Accounting for Consignment & Del Creder Commission | CMA Inter Syllabus

1. Accounting for Consignment
2. Exercise

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Accounting for Consignment

Business organisations with the intention of expanding their operations adopt different strategies. One of the common strategies involves the engagement of selling agents, technically referred to as entering into consignment agreement. Consignment is a special type of transaction in which one entity sends goods to another entity for selling the goods of the former for a pre-determined commission. In such an arrangement, the two parties are located in different towns or cities.

Three parties are involved in a consignment business – Consignor, Consignee and Buyer. The consignor sends goods to the agent (called consignee) for selling the same on its behalf to the buyers. It is a type of agency contract, where the consignor is the ‘principal’ and the consignee acts as the ‘agent’. Revenue from consignment business is recognised by the consignor on sale of the goods sent by the consignee. [AS-9]

Parties Involved in Consignment

The parties involved in consignment business are Consignor and Consignee.

Consignor

It is the party who sends the goods to its agent for sale of goods. The consignor may be a manufacturer or wholesaler. The consignor is the ‘principal’ in the principal-agent relationship of consignment business. The consignor remains the owner of the goods sent on consignment basis, till the goods are actually sold by the consignee.

Consignee

It is the party to whom goods are sent on consignment basis by the consignor. It sells the goods received on consignment basis and acts as the ‘agent’ in a consignment relation. It is to be noted that the consignee does not own the goods received on consignment basis. It is entitled to receive commission from the consignor as consideration.

Documents Related to Consignment Transactions

Consignment business requires certain specific documents for its operations. These documents are ‘Proforma Invoice’ and ‘Account Sales’. These are discussed hereunder:

Proforma Invoice 

This document is issued by the consignor to its agent (i.e. the consignee) at the time of sending the goods. It mentions various details regarding the goods sent viz. quantity of the goods consigned, cost/ invoice price of the goods, expenses incurred in relation to the goods, minimum selling price etc. This document acts as an evidence of despatch of goods from the end of the consignor. Its format resembles that of a regular invoice.

 Proforma:

XYZ Cloth Merchant  Proforma Invoice
Goods sent on Consignment to:  Kamal Garments  80A, Nehru Road,  Guwahati – 781005.  Date: March 17, 2022
Particulars		(₹)
1,200 T-Shirts @ ₹ 1,000 each		12,00,000
500 Formal Shirts @ ₹ 800 each		4,00,000
Charges:	(₹)	16,00,000
Packing	25,000
Carriage	42,000
Insurance	13,000	80,000
Goods despatched vide A.W.B. No. 85138 dated 17.3.2022	Total	16,80,000
E.&O.E.  Ahmedabad	For XYZ Cloth Merchant Suresh Barua Partner

Account Sales

Account Sales is a document which is periodically sent by the consignee to the consignor.

It contains details of the transactions entered into by the consignee on behalf of the consignor viz. sale proceeds realised, consignee’s commission, expenses incurred by consignee in connection with the consignment, amount remitted and any other specific communication (like abnormal loss of goods).

It is a post-sales document that formally conveys the developments of the consignment business (at the consignee’s place) to the consignor.

The consignor records the consignment related transactions in its books of accounts on the basis of this document.

Proforma:

Account Sales for Wrist Watches & Wall Clocks sold by Prime Watch Dealers  on behalf of GMT Watch Makers
Particulars		(₹)	(₹)
Gross Sale Proceeds:
1,050 wrist watches @ ₹ 2,400 each		25,20,000
180 wall clocks @ ₹ 600 each		1,08,000	26,28,000
Less: Charges:
Unloading & Carriage to godown		4,500
Godown rent & insurance		96,000
Selling expenses		12,500
Commission @ 5% on ₹ 26,28,000		1,36,800	2,49,800
Net Sale Proceeds			23,78,200
Less: Advance (by Bank Draft No. …. dated ….)			10,00,000
			13,78,200
Less: Amount remitted (by Bank Draft No. …. dated ….)			10,00,000
Balance Due			3,78,200
E.&O.E.  New Delhi		For Prime Watch Dealers …………………..  (Signature)

