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ADVACC1 Consignment Sales

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6 views13 pages

ADVACC1 Consignment Sales

Uploaded by

mohammad.abdulmunap
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ADVACC1:

CONSIGNMENT SALES
CONSIGNMENT SALES

What is consignment?
Under a consignment arrangement, an entity (called
the consignor) delivers good to another party
(called the consignee) who undertakes to sell the
goods to end customers on behalf of the consignor.
CONSIGNMENT SALES

What is consignment?
The consignor recognizes revenue only when the
consignee sells the consigned goods to end
customers because it is only at this point that the
consignor relinquishes control over the goods. The
consigned goods remain in the consignor’s inventory
until they are sold
CONSIGNMENT SALES

What is consignment?
The consigned goods remain in the consignor’s
inventory until they are sold to end customers. The
consignee records the consigned goods only through
memo entries.
CONSIGNMENT SALES

What is consignment?
Freight and other incidental costs that the consignor
incurs in transferring the consigned goods to the consignee
(e.g., transportation and insurance) are capitalized as cost
of the consigned goods. Repair costs for damages during
shipment and storage and other maintenance costs are
charged as expense.
CONSIGNMENT SALES

What is consignment?
If the consignee shoulders the freight and other
incidental costs, the consignee treats the costs as
receivable from the consignor if the costs are
reimbursable, if not, the consignee recognizes
them as expense.
CONSIGNMENT SALES

What is consignment?
Usually, the consignee is entitled to a commission based on
the consignor’s sales price. In other arrangements, the
consignee “purchases” the goods from the consignor
simultaneously with the sale to the end customer. In such
case, the consignee earns income by making a mark-up
on the final selling price. In some cases, the consignee
earns both a commission and a mark-up
CONSIGNMENT SALES

What is consignment?
The commission is recognized as an
expense by the consignor and as an income
by the consignee.
CONSIGNMENT SALES

What is consignment?
Normally, the consignee deducts its commission from the
amount remitted to the consignor. In such cases, the
consignor records the advance commission as receivable
(advances) and not cost of its inventory. When the related
goods are sold to the end customer, the consignor
derecognizes the receivable and recognizes commission
expense
CONSIGNMENT SALES

What is consignment?
When the consigned goods are sold to end customers,
a. The consignor recognizes revenue at the gross amount
of the consideration, i.e., the sales price agreed with
the consignee
b. The consignee recognizes revenue at the commission
or fee to which it is entitled
CONSIGNMENT SALES

ILLUSTRATION: Provide the journal entries


 ABC Co. consigns goods costing P220,000 and with a total
sales price of P390,000 to XYZ Inc. XYZ will be entitled to a
20% commission based on its sales.
 XYZ sells consigned goods costing P55,000 and for P100,000.
ABC Co. is not notified of the sale.
 XYZ Inc makes the weekly remittance of sales proceeds, net
of commission, to ABC Co.
CONSIGNMENT SALES

ILLUSTRATION: Provide the journal entries


 ABC Co. consigns goods costing P220,000 and with a total
sales price of P390,000 to XYZ Inc. XYZ will be entitled to a
20% commission based on its sales.
 XYZ sells consigned goods costing P55,000 and for P100,000.
ABC Co. is not notified of the sale.
 XYZ Inc makes the weekly remittance of sales proceeds, net
of commission, to ABC Co.
CONSIGNMENT SALES

ILLUSTRATION:
Sales (12 120,000
Snoop Inc. enters into a consignment units, 15%
agreement with Will Corp. on February 20x1. gross profit
During February, Snoop shipped 20 units of excluding
freight)
machine to Will Corp. and paid P5,000 freight
Less: Selling 10,000
cost. Will Corp. shall receive a 10% expenses
commission of the units sold. For the month
Commission 12,000
of February, the account sale submitted by
Installation 5,000
Will Corp includes the following data: and delivery
What is the net loss? How much is the Advances to 25,000 52,000
cost of goods sold? consignor
Net 68,000
remittance

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