1000 for insurance. Sudharaka Furniture‘s took
delivery of the chairs after accepting a three-month bill for Lkr.40000 drawn against the
consignment, which the consignor discounted for Lkr.38000.
The consignees paid Lkr.150 for loading and unloading and Lkr. 600 for freight and
carriage. They sold 70 chairs @ Lkr.850 for cash and 10 chairs on credit @ Lkr. 1000.
A customer who bought two chairs became insolvent and nothing could be recovered
from him. The balance of debt was fully collected. The sales expense of Sudharaka
Furniture‘s amounted to Lkr. 360.
Required to prepare ledger accounts in the books of consignor and journal entries in
the books consignee
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Solution:
Ledger accounts (in Prasana Furniture’s)
Consignment to Kelaniya A/c
Dr Cr
Goods sent on Consignment A/c 80,000 Sudharaka Furniture‘s A/c:
Bank A/c (expenses) 2,500 Cash sales 59,500
Sudharaka Furniture‘s A/c 1,110 Credit sales 10,000 69,500
Sudharaka Furniture‘s A/c 3,475 Stock on consignment 16,650
(Commission) Profit & loss A/c
Sudharaka Furniture‘s A/c 2,000 (Loss transferred) 2,935
(Bad debts) 89,085 89,085
40,000 40,000
Valuation of stock:
Number of chairs in stock = 100 – 80 = 20 chairs
LKR
Original cost of 20 chairs (800 * 20) = 16,000
Add: proportionate non – recurring expenses:
Incurred by consignor 2500
Incurred by consignee 750
3250 * (20 / 100) = 650
Stock value 16,650
Illustration: 6
Amirtha Paints, Jaffna, consigned 500 tins of paints to Arvind Paints, Cochin at Lkr. 60. They
spent Lkr. 400 for packing and Lkr. 600 for freight and insurance, and drew against the
consignment a bill for the amount o 80% of the cost of goods sent. On getting the acceptance,
Amirtha Paints discounted the bill at a cost of Lkr. 1200.
Arvind Paints, Cochin sold 400 tins of paints at Lkr.80 of which 50 tins were on
credit. Their sales expenses amounted to Lkr. 300. They were to get a commission of 4% plus
2% del credere commission.
A customer who bought 10 tins of paints on credit became insolvent and only Lkr.
400 was realized from him in full settlement.
Prepare consignment account and consignee‘s account in the books of consignor, and
also show journal entries in the books of consignee.
Solution:
Ledger of Amirtha Paints
Consignment to Cochin A/c
Dr Cr
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Valuation of stock:
Original cost of stock 60*100 = Lkr. 6000
Proportionate expense of the consignor 1000 / 500 *100 = Lkr. 200
Value of stock = Lkr. 6200
Loading
The amount of profit which is added to the cost in order to arrive at the invoice price is
known as loading. In other words, loading is the difference between the invoice price and the
cost price.
Loading = IP – CP
For example, the invoice price is Lkr. 5000 and the cost price is Lkr.3750. Calculate the
amount of loading.
Loading = IP – CP or Number of units * (IP per unit – CP per unit)
= 5000 – 3750
= Lkr. 1250
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Adjustment on Loading
The usual adjustments required on loading are as follows:
1. Opening stock: It is always shown on the debit side of the consignment account.
Hence, the difference between the invoice price and the cost price of the stock will be
shown on the credit side of the consignment account through the following entry:
Stock reserve A/c…………………….Dr
Consignment A /c………………………….Cr
2. Goods sent on consignment: Such goods are shown on the debit side of the
consignment account. Thus the difference between invoice price and cost price of
goods sent on consignment will be shown on the credit side of the consignment
account through the following entry:
Goods sent on consignment…………Dr
Consignment A /c…………………………Cr
3. Goods returned by the consignee: The return of goods is shown on the credit side of
the consignment account. Therefore the adjustment for the loading will be made on
the debit side of consignment account through the following entry:
Consignment A /c……………………Dr
Goods sent on consignment…….………..Cr
4. Closing stock: it is shown on the credit side of consignment account. Hence, the
adjustment for the loading will be made on the debit side through the following entry:
Consignment A /c……………………Dr
Stock reserve A/c………………………… Cr
In practice, loading done at a fixed percentage of profit on cost bears a fixed relation with the
profit on invoice price of the goods.
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For example, in case goods of the costs of Lkr.5000 are consigned at a profit of 25%
on cost, the invoice price of the product will be 5000 + 25% of 5000.
Invoice price of the product = 5000 + 1250 = Lkr. 6250
The same amount of loading is obtained on applying the percentage of profit on invoice price.
It is ascertained as follows:
Cost of goods is assumed to be 100.
Loading (profit) on cost = 25
Invoice price (100 + 25) = 125
Loading (profit) on invoice price = 25 / 125 =1 / 5 = 20%
Loading on the invoice price of Lkr. 6250
= 6250 *25 /15 = Lkr. 1250
Or
= 6250 *1 /5 = Lkr. 1250
Or
= 6250 *20 / 100 = Lkr. 1250
In the light of the above example, it is clear that 25% (1 / 4) of profit on cost of a
product is equal to 20% (1 / 5) of the invoice price of that product.
Illustration: 7
Ambika Electronics, Jaipur, consigned 1000 radios to Lakshmi Electronics, Agra, for sale on
commission of 5% including 1% del credere commission. The cost price of a radio was
Lkr.2400. But the invoice was made at Lkr. 3000. The expenses at Jaipur amounted to Lkr.
54000 and that at Agra before reaching the goods at godown was Lkr.46000.
Lakshmi Electronics sold 800 radios @ Lkr. 3200, the sales expenses being Lkr. 28000.
The consignee sent a draft for the amount due along with the
account sales. Give entries and accounts in the books of both the parties.
Valuation of stock:
Invoice price of stock (Lkr. 3000*200 units) 600,000
Add: proportionate non-recurring expenses:
Incurred by consignor 54,000
Incurred by consignee 46,000
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Illustration: 8
Riyash of Warahapolai sent to his agent, Ashan of Puttalam, 500 articles costing Lkr.15 per
article at an invoice price of Lkr.20 per article. The following payments were made by Riyash
in this connection:
Freight and carriage Lkr. 450
Miscellaneous expenditure Lkr. 50
Ashan sent a bank draft for Lkr.3, 000 as an advance against the
Consignment. Ashan sold 300 articles at a flat rate of Lkr.28 per article and sent an Account
Sales showing deduction for storage charges Lkr.50, insurance Lkr.100 and his Commission
of 3% plus 2% Del Credere on gross sale proceeds, and remitted the amount due on
consignment. Ashan also informed Riyash that 50 articles were damaged in transit and thus
they were valued at Lkr.550. Record the above transactions in the books of the consignor and
consignee using cost price basis.