Difference between Consignment and Regular Sales

Consignment		Sales
It is a business expansion technique		It is a primary business activity
This transaction is entered into by some entities.		This transaction is entered into by every commercial organisation.
The main parties involved are Consignor and Consignee.		The parties involved are Buyer and Seller.
The parties share ‘Principal-Agent’ relationship.		The parties share ‘Debtor-Creditor’ relationship
The ownership and risk of the goods do not pass to the Consignee.		The ownership and risk of the goods pass to the Buyer.
Expenses incurred on consignment are borne by the Consignor.		Prior to transfer of ownership of goods, expenses incurred are borne by the Seller.
Goods may be sent on consignment either ‘at Cost’ or ‘at Invoice Price’.		Goods are sold at Selling Price which is above cost price.
When goods are sent on consignment, the Consignor sends a ‘Proforma Invoice’ to the Consignee.		When goods are sold, the Seller issues a ‘Sales Invoice’
The Consignee can return the goods sent to the Consignor.		The Buyer can not return the goods sold to the Seller, unless mutually agreed.

Consignment Related Transactions

Goods sent on onsignment:

In consignment business, goods are sent by the consignor to the consignee for the purpose of selling the same. The goods are physically transferred, but the ownership, risk and the property in goods remain with the consignor. This transaction is recorded in the books of the consignor, but in the books of the consignee no accounting is done for the same. As the goods are sent out of the regular stock of goods, necessary adjustment is required to be made by the consignor against Purchases A/c or Trading A/c. The goods so sent on consignment may be recorded by the consignor either ‘at Cost Price (CP)’ or ‘at Invoice Price (IP)’. The IP is determined by adding a fixed percentage of margin (called the Load) over the cost of the goods.

Advance by consignee to consignor:

In consignment business, the consignor usually sends goods to the consignee after receiving adequate amount of advance from the consignee. Such advance money can be provided either through bank draft or the consignee may accept a bill of exchange in favour of the consignor. Such advance is later on adjusted when the money is remitted by consignee to the consignor. Sometimes, as per agreement between the consignor and the consignee, Security Deposit/ Caution Money is required to be sent by the consignee. In such case, the security deposit/ caution money, in proportion to any unsold stock, is retained by the consignor, and is required to be carried forward to the next accounting period.

Expenses on consignment:

The expenses which are specifically incurred in relation to the consignment business may be incurred either by the consignor or by the consignee.

Expenses by consignor: Such expenses are usually incurred for sending the goods to the consignee. Examples of such expenses include carriage & freight to consignee, packing charges, loading charges, export duty, transit insurance etc. These are non-recurring in nature, and are considered for valuation of the unsold stock lying with the consignee, goods abnormally lost and goods-in-transit.

Expenses by consignee: These expenses are incurred by the consignee are recovered from the consignor. The consignor does not reimburse such expenses to the consignee; rather these are adjusted against the amount due to the consignor (sale proceeds) in the Account Sales prepared by the consignee.

Expenses on consignment may be of two types – Recurring and Non-recurring. Recurring expenses are the expenses which are incurred on more than one occasion. These are usually incurred after the goods reach the consignee’s premises. Such recurring expenses include godown rent, insurance of godown, carriage outward, establishment charges, advertising & publicity, salary of salesmen, commission and other selling expenses. Non-recurring expenses are incurred only once and are generally incurred prior to reaching the consignee’s premises. Common nonrecurring expenses include unloading charges, dock charges, clearing charges, customs (import) duty, octroi, carriage & freight to godown etc. For the purpose of valuation of the unsold consignment stock and goods abnormally lost at the consignee’s premises only the non-recurring expenses incurred by the consignee are to be considered.

Consignment Sale: As per consignment contract, goods are sold by the consignee on behalf of the consignor. Such sales form the revenue of the consignment business. The sales may be made either on cash basis or on credit basis. The cash sale transactions are recorded in the books of both consignor and consignee. However, the recording of the credit sale depends on the fact whether del-credere commission is payable by the consignor to the consignee or not. Sale proceeds are generally collected by the consignee and then reimbursed to the consignor at the end of the  specified period after making necessary adjustments like expenses by consignee, commission due etc. 

Commission

It is the consideration for which the Consignee acts as r agent of the Consignor. It is to be noted that the commission is not directly paid by the Consignor to the Consignee. It is adjusted by the Consignee against the amount due towards the Consignor, and is disclosed in the Account Sales. Commission associated with a consignment contract may be of the following three types:

1. Ordinary Commission: This Commission is due to the consignee from the consignor because of rendering of the regular activities of the consignment business. It is calculated on the gross sales made by consignee in the consignment business.
2.  Del-credere Commission: This is a commission that is payable for taking the risk associated with credit sale of the goods, namely risk of bad debts and collection responsibility. It is generally calculated on the ‘gross sales’ made by the consignee, unless otherwise agreed upon.
3. Over-riding Commission: This is an extra commission which is paid over and above the ordinary commission. It is also referred to as Special Commission. This commission is paid when the consignee manages to sell the goods above a pre-determined selling price, or exceeds the sales target.

Loss of goods sent on consignment

The consignment business involves considerable movement and handling of goods. In this process, some goods may get lost. Such loss may be divided into two broad categories – Normal Loss and Abnormal Loss.

Normal Loss: The loss of goods which occurs due to the inherent nature of the goods involved is referred to as Normal Loss. It is by nature unavoidable loss and forms part of the cost of goods sold. Example: Evaporation of materials, spillage of liquid materials etc.

Abnormal Loss: Abnormal Loss of goods refers to those losses which are avoidable in nature. Such loss is not considered to be a part of the cost of goods sold. Example: Goods pilfered, goods stolen, goods lost by fire and other natural calamities etc. Based on the stage of occurrence of abnormal loss in a consignment business, such loss arising can be broadly discussed under two heads:

• Goods lost in Transit: These losses occur on the movement of the goods from the consignor’s premise to the consignee’s warehouse. Such goods lost are required to be valued after considering the expenses incurred by the Consignor for sending such goods. Any expenses incurred by the consignee which are of non-recurring nature are not to be included in valuing the goods lost in transit.
• Abnormal loss of goods in Consignee’s premises: Such loss includes goods damaged by fire in consignee’s godown, goods stolen from godown, loss due to bad handling etc. For the purpose of valuation of such loss, all expenses incurred by the consignor and the non-recurring expenses incurred by the consignee are considered.

Valuation of Unsold Stock Lying with Consignee

During a particular accounting period, usually the consignee does not manage to sell all the goods received from the consignor. In other words, some of the goods received may remain unsold with the consignee. This is technically called referred to as Consignment Stock. Its ownership lies with the consignor, even though they lie physically with the consignee. Valuation of such consignment stock is necessary for determination of correct operating results of the consignment business. The valuation of unsold stock depends on the fact whether the goods sent have been recorded by the consignor ‘at Cost’ or ‘at IP’.

• Goods sent at Cost: Consignment stock is valued considering the cost of the goods sent on consignment. In addition, necessary adjustments are required to be made for the expenses incurred by the consignor and non-recurring expenses incurred by the consignee.
•  Goods sent at Invoice Price: Consignment stock is valued considering the Invoice Price of the goods sent on consignment. Necessary adjustments are required to be made for the expenses incurred by the consignor and non-recurring expenses incurred by the consignee on these goods. Moreover, for determination of correct operating result, the load margin on such goods needs to be adjusted.
  NB: As per AS-2, unsold stock is to be valued at ‘Cost’ or ‘Net Realisable Value (NRV)’, whichever is lower. When the NRV (i.e. Expected Selling Price Less Incidental expenses for making such sale) of the unsold stock fall below its cost, in that case the consignment statement is to be valued at the lower NRV.

Valuation of Goods-in-Transit

The goods which have been despatched by the consignor, but are yet to reach the premises of the consignee are referred to as Goods-in-Transit. The ownership of such goods lies with the consignor, and at the end of an accounting period, such goods are required to be valued for the purpose of reflecting such goods in the financial statements. Such goods-in-transit are required to be valued after considering the expenses incurred by the consignor for sending such goods. It is to be noted that no expenses incurred by the consignee are to be included in valuing the same.