Solution:
Books of Riyash (Consignor)
Journal
Dr Cr
Description (LKR) (LKR)
1. Consignment to Puttalam A/c 7,500
Goods sent on Consignment A/c 7,500
(500 articles sent to Ashan, Agent, and Cost being Lkr.15 per article).
2. Consignment to Puttalam A/c 500
Bank A/c 500
(Expenses incurred on the Consignment)
Freight & Carriage Lkr. 450
Miscellaneous Exp. Lkr. 50 500
3. Bank A/c 3,000
Ashan A/c 3,000
(Advance received from the Agent in the form of Bank Draft.)
4. Ashan A/c 8,400
Consignment to Puttalam A/c 8,400
(Sales affected by Ashan as per Account Sales.)
5. Consignment to Puttalam A/c 570
Ashan A/c 570
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Working Notes:
Calculation of Abnormal Loss
LKR
Cost @ Lkr.15*50 articles 750
Proportionate Expenses:
Freight and carriage (Lkr.450/500*50) 45
Miscellaneous expenditure (Lkr.50/500*50) 5 50
800
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Damaged 50 articles have been have been valued at Lkr.550 Thus, there is a loss of Lkr.250*,
(800- 550). Such a loss would be recorded as follows;
Profit and Loss A/c ……………………..Dr 250
Consignment A/c……………………………....Cr 250
Ledgers
Consignment to Puttalam Account
Dr Cr
Goods sent on Consignment A/c 7,500 Ashan A/c 8,400
Bank A/c (expenses) 500 (Sale proceeds)
Ashan A/c Profit & Loss A/c 250
Expenses 150 (Abnormal Loss)
Commission 420 570 Consignment Stock A/c 2,950
P & L A/c (Transfer) 3,030
11,600 11,600
Ashan A/c
Dr Cr
To Consignment to Puttalam A/c 8,400 Bank A/c 3,000
Consignment to Puttalam A/c 570
Bank A/c 4,830
8,400 8,400
Bank A/c
Dr Cr
Ashan A/c 3,000 Consignment to Puttalam A/c 500
Ashan A/c 4,830
Ledgers
Riyash A/c
Dr Cr
Bank A/c (Advance) 3,000 Bank A/c (Sale proceeds) 8,400
Bank A/c (Expenses) 150
Commission A/c 420
Bank A/c (amount remitted) 4,830
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8,400 8,400
Bank A/c
Dr Cr
Riyash A/c 8,400 Riyash A/c 3,000
Riyash A/c 150
Riyash A/c 4,830
Commission A/c
Dr Cr
Riyash A/c 420
Illustration: 9
Riyash of Warahapolai sent to his agent, Ashan of Puttalam, 500 articles costing Lkr.15/- per
article at an invoice price of Lkr.20 per article. The following payments were made by
Riyash in this connection:
Freight and carriage Lkr. 450
Miscellaneous expenditure Lkr. 50
Ashan sent a bank draft for Lkr.3, 000 as an advance against the
Consignment. Ashan sold 300 articles at a flat rate of Lkr.28 per article and sent an Account
Sales showing deduction for storage charges Lkr.50, insurance Lkr.100 and his Commission
of 3% plus 2% Del Credere on gross sale proceeds, and remitted the amount due on
consignment. Ashan also informed Riyash that 50 articles were damaged in transit and thus
they were valued at Lkr.550. Record the above transactions in the books of the consignor and
consignee using invoice price basis.
Solution:
Books of Riyash (Consignor)
Journal
Dr Cr
Description (LKR) (LKR)
1. Consignment to Puttalam A/c 10,000
Goods sent on consignment A/c 10,000
(500, articles consigned at an invoice price of Lkr.20 each (cost
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Lkr.15)
2. Consignment to Puttalam A/c 500
Bank A/c 500
(Expenses incurred on the Consignment)
Freight & Carriage Lkr. 450
Miscellaneous Exp. Lkr. 50 500
3. Bank A/c 3,000
Ashan A/c 3,000
(Advance received from the Agent in the form of Bank Draft.)
4. Ashan A/c 8,400
Consignment to Puttalam A/c 8,400
(Sales affected by Ashan as per Account Sales.)
5. Consignment to Puttalam A/c 570
Ashan A/c 570
(Expenses incurred by Ashan Lkr.150 and Commission due to him,
Lkr.420 (5% of Lkr.8, 400).
6. Bank A/c 4,830
Ashan A/c 4,830
(Amount due from the consignee received.)
7. P & Loss A/c 250
Consignment to Puttalam A/c 250
(Abnormal Loss on 50 damaged Articles)
8. Consignment Stock A/c 3,700
Consignment to Puttalam A/c 3,700
(Value of stock unsold at Puttalam) Lkr.
150, goods articles, @ Lkr.20 3,000
Add: Freight and carriage( 450/500*150) 135
Miscellaneous expenditure(50/500*150) 15
50 damaged articles 550
3,700
9. Goods sent on Consignment A/c 2,500
Consignment to Puttalam A/c 2,500
Excess amount included in invoice price of articles sent to Puttalam
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Ledgers
Consignment to Puttalam A/c
Dr Cr
Goods sent on Consignment A/c 10,000 Ashan A/c 8,400
Bank A/c (expenses) 500 (Sale proceeds)
Ashan A/c Profit & Loss A/c 250
Expenses 150 (Abnormal Loss)
Commission 420 570 570 Consignment Stock A/c 3,700
Stock Reserve A/c 750 Goods sent on Consignment A/c 2,500
P & L A/c (Transfer) 3,030
14,850 14,850
*In the Balance Sheet the stock on consignment will be shown at Rs.2, 850 [(Lkr.3, 000 –
Reserve (Lkr.750)]
Illustration: 10
Pradap Traders consigned goods of the cost of Lkr. 30000 to their agent, Sancha Agencies
Uduppiddy, at a profit of 20% on cost. Consignee was allowed a commission of 8% on gross
sales for which he would bear all the expenses at his place.
Pradap traders spent Lkr. 1500 for freight and got an acceptance for Lkr. 15000 from
the consignee. Sancha Agencies paid Lkr. 600 for advertisement and Lkr. 400 for sales
expenses. They sold ¾ th of the goods at a profit of 33 1/3% on original cost of it.
Prepare consignment account the books of Pradap Traders and show journal entries in
the books of Sancha Agencies.