Accounting for Consignment

Accounting for consignment related transactions is done in the books of both Consignor and Consignee. These are discussed as follows:

Books of Consignor: The accounts maintained in the books of the consignor are:

• Consignment Account: It is the profit determining account of the consignment business. In this account the expenses and losses are matched against the revenue from such business. This profit/ loss on consignment determined in this account is transferred from this account to the P/L A/c.
• Goods sent on Consignment Account: It records the goods that are sent on consignment and also returns from consignee, if any.
• Consignee’s Account: This is a personal account that records the transactions that are entered into by the consignee for the consignment. This account shows the money due to be received from the consignee at the end of a period.
• Consignment Stock Account: This account records the unsold stock of goods that may lie with the consignee at the end of an accounting period.
• Consignment Debtors Account: This account is maintained by the consignor when goods are sold by consignee on credit basis and del-credere commission is not paid to the consignee. It records the transactions like credit sale of consignment goods by consignee, collection from consignment debtors, bad debts, discount allowed etc.

Books of Consignee: The accounts which are maintained in the books of the consignee are:

• Consignor Account: This account records the transactions that are entered into by the consignee in relation to the consignment. The closing balance of this account reflects the amount due from the consignee to the consignor at the end of a specified period.
• Commission Account: Separate commission accounts are required to be maintained for different types of commissions viz.  Ordinary Commission, Del credere Commission and Over-riding/ Special Commission.
• Consignment Debtors Account: This account is maintained by the consignee when del-credere commission is paid by the consignor to the consignee. This account records the transactions relating to credit sale of consignment goods made, collection from consignment debtors, bad debts, discount allowed etc.
•  Consignment Inwards Account: Generally, no accounting is done in the books of the consignee for the goods received from consignor.  However, sometimes the consignee may open a special account called the Consignment Inward Account to record the movement of the goods.

Journal Entries 

		Books of Consignor	Books of Consignee
Opening Stock on Consignment
At Cost:		Consignment A/c	No Entry
		To, Consignment Stock A/c
At IP:		Consignment A/c
		To, Consignment Stock A/c  [Note: Load to be cancelled]
Cancellation of load on Opening Stock [When goods are sent at IP]
		Stock Reserve A/c	No entry
		To Consignment A/c
Goods Sent on Consignment
At Cost:		Consignment A/c	No entry
		To, Goods Sent on Consignment A/c
At IP:		Consignment A/c
		To, Goods Sent on Consignment A/c  [Note: Load to be cancelled]
Cancellation of load on goods sent [When goods are sent at IP]
		Goods Sent on Consignment A/c	No entry
		To Consignment A/c
Advance received from consignee by consignor
		Bank A/c / Bills Receivable A/c	Consignor A/c
		To, Consignee A/c	To, Bank A/c/ Bills Payable A/c
Discounting of Bills Receivable by consignor
		Bank A/c	No entry
		Discount on Bill A/c
		To, Bills Receivable A/c
Expenses incurred by consignor
		Consignment A/c	No entry
		To, Cash/ Bank A/c
Goods-in-Transit
At Cost:		Goods-in-Transit A/c	No entry
		To, Consignment A/c
At IP:		Goods-in-Transit A/c
		To, Consignment A/c  [Note: Load to be cancelled]
Cancellation of load on Goods-in-Transit [When goods are sent at IP]
		Consignment A/c
		To, Goods-in-Transit A/c
Expenses paid by consignee
		Consignment A/c	Consignor A/c
		To, Consignee A/c	To, Bank / Cash A/c
Sale of goods by consignee
For cash		Consignee A/c	Bank A/c
		To, Consignment A/c	To, Consignor A/c
For Credit:  ●Del-credere commission provided		Consignee A/c	Consignment Debtors A/c
		To, Consignment A/c	To, Consignor A/c
●Del-credere commission not provided		Consignment Debtors A/c	No entry
		To, Consignment A/c
Commission payable by consignor to consignee
		Consignment A/c	Consignor A/c
		To, Consignee A/c	To, Commission A/c
Amount received from Consignment Debtors
Del-credere commission provided		No entry	Bank A/c
			To, Consignment Debtors A/c
Del-credere commission not provided		Consignee A/c	Bank A/c
		To, Bank A/c	To, Consignor A/c
		To, Consignment Debtors A/c   [if directly collected by consignor]
Bad Debt in connection to consignment business
Del-credere commission provided		No entry	Bad Debt A/c
			To, Consignment Debtors A/c
			Commission A/c
			To, Bad Debt A/c
Del-credere commission not provided		Consignment A/c	No entry
		To, Consignment Debtors A/c
Goods returned by consignee
At Cost:		Goods Sent on Consignment A/c	No entry
		To, Consignment A/c
At IP:		Goods Sent on Consignment A/c	No entry
		To, Consignment A/c
Abnormal Loss of goods [in Transit/ in consignee’s place ]
At Cost:		Abnormal Loss A/c	No entry
		To, Consignment A/c
At IP:		Abnormal Loss A/c	No entry
		To, Consignment A/c  [Note: Load to be cancelled]
Cancellation of loading of abnormal goods [If goods sent at IP ]
		Consignment A/c	No entry
		To Abnormal Loss A/c
Insurance claim received/ admitted against Abnormal Loss
		Bank A/c (Amount received)	Bank A/c
		Insurance Claim A/c  (Amount admitted but not realised)	To, Consignor A/c [Amount received from Insurance Co. on behalf of the consignor]
		Consignee A/c(Amount received by consignee)
		P/L A/c (Net Loss)
		To, Abnormal Loss A/c
Closing Stock on Consignment
If goods were Sent at Cost:		Consignment Stock A/c	No entry
		To, Consignment A/c
If goods were Sent at IP:		Consignment Stock A/c
		To, Consignment A/c [Note: Load to be cancelled]
Cancellation of loading on goods sent [If goods sent at IP]
		Consignment A/c	No entry
		To, Stock Reserve A/c
Closing of Goods sent on Consignment A/c
		Goods sent on Consignment A/c	No entry
		To, Purchases/ Trading A/c
Profit/Loss    on    Consignment
In case of Profit		Consignment A/c	No entry
		To, P/L A/c
In case of Loss		P/LA/c
		To, Consignment  A/c
Final Remittance received by consignor from consignee
		Bank A/c / Bills Receivable A/c	Consignor A/c
		To, Consignee A/c	To, Bank A/c / Bills Payable A/c

Illustration 8

Agarwal of Agra sent on consignment goods valued ₹ 1,00,000 to Biyani of Bhagalpur on March 1, 2021. He incurred an expenditure of ₹ 12,000 on Freight and Insurance. Biyani was entitled to a commission of 5% on gross sales plus a del-credere commission of 3%. Biyani took delivery of the consignment by incurring expenses of ₹ 3,000 for goods consigned.

On Dec. 31, 2021, Biyani informed on phone that he had sold all the goods for ₹ 1,50,000 by incurring selling expenses of ₹ 2,000. He further informed that only ₹ 1,48,000 had been realised and rest was considered irrecoverable, and would be sending the cheque in a day or so for the amount due along with the accounts sale. The consignor closes his books on Dec. 31 each year. 

On Jan. 5, 2022; Agarwal received the cheque for the amount due from Biyani and incurred bank charges of ₹ 260 for collecting the cheque. The amount was credited by the bank on Jan. 9, 2022.

Prepare the Consignment A/c finding out the profit/loss on the consignment, Biyani A/c, Provision for Expenses A/c and Bank A/c in the books of the consignor, recording the transactions upto the receipt and collection of the cheque. 

Solution:

Books of Agarwal

Consignment to Bhagalpur Account

                                                                                                                                                                                                                                                                                                                                                                                              

DR.			CR.
Particulars		(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c		1,00,000	By, Biyani A/c [Sale]	1,50,000
To, Bank A/c [Expenses incurred]		12,000
- Freight and Insurance
To, Biyani A/c [Expenses paid by consignee]
- Delivery Charges	3,000
- Selling Expenses	2,000	5,000
To, Biyani A/c [Commission due]
- Ordinary Commission [1,50,000 × 5%]	7,500
Del credere Commission [1,50,000 × 3%]	4,500	12,000
To, Provision for Expenses A/c		260
[Provision created for collection charges]
To, P/L A/c [Profit on consignment transferred]		20,740
		1,50,000		1,50,000

                                                                                                                                                                           Biyani Account                                                                                                                                                                            

DR.			CR.
Date	Particulars	(₹)	Date	Particulars	(₹)
31.12.21	To Consignment to Bhagalpur A/c [Sales]	1,50,000	31.12.21	By Consignment to Bhagalpur A/c	5,000
				[Expenses paid by consignee]
			31.12.21	By Consignment to Bhagalpur A/c	12,000
				[Commission due]
			31.12.21	By Balance c/d [Balance due: : B/Fig.	1,33,000
		1,50,000			1,50,000
1.1.22	To Balance b/d	1,33,000	5.1.22	By Cheque for Collection A/c  [Final remittance]	1,33,000
		1,33,000			1,33,000

Provision for Expenses Account

Date	Particulars	(₹)	Date	Particulars	(₹)
9.1.22	To, Cheque for Collection A/c  [Bank charges deducted]	260	31.12.21	By, Consignment to Bhagalpur A/c	260
		260			260

Bank Account

Date	Particulars	(₹)	Date	Particulars	(₹)
9.1.22	To, Cheque for Collection A/c [1,33,000 – 260]	1,32,740	9.1.22	By, Balance c/f	1,32,740
		1,32,740			1,32,740

 Illustration 9

M/s Singha Traders of Surat consigned 5,000 litres of edible oil costing ₹ 32 each to M Ltd. of Mumbai on 1.2.2022. S Ltd. paid ₹ 5,000 as freight and insurance charges. During transit 200 litres were destroyed for which the insurance company agreed to pay ₹ 5,000 in full settlement.

M Ltd. paid clearing charges ₹ 6,100; godown rent ₹ 300 and Salesman’s salary ₹ 900. It was entitled to 6% ordinary commission and 4% del credere commission on sales.

On 30.6.2022, M Ltd. reported that 4,000 litres were sold at ₹ 1,65,000 and 100 litres were lost due to evaporation. A customer who bought liquor for ₹ 1,500 could pay only 40% of his amount. M Ltd. paid its balance due by a cheque. 

Show the Consignment Account in the books of M/s Singha Traders.

Solution:

Books of M/s Singha Traders

Consignment to Mumbai Account 

Particulars	(₹)	Particulars	(₹)
To, Goods Sent on Consignment A/c   [5,000 × ₹ 32]	1,60,000	By, M. Ltd. A/c [Sale]	1,65,000
To, Bank A/c [Expenses incurred by consignor]
- Freight and Insurance Charges	5,000	By, Goods Destroyed-in-Transit A/c  [WN:1]	6,600
To, M. Ltd. A/c [Expenses incurred by consignee]
- Clearing Charges                                                                                                                  6,100		By, Consignment Stock A/c [WN:1]	24,500
- Godown Rent                                                                                                                          300
- Salesman’s Salaries                                                                                                                 900	7,300
To, M. Ltd. A/c [Commission due]
- Ordinary Commission [1,65,000 × 6%]                                                                                9,900
- Del credere Commission [1,65,000 × 4%]                                                                            6,600	16,500
To P/L A/c [Profit on consignment – transferred]	7,300
	1,96,100		1,96,100

Workings Note:

Value of Goods Destroyed-in-transit & Unsold Stock

	Litres	(₹)
Cost of goods sent [5,000 × ₹ 32]	5,000	1,60,000
Add: Consignor’s expenses (being, freight and insurance charges)	-	5,000
	5,000	1,65,000
Less: Goods destroyed -in-transit [ ₹ 1,65,000 × 200/5,000]	200	6,600
Goods received by consignee	4,800	1,58,400
Add: Non-recurring expenses incurred by consignee (being, clearing charges)	-	6,100
	4,800	1,64,500
Less: Normal loss	100	-
	4,700	1,64,500
Unsold Stock = [5,000 – 200 – 100 – 4,000] = 700 litres	₹ 1,64,500 × 700 / 4700  =   ₹ 24,500
∴ Value of 700 litres

Illustration 10

B consigned 100 calculators to A. Cost of each calculator was ₹ 190. B incurred expenses of ₹ 500 on despatch of such goods. A informed B that he had sold 68 calculators @ ₹ 280 each and 11 calculators @ ₹ 270 each and had spent ₹ 1,520 on behalf of the consignor. One damaged calculator was sold for ₹ 50 according to the instructions of consignor. A was entitled to a commission of 6% on gross sales and it includes del-credere commission. A could recover only ₹ 250 from a customer to whom one calculator had been sold on credit basis for ₹ 280. All other sales were made on cash basis.

Show the ledger accounts in the books of both the parties. Calculations may be made to the nearest rupee and assume that the expenses of consignee are recurring in nature. 

Solution:

Books of B

Consignment