Solution:
In the Books of Pradap Traders
Consignment to Uduppiddy Account
Dr Cr
Goods sent on Consignment A/c 36,000 Sancha Agencies A/c 30,000
Bank A/c (expenses) 1,500 (Sale proceeds)
Sancha Agencies A/c (Commission) 2,400 Consignment Stock A/c 9,375
Stock Reserve A/c 1,500 Goods sent on Consignment A/c
P & L A/c (Transfer) 3,975 (Loading) 6,000
14,850 14,850
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Working Notes:
1. Loading on goods sent:
Invoice price – cost price (36,000 – 30,000) = 6,000
Or
36,000 * 20 / 100 = 6,000
2. Value of stock:
Stock at invoice price, 36,000 * 1 / 4 = 9,000
Add: proportionate expenses of consignor 1,500 * 1 / 4 = 375
Value of stock = Lkr.9375
3. Stock reserve:
Stock reserve = invoice price of stock – cost price of stock
= [36,000*1/4] – [30,000*1/4]
= 9,000 – 7,500
= Lkr. 1500
Or
= 9,000*20/120
= Lkr. 1500
Losses on Consignment
In case the goods sent on consignment are lost or damaged in transit or otherwise, the loss is
that of the consignor and not of the consignee. Accordingly the consignor will have to make
the entries for such loss. There are two types of losses which may arise in case of a
consignment transaction, viz., Normal Loss and Abnormal Loss.
Normal Loss
Normal loss is natural, unavoidable and inherent in the nature of goods or commodities sent
on consignment (due to evaporation, leakage & breaking the bulk into pieces). This type of
loss is a part of the cost of the consignment, so the consignor does not make separate entry
for such a loss. However, the normal loss has to be taken into consideration while valuating
the unsold consignment stock in the hand of the consignee. Since normal loss is a charge
against gross profit. No additional adjustment is required for this purpose. Moreover, the
same is a part of cost of goods, when valuation of unsold stock is made in case of
consignment account the quantity of such loss (not the amount) should be deducted from the
total quantity of the goods received by the consignee in good condition
The accounting treatment of normal loss is to charge the total cost of the goods to the
remaining goods after the normal loss. In other words, the value of the unsold stock is
calculated in proportion to the total cost of the goods consigned.
Illustration: 11
Suppose 10,000 tons of coal is dispatched. The cost of 1 tons of coal is Lkr.80 and the freight
incurred is Lkr.36, 000. To the Consignor the total cost comes to Lkr.8, 36,000. In the nature
of coal some shortage is unavoidable. Suppose the Consignee receives only 9,500 tones. It is
legitimate to say that the cost is Lkr.8, 36,000 for 9,500 tons. In that case the Consignor can
properly say that the cost of 1 tons of coal is Lkr.8, 36,000/9500 or Lkr 88. If 2,000 tons of
coal is left unsold with the Consignee, the value of stock will be 2,000×88 is equal to Lkr.1,
76,000.
Illustration: 12
From the following particulars ascertain the value of unsold stock on consignment.
LKR
Goods sent (1,000 kgs) 20,000
Consignor‘s expenses 4,000
Consignee‘s non-recurring expenses 3,000
Sold (800 kgs) 40,000
Loss due to natural wastage (100 kgs)
Solution:
Value of unsold stock ` LKR
Total cost of goods sent 20,000
Add: Consignor‘s expenses 4,000
Non-recurring expenses 3,000
Cost of 900 kgs (1,000 kgs – 100 kgs) 27,000
∴Value of unsold stock 100 kgs (1,000 – 800 – 100) will be;
27,000
× 100 kgs
(1000 kgs-100 kgs)
100 kgs
× 27,000
39 | P a g e
900 kgs
Illustration: 13
Mr. Achchu Consigned to Mr. Kajan 10,000 kgs of flour, costing Lkr.33, 000. He spent
Lkr.880 as forwarding charges. 12% of the Consignment was lost in weighing and handling.
Mr. Kajan sold 8,200 kgs of flour at Lkr.6 per kg, his selling expenses being Lkr.3, 300 and
Commission 5% on sales. Prepare the Consignment Account.
Working Notes:
1. Calculation of Closing Stock: Kgs
Total quantity of flour consigned 10,000
Less: Normal Loss 12% 1,200
Sales 8,200 (9,400)
Closing Stock 600
Abnormal Loss
It arises due to abnormal factors or circumstances such as fire, theft pilferage, sabotage,
negligence, inefficiency, etc. Before ascertaining the result of the consignment, value of
abnormal loss should be adjusted. The method of calculation is similar to the method of
calculating unsold stock. Sometimes insurance company admits the claim in part or in full.
The same should also be adjusted against such abnormal loss. This loss is calculated by
adding proportionate direct expenses incurred by the consignor and the consignee as the case
may be to the original cost of the goods. The accounting entry is:
Abnormal Loss A/c…………………….Dr
Consignment A/c……………………………..Cr
In case the stock is insured, the amount of claim admitted by the insurance company should
be reduced from the abnormal loss and only the net loss amount should be debited to
abnormal loss or P&L A/c, the entry will be:
The procedure for calculating the abnormal loss and the valuation of the remaining stock is
summarized as under:
Closing Stock
× Expenses incurred before the loss
Total goods consigned
Quantity unsold
× Expenses incurred after the loss
(Total quantity sent - Goods lost)
Illustration: 14
Aju smart of Jaffna dispatched 1,000 shirts at Lkr.700 each to Mohan Bros of Colombo, the
consignors paid freight Lkr.7, 500, cartage Lkr.500 and insurance Lkr.2, 500. Mohan Bros.
received only 900 shirts and incurred the following expenses.
LKR
Freight and other Expenses 1, 00,000
Cartage 5,000
Sales expenses 6,000
The consignee sold 600 shirts only. You are required to calculate the value of closing stock.
Solution:
Calculation of the value of unsold stock
Shirts received 900- shirts sold 600 = unsold stock 300
105,000
1, 05, 000
× 300 = 35,000
900 248,150
Illustration: 15
S of Bombay consigned 10,000 Liter of oil to D of Calcutta. The cost of oil was Lkr.2 per
Liter. S paid Lkr.5, 000 as freight and insurance. During transit 250 Liter were accidentally
destroyed for which the insurers paid directly to the consignors Lkr.450 if full settlement of
the claim. D reported that 7,500 Liter was sold @ Lkr.3 per Liter. The expenses being on
godown rent Lkr. 200, on advertisement Rs.1, 000 and on salesman salary Lkr.2, 000. D is
entitled to a commission of 3% plus 1.5% Del credere. D reported a loss of 100 Liter due to
leakage. D settled the accounts by bank draft. Prepare the accounts in the books of S.
D A/c
Dr Cr
Consignment to Calcutta A/c 22,500 Consignment to Calcutta (Exp.) 3,200
Consignment to Calcutta A/c (com.) 1,013
Bank A/c 18,287
8,400 8,400
Working Notes:
(A) Cost of Goods destroyed LKR
Cost of 10,000 Liter @Lkr. 2 20,000
Freight 5,000
Total cost of 10,000 Liter 25,000
If 250 Liter were accidentally destroyed,
25,000/10,000*250 = Lkr.625
Cost of 9,650 Liter = Lkr. 25, 000 – Lkr. 625 = Lkr. 24, 375, So
Illustration: 16
Mithuna Traders of Jaffna purchased 10,000 Bags @100 per Bag. Out of these 6,000 Bags
were sent on consignment to Nantha Traders of Kilinochchi at the selling price of 120 per
Bag. The consignors paid 3,000 for packing and freight. Nantha Traders sold 5,000 Bags
@125 per Bag and incurred 1,000 for selling expenses and remitted 5,00,000 to Jaffna on
44 | P a g e
account. They are entitled to a commission of 5% on total sales plus a further of 25%
commission on any surplus price realized over 120 per Bag. 3,000 Bags were sold at Jaffna
@ 110 per Bag. Owing to fall in market price, the value of stock of Bags in hand is to be
reduced by 5%. You are required to prepare;
(i) Consignment Account, and
(ii) Nantha Traders Account.
Solution:
Consignment to Kilinochchi A/c
Dr Cr
Goods sent on Consignment A/c 6,00,000 Nantha Traders A/c
Bank A/c - (Packing and Freight) 3,000 [ (Sale proceeds, 5000×125] 6,25,000
Nantha Traders A/c: Consignment Stock A/c (w2) 95,500
Selling Expenses 1,000
Commission (w1) 37,500
P & L A/c 79,000
7,20,500 7,20,500
Note: 3,000 Bags which were sold at Jaffna @110 per Bag are not to be taken into
consideration since it is not a consignment transaction and hence the same is extended from
Consignment Account. Although the consignor purchased 10,000 Bags, only 6,000 Bags are
related to consignment transaction, balance is not to be taken into Consignment Account at
all.
Nantha Traders Account
Dr Cr
Consignment to Kilinochchi A/c 6,25,000 Bank A/c (Advance) 5,00,000
Consignment to Kilinochchi A/c 1,000
(Selling expenses)
Consignment to Kilinochchi A/c 37,500
(Commission)
Bank A/c 86,500
6,25,000 6,25,000
Workings Notes:
45 | P a g e
LKR
Total Sales @ 125 per Bag 6,25,000
Less: Amount 120 per Bag (6,00,000)
Surplus Price Realized 25,000
5% Commission on total Sales (Lkr 625,000*5%) 31,250
25% Commission on surplus price realized (Lkr 25,000*25%) 6,250
Total commission payable 37,500
Illustration: 17
A company sent 300 bales of cotton to its consignee at profit 20% on sale. The cost of each
bale to company is Lkr.600 per bale. The following are the expenses incurred in connection
with this consignment:
(a) Lkr.900 paid by the consignor for dispatching goods.
(b) Lkr.2, 000 paid by the consignee by way of freight, duty and landing charges.
(c) Lkr.1, 000 paid by the consignee by way of godown rent, salaries of salesman.
Required: The valuation of stock at the end (at invoice price) if the consignee sells
away 2/3rd of the consignment.
Solution:
Total bales sent 300
Less: bales sold 2/3rd of 300 (200)
Bales unsold 100
Note: In the consignment account, stock reserve account will appear at Rs.15, 000 on the
debit side.
Illustration: 18
Alagu sold goods on behalf of Aju Sales Corporation on consignment basis. On 1 st January,
2002 he had with him a stock of Lkr.20, 000 on consignment. During the year, he received
goods worth Lkr.2, 00,000. Alagu had instructions to sell goods at cost plus 25% and was
entitled to a commission of 4% on sales in addition to 1% del credere commission. During
the year ended 31 st December, 2002 cash sales were Lkr.1, 20,000; credit sales Lkr.1, 05,000;
Alagu‘s expenses relating to consignment Lkr.3, 000 being salaries and insurance & bad
debts amounted to Lkr.3, 000.
Required: Prepare necessary accounts in the books of Aju Sales Corporation. (Consignor)
Solution:
Consignment Account
Dr Cr
Consignment Stock b/d 20,000 Alagu A/c
Goods sent on Consignment A/c 2,00,000 Cash Sales 1,20,000
Alagu A/c (Commission) 9,000 Credit Sales 1,05,000 2,25,000
Alagu A/c (Commission) 2,250 Consignment Stock A/c 40,000
Alagu A/c (salaries and insurance) 3,000
P & L A/c 30,750
2,65,000 2,65,000
Alagu A/c
Dr Cr
47 | P a g e
Working Notes:
(1) Calculation of Consignment Stock
Sale Price = 100 + 25 = 125
Cost of Sales = Sales ×100/125
= 2, 25,000 × 100/125
= Lkr.1, 80,000
Cost of the goods available for sale = Lkr. 20,000(op. stock) + Lkr.2, 00,000 = Lkr.2,
20,000
Hence stock at the end = Lkr.2, 20,000 - Lkr.1, 80,000 = Lkr.40, 000
(2) Since Alagu is paid del-credere commission, bad debts of Rs.3, 000 would be borne by
him.
Illustration: 19
On 10 January 2010 Kumar Sangakara of Galle consigned 1000 calculators to Mahela,
Kadawatta. The goods are invoiced at Lkr 30 per unit, the cost price being Lkr 20 per unit.
Expenses incurred are: insurance Lkr 150; freight Lkr 1000; cartage and packing Lkr
300. The agent is to receive ordinary commission of 5% and del-credere commission of
4%.Mahela receive the goods on 31 January and pays cash for; freight and cartage Lkr
350;advertising Lkr 250. Repacking of calculators cost is Lkr 200. Mahela sent Kumar
Sangakara a cheque for Lkr 5000 as an advance on 31 January 2010. The following sales are
made by Mahela to 30 June:
Date Cash Credit
2010 Feb 6 50 @ Lkr 40 Lkr 2,000 30 @ Lkr 50 Lkr 1,500
Mar 18 90 @ Lkr 50 Lkr 4,500 150 @ Lkr 40 Lkr 6,000
48 | P a g e
Solution:
Account Sales
30 June 2010
Date Units for Cash Units on Credit Total Value
Feb 6 50 @ Lkr 40 Lkr 2,000 30 @ Lkr 50 Lkr 1,500 3,500
Mar18 90 @ Lkr 50 Lkr 4,500 150 @ Lkr 40 Lkr 6,000 10500
Apr20 330 @ Lkr 40 Lkr 13,200 100 @ Lkr 40 Lkr 4,000 17,200
Jun 9 97 @ Lkr 50 Lkr 4850 4,850
Taken from own stock 3 @Lkr 50 *150
Less: Expenses & charges LKR 36,200
Freight and cartage 350
Advertising 250
Repacking machine 200
Commission 2,270 (3,070)
Net proceeds 33,130
Less: Advance 31 January (5,000)
28,130
Cheque enclosed Lkr 28130
Signed Mahela - Manager
*Where goods are to be used by the consignee in some other business activity, the debit is to
the purchase account. If the goods are taken for private purposes the drawings account is
debited.
49 | P a g e
Mahela A/c
Freight & Cartage 350
Advertising 250
Repacking goods 200
Commission 2,270 3,070
P & L A/c 14,980
39,500 39,500
Bank A/C
Dr Cr
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Ledger of Mahela
Kumar Sangakara A/c (Consignor)
Dr Cr
Bank A/c- advance 5,000 Bank A/c 24550
expenses 800 Account Receivable 11500 36,050
commission received 2,270 Purchases 150
Bank - settlement 28,130
36,200 36,200
Commission Received
Dr Cr
Kumar Sangakara A/c 2,270
Bank A/c
Dr Cr
51 | P a g e
Accounts Receivable
Dr Cr
Kumar Sangakara A/c 11,500
Illustration: 20
ARA & Co consigned 1,000 tin of Ghee costing Lkr.60 per tin to their agents, Anusha Stores,
at Calcutta. The agents sold 400 tin at Lkr.80 per tin for cash, 400 tins at Lkr.82 per tin on
credit and they took over the balance to their own stock at Lkr.82 per tin. ARA & Co paid
freight and carriage Lkr.500 and miscellaneous expenses Lkr.200. They drew on Anusha
Stores at 3 Months for Lkr.45, 000, which was duly accepted by the later. The expenses
incurred by the Anusha Stores were:
LKR
Carriage 50
Octroi 40
Storage 110
Miscellaneous 100
They were entitled to 5% commission and 2% del credere commission on total gross sale
proceeds. They sent their account sales to their principal showing as a deduction there from
their commission and the various expenses incurred by them a month later. All the debtors
except one who owed Lkr.200 paid cash and the Anusha Stores remitted the amounts due on
consignment. You are required to show;
a) The journal entries in the books of the consignor and
b) Consignment account in the consignor‘s ledger
52 | P a g e
Solution:
Journal Entries
(In the books of Consignor)
Dr Cr
Description (LKR) (LKR)
1. Consignment A/c 60,000
Goods sent on consignment A/c 60,000
(being the goods sent on consignment)
2. Consignment A/c 700
Bank A/c 700
(Being the expenses incurred by consignor on account of consignment)
3. Consignment Account 300
Anusha Stores A/c 300
(Being the expenses incurred by consignee on account of consignment)
4. Anusha Stores A/c 81,200
Consignment A/c 81,200
(Being the sale effected by the consignee.)
5. Consignment A/c 5,684
Anusha Stores A/c 5,684
(Being the commission on sales).
6. Consignment A/c 14,516
Profit & Loss A/c 14,516
(Being the profit on consignment transferred to profit and loss account)
7. Goods sent on consignment A/c 60,000
Purchase A/c 60,000
(Being the value of goods sent on consignment)
8. Bills Receivable A/c 45,000
Anusha Stores A/c 45,000
(Being the bill drawn on consignment)
Ledger
Consignment of Calcutta Account
Dr Cr
53 | P a g e
Illustration: 21
On January 1, 2002, A of Delhi sent on consignment to B of Bombay 200 packets of coffee,
costing Lkr.80 and invoiced pro forma at Lkr.100 each. The freight and other charges paid
by A amounted to Lkr.640. A sent the documents through Bank and drew upon B a bill for
Lkr.10, 000 and discounted the same with the Bank for Lkr.9, 800. The bill was met on
maturity.
On March 15, B sent Account sales (together with the amount due) showing that 150
packets had realized Lkr.100 each and 25 packets Lkr.110 each and 25 packets were shown
as unsold stock. B incurred Lkr.400 as expenses for the entire consignment. B is entitled to a
commission of 6%.
On March 31 B informed A that 15 packets were damaged due to bad packing and it
was estimated that the selling price of the damaged packets would be about Lkr.20 per
packet. Both A and B close their books on March 31.
Prepare ledger accounts in the books of A and B.
Solution:
Books of A, Delhi
Consignment of Bombay Account
Dr Cr
Goods sent on Consignment A/c 20,000 B A/c 17,750
Bank-Expenses 640 Goods sent on consignment 4,000
B A/c- Expenses 400 (loading)
B A/c – Commission 1,065 Abnormal Loss (1) 648
Stock Reserve Account 200 Stock on Consignment (2) 1,032
P & L A/c 1,725 Stock of damaged goods 600
24,030 24,030
54 | P a g e
B’s Account
Dr Cr
Consignment A/c (sales) 17,750 Bills Receivable 10,000
Consignment A/c - expenses 400
Consignment A/c commission 1,065
Bank A/c - settlement 6,785
36,200 36,200
Books of B
A A/c
Dr Cr
Bills Payable 10,000 Bank 17,750
Bank-Expenses 400 Balance c/d 500
Commission A/c 1,065
Bank 6,785
18,250 18,250
Note:
(i) Stock at the end (At Invoice Price) Lkr.
10 Packets @ Lkr.100 (Invoice Price) 1,000
Add: Proportionate expenses incurred by A i.e. 1/20th of Lkr.640 32
1,032
(ii) Abnormal Loss
Cost of 15 packets damaged (15*80) 1,200
648
(iii) Since 10 Packets are still in the stock-in-hand, advance to that extent has not been
adjusted. Hence Lkr.500 is carried forward i.e.
10,000 ×10/200= Lkr. 500
Illustration: 22
Vegetables Oils Ltd., Polannaruwa, consigned 10,000 Liters of Ghee costing Lkr.20 per Liter
to Ranga and Co. of Galle on 1st January 2012. Oils Ltd paid Lkr.50, 000 as freight and
insurance. 250 Liters of Ghee were destroyed on 10-1-2012 in transit. The insurance claim
was settled at Lkr.4, 500 and was paid directly to the consignors. Ranga and Co. took
delivery of the consignment on 20th January 2012 and accepted a bill drawn upon them by
Oils Ltd for Lkr 1, 00,000 for 3 months. On 31 st March 2012 Ranga and co. reported as
Follows.
(i) 7,500 Liters were sold at Lkr.30 per Liter.
(ii) Other expenses were: Godown rent Lkr.2, 000; Wages Lkr.20, 000 Printing and
Stationary including advertising Lkr.10, 000.
(iii) 250 Liters were lost due to leakage.
56 | P a g e
Ranga and Co are entitled to a commission of 4.5% on all the sales affected by them.
They paid the amount due in respect of consignment on 31 st March itself.
Show the consignment account, the account of Ranga and Co. and loss-in-transit
account in the books of consignor for the year ended 31st March 2002.
Solution:
Loss-in-Transit A/c
Dr Cr
Consignment A/c 6,250 Insurance Co. A/c 4,500
Profit & Loss A/c 1,750
6,250 6,250
Working Notes:
(1) Cost of ghee destroyed in transit LKR.
Cost of 10,000 Kg of ghee @ Lkr. 20 2, 00,000
Freight and Insurance 50,000
Total cost of 10,000 Kg 2, 50,000
57 | P a g e
(3) Since 2000 Kg (9500 – 7500) of ghee has not been sold.
Proportionate amount of advance is (100,000×1/5) Lkr.20, 000 will not be adjusted.
Illustration: 23
5,000 shirts were consigned by Raizada & Co. of Delhi to Zing of Tokyo at cost of 375 each.
Raizada & Co. paid freight 50,000 and Insurance 7,500. During the transit 500 shirts were
totally damaged by fire. Zing took delivery of the remaining shirts and paid 72,000 on custom
duty. Zing had sent a bank draft to Raizada & Co. for 2, 50,000 as advance payment. 4,000
shirts were sold by him at 500 each. Expenses incurred by Zing on godown rent and
advertisement etc. amounted to 10,000. He is entitled to a commission of 5%. One of the
customer to whom the goods were sold on credit could not pay the cost of 25 shirts.
Prepare the Consignment Account and the Account of Zing in the books of Raizada &
Co. (Zing settled his account immediately. Nothing was recovered from the insurer for the
damaged goods).
Solution:
Consignment A/c
Dr Cr
Goods sent on Consignment A/c 18,75,000 Zing A/c 19,87,500
Bank A/c - freight and insurance 57500 (3,975 x 500) 51,316
Zing A/c: Consignment Debtors A/c
[(Custom Duty +Godown Rent, 1,82,000 [Credit Sales (25 x 500)] 12,500
Adv. Etc+ Commission), Abnormal Loss A/c (w 1) 1,93,250
58 | P a g e
Zing A/c
Dr Cr
Consignment A/c (Sales) 19,87,500 Bank Draft A/c (Advance) 2,50,000
Consignment A/c 1,82,000
(Expenses and Commission)
Bank A/c (Final Settlement) 15,55,500
19,87,500 19,87,500
Working Notes:
1.Valuation of goods Lost-in-transit and unsold Stock: Lkr
Total Cost 18, 75,000
Add: Consignor‘s Expenses 57,500
Total Cost of 5,000 Shirts 19, 32,500
Less: Lost-in-transit 1932500/5000*500 1, 93,250
Add: Non-recurring Ex. of Consignee 72,000
Total Cost of 4,500 Shirts 18, 11,250
Note: Since Del Credere Commission is not given by the consignor to the consignee, amount
of bad debt is to be charged against Consignment Account.
59 | P a g e
Illustration: 24
Lubrizols Ltd. of Mumbai consigned 1,000 barrels of lubricant oil costing Liters 800 per
barrel to Central Oil Co. of Kolkata on 1.1.2012. Lubrizols Ltd. paid Lkr 50,000 as freight
and insurance. 25 barrels were destroyed on 7.1.2012 in transit. The insurance claim was
settled at Lkr 15,000 and was paid directly to the consignor. Central Oil took delivery of the
consignment on 19.1.2012 and accepted a bill drawn upon them by Lubrizols Ltd., for Lkr 5,
00,000 for 3 months. On 31.3.2012 Central Oil reported as follows:
(i) 750 barrels were sold as Lkr 1,200 per barrel.
(ii) The other expenses were:
LKR
Clearing charges 11,250
Godown Rent 10,000
Wages 30,000
Printing, Stationery, Advertisement 20,000
25 barrels of oil were lost due to leakage which is considered to be normal loss. Central Oil
Co. is entitled to a commission of 5% on all the sales affected by them. Central Oil Company
paid the amount due in respect of the consignment on 31 st March itself. Show the
Consignment Account, the Account of Central Oil Co., and the Lost –in-Transit Account as
they will appear in the books of Lubrizols Ltd.
Solution:
Consignment to Kolkata Account
Dr Cr
Goods sent on Consignment A/c 8,00,000 Central Oil Co. A/c 9,00,000
Bank A/c - freight and insurance 50,000 (750 x 1200)
Central Oil Co A/c: Abnormal Loss A/c 21,250
[(Freight +Godown Rent+ Stock on Consignment A/c 1,76,842
Wages+ Printing etc), 71,250
(11250+10,000+30000+20000)]
Commissions @5% 45,000
Profit and Loss A/c 1,31,842
10,98,092 10,98,092
60 | P a g e
Workings Notes:
1.Valuation of goods Lost-in-transit and unsold Stock:
Lkr
Total Cost (1000*800) 8, 00,000
Add: Consignor‘s Expenses 50,000
Total Cost of 1,000 barrels 8, 50,000
Less: Lost-in-transit 850000/1100*25 (21,250)
Add: Non-recurring Ex. of Consignee 11,250
Total Cost of 950 barrels 8, 40,000
2. Value of under Stock `840000 /950*200 = Lkr 1, 76, 842
Illustration: 25
Mr. X, the consignor, consigned goods to Mr. Y 100 Radio sets valued Lkr 50,000. This was
made by adding 25% on cost. Mr. X paid Lkr 5,000 for freight and insurance. 20 sets are lost
– in- transit for which Mr. X received Lkr 5,000 from the Insurance Company.
Mr. Y received remaining goods in good condition. He incurred Lkr 4,000 for freight and
miscellaneous expenses and Lkr 3,000 for godown rent. He sold 60 sets for Lkr 50,000. Show
the necessary ledger account in the books of Mr. X assuming that Mr. Y was entitled to an
61 | P a g e
ordinary Commission of 10% on sales and 5% Del Credere Commission on sales. He also
reported that Lkr 1,000 were proved bad. Prepare the necessary Accounts.
Solution:
Consignment A/c
Dr Cr
Goods sent on Consignment A/c 50,000 Goods Sent on Consignment A/c 10,000
Bank A/c - freight and insurance 5,000 (Loading) (` 50,000x100/125)
Y A/c: Y A/c –sale proceeds 50,000
Freight and Misc. Expenses 4,000 Abnormal Loss A/c 11,000
Godown Rent 3,000 Stock on Consignment A/c 12,000
Commission (ordinary) @ 10% 5,000
Del credere Commission @ 5% 2,500
Abnormal Loss A/c (Loading) 2,000
Stock reserve A/c 2,000
Profit and Loss A/c 9,500
83,000 83,000
Y A/c
Dr Cr
Consignment A/c 50,000 Consignment A/c:
(Sales) Expenses 7,000
Commission (5000+2500) 7,500
Balance C/d 35,500
50,000 50,000
Working Notes:
(1) Calculation of Loading:
I.P Load C.P
125 25 100
C.P=100/125*50000
= 40000
Illustration: 26
From the following two statements, prepare Consignment A/c and Consignee‘s A/c in the
books of Consignor, presuming that the goods were invoiced at 20% above cost.
M/s Vijay & Company To: M/s Jyoti Electric House
Mumbai Pune
No 2355 Proforma Invoice Date: 21st April 2012
63 | P a g e
E&OE Sign
Mumbai For Vijay & Company
E&OE Sign
Mumbai Jyoti Electric House
Goods sent on Consignment A/c 13,44,000 M/s Jyoti Electric House‘s A/c 12,00,000
Bank A/c - freight and insurance (sale proceeds) 2,24,000
& Sundries 12,000 Sent on Consignment A/c 3,42,000
M/s Jyoti Electric House‘s A/c:
Expenses 18,000
Commission 1,20,000
Stock reserve A/c (loading on 56,000
stock) 2,16,000
Profit and Loss A/c 17,66,000 17,66,000
Workings Notes:
Loading on consignment Lkr
Invoice price of fans consigned 1,680
Loading is 20% on cost
Thus loading to be removed 20/120 × 1680 280
Total loading removed (800 × 280) 2,24,000
Value of closing Stock
Original invoice value 13,44,000
Consignor‘s expenses 12,000
Consignee‘s non-recurring expenses (Octroi only) 12,000
Loading on consignment 13,68,000
Total fans sent 800
Fans sold 600
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In Stock 200
Hence, stock value (13,68,000/800 × 200) 3,42,000
Loading to be removed (200 × 280) 56,000
Illustration: 27
On 1.7.2012, Mantu of Chennai consigned goods of the value of Lkr 50,000 to Pandey of
Patna. This made by adding 25% on cost. Mantu paid that on Lkr 2,500 for freight and Lkr
1,500 for insurance. During transit1/10 th of the goods was totally destroyed by fire and a sum
of Lkr 2,400 was realized from the insurance company. On arrival of the goods, Pandey paid
Lkr 1,800 as carriage to godown. During the year ended 30th June 2013, Pandey paid Lkr
th
3,600 for godown rent and Lkr 1,900 for selling expenses.1/9 of the remaining goods was
again destroyed by fire in godown and nothing was received from the insurance company. On
1.6.2013, Pandey sold half (1/2) the original goods for Lkr 30,000 and changed a commission
of 5% on sales. As on 30.6.2013, Pandey sent a bank draft to Mantu for the amount so far due
from him. You are required to prepare the following ledger accounts in the books of Mantu of
Chennai for the year ended 30.6.2013.
(a) Consignment to Patna Account; (b) Goods Destroyed by Fire Account; and (c) Personal
Account of Pandey.
Solution:
Consignment to Patna Account
Dr Cr
Goods sent on Consignment A/c 50,000 Goods Sent on Consignment A/c 10,000
Bank A/c - freight and insurance 4,000 Pandey A/c : Sale Proceeds 30,000
(2500+1500) Goods Destroyed by Fire A/c 11,000
Pandey A/c : Stock on Consignment A/c 16,800
Carriage Inward 1800
Godown Rent 3600
Selling Expenses 1900 7300
Commission (5% on Lkr 30,000) 1,500
Goods Destroyed by Fire A/c : 2000
Loading
Stock reserve A/c (Loading on 3000
unsold stock)
66 | P a g e
17,66,000 17,66,000
Pandey Account
Dr Cr
Consignment to Patna A/c 30,000 Consignment A/c:
(Sale proceeds) Expenses 7,300
Commission 1,500
Draft A/c 21,200
30,000 30,000
Working Notes:
Valuation of goods destroyed by fire and unsold stock
Illustration: 28
Usha sent goods costing Lkr 75, 50,000 on consignment basis to Gayatri on 1st Feb 2012 @
8.5% commission. Usha spent Lkr 8, 25,000 on transportation. Gayatri spent Lkr 5, 25,000
on unloading. Gayatri sold 88% of the goods for Lkr 90, 00,000, 10% of the goods for Lkr
10, 00,000 and the balance is taken over by her at 10% below the cost price. She sent a
cheque to Usha for the amount due after deducting commission. Show Consignment to
Gayatri A/c and Gayatri‘s A/c in the books of Usha.
Solution:
Calculation of sales Cost (Lkr) Invoice (Lkr)
Goods sent 75, 50,000
88% of the goods 66, 44,000 90, 00,000
10% of goods 7, 55,000 10, 00,000
Total sales 73, 99,000 1, 00, 00,000
Goods taken over by Gayatri 1, 51,000 1, 35,900
There is no closing stock here as all unsold goods were taken over by Gayatri. The
commission is payable only on sales to outsiders and not on goods taken over by Gayatri.
Thus, commission is 8.5% on Lkr 10,000,000 i.e. Lkr 8, 50,000
Gayatri’s A/c
Dr Cr
Consignment A/c 1,01,35,900 Consignment A/c:
(Sale proceeds) Expenses 5,25,000
Commission 8,50,000
Bank A/c 87,60,900
1,01,35,900 1,01,35,900
Calculation of commission
Ordinary @ 3% on 450000 13,500
Del Credre @ 1.5% on 450000 6,750
20,250
As the consignee has paid Del Credre Commission, the responsibility of bad debts is his.
Hence no entry is needed to be passed in the books of consignor.
Illustration: 29
Sangita Machine Corporation sent 200 sewing machines to Rita agencies. It spent Lkr 7500
on packing. The cost of each machine was Lkr 2,000, but it was invoiced at 20% above cost.
20 machines were lost in transit & insurance company accepted claim of Lkr 20,000 only.
Rita agencies paid freight of Lkr 9,000, carriage Lkr 3,600, and Octroi Lkr 1,800 and rent Lkr
1800. They sold 150 machines at Lkr 3,500 per machine. They were entitled to commission
of 5% on invoice price and additional 20% of any excess realized on invoice price and 2%
Del Credre commission. They accepted a bill drawn by Sangita Machine Corporation for Lkr
3, 00,000 and remitted the balance by demand draft along with account sale. Draw up
necessary ledger accounts in the books of Sangita Machine Corporation and Rita Agencies.
Solution:
Consignment to Rita Agencies A/c
Dr Cr
Goods sent on Consignment A/c 4,80,000 Rita Agencies‘ A/c (Sales) 5,25,000
Bank A/c - (Packing Expenses) 7,500 (sales 150 @ 3500)
Rita Agencies A/c: Abnormal Loss A/c 48,750
Freight 9,000 Consignment Stock A/c 75,525
Carriage 3,600 Goods Sent on Consignment A/c 80,000
Octroi 1,800 (Loading)
Rent 1,800
Commission 61,500 77,700
Abnormal loss A/c 8,000
(Load removed)
Stock Reserve A/c 12,000
P & L A/c 1,44,075
7,29,275 7,29,275
70 | P a g e
Calculation of Commission:
Invoice price of machines sold (2400*150) 360,000
Commission @ 5% on this 18,000 (a)
Illustration: 30
Ram of Patna consigns to Shyam of Delhi for sale at invoice price or over. Shyam is entitled
to a commission @ 5% on invoice price and 25% of any surplus price realized. Ram draws
on Shyam at 90 days sight for 80% of the invoice price as security money. Shyam remits the
balance of proceeds after sales, deducting his commission by sight draft. Goods consigned by
Ram to Shyam costing Lkr 20,900 including freight and were invoiced at Lkr 28,400. Sales
made by Shyam were Lkr 26,760 and goods in his hand unsold at 31st Dec, represented an
invoice price of Lkr 6,920. (Original cost including freight Lkr 5,220). Sight draft received by
Ram from Shyam up to 31st Dec was Lkr 6,280. Others were in- transit. Prepare necessary
Ledger Accounts.
Solution:
Consignment to Delhi Account
Dr Cr
Goods sent on Consignment A/c 28,400 Shyam A/c – Sale proceeds
Delhi A/c- Commission 2,394 (sales 150 @ 3500) 26,760
Stock Reserve A/c 1,700 Goods Sent on Consignment A/c 7,500
`(6,920 – 5,220) (Loading) (28,400- 20,900)
P & L A/c 8,686 Consignment Stock A/c 6,920
41,180 41,180
Shyam Account
Dr Cr
Consignment to Delhi A/c 26,760 Bills Receivable A/c 22,720
(Sale proceeds) Consignment to Delhi A/c 2,394
Balance c/d (` 6,920 x 80%) 5,536 - commission
72 | P a g e
32,296 32,296
Working Notes:
Calculation of Commission: LKR
Invoice value of goods 28,400
Less: Unsold stock (6,920)
Invoice value of goods sold 21,480
Summary
Consignment is a specialized kind of transaction between consignor and consignee, whereby
consignor sends goods to consignee to be sold by the latter on behalf of the former for a
mutually agreed commission. The goods consigned to the agent cannot be treated as sales at
the time of the consignment; they are treated as sales only when those are sold by the
consignee. In a consignment transaction, the consignor sends goods to the consignee and
makes a bill called Proforma Invoice. The value recorded in the proforma invoice may be the
actual cost to the consignor or actual cost to the consignor plus mark-up. The objectives of
73 | P a g e
Keywords
Consignment: A shipment of goods by a manufacturer or wholesale dealer to an agent to be
sold by him on commission basis, on the risk and account of the former, is known as
consignment.
Consignor: The person who sends the goods to the agent to be sold by him as commission
basis is called the consignor.
Del Credere Commission: It is a commission which is paid by the consignor to the
consignee for taking additional risk of recovery of debts on account of sales made on credit
by the consignee on behalf of the consignor.
Account Sales: It is a statement which contains the details of sales, expenses incurred and
commission entitlement and balance due to the consignor.
Normal Loss: The normal loss is one which cannot be avoided because of the basic nature of
the goods/processes involved.
Objective:
State whether each of the following statements is 'true' or 'false'.
1. Despatch of goods on consignment amounts to sale of goods by the consignor (F)
2. A consignee is paid over-riding commission for bearing the risk of bad debts on
account of credit sales made by him (F)
3. Sales account and account sales are synonymous terms (F)
4. The consignee passes no entry in his books for unsold stock of the consignor, lying
with him (T)
5. Discount on bills discounted is debited on profit and loss account and not to the
consignment account on account of it being treated as a financial expense (T)
6. Abnormal loss of stock arises on account of natural and inherent characteristics of
goods (F)
7. As soon as goods are sent to the consignee, consignee becomes liable to pay for them
(F)
8. An account sale is submitted by consignee to the consignor (T)
9. Value of abnormal loss or stock is debited to consignment account (F)
3. In the books of consignor the balance of the consignment stock would be shown:
(a) As an asset in the balance sheet.
(b) As liability in the balance sheet.
(c) On the credit side of the trading account.
4. In the books of consignee, on dispatch of goods by the consignor the entry would be:
(a) Consignment account [Dr.]
To goods sent on consignment account [Cr.]
(b) Consignment account [Dr.]
To consignor account [Cr.]
(c) No entry
5. In the books of consignee the expenses incurred by him on consignment are debited
to:
(a) Consignment account
(b) Cash account
(c) Consignor's account
Answers:
1. d
2. a
3. a
4. c
5. c
6. a
Suggested Readings
1. Fundamentals of Accounting by R.L. Gupta and V.K. Gupta, Sultan Chand and Sons, New
Delhi.
2. Advanced Accounting by R.L. Gupta and M. Radhaswamy, Sultan Chand and Sons, New
Delhi.
3. Advanced Accounting by Ashok Sehgal and Deepak Sehgal, Taxmann Allied Services Pvt.
Ltd., New Delhi.
4. Advanced Accounts by M.C. Shukla, T.S. Grewal and S.C. Gupta, S. Chand and Co. Ltd.,
New Delhi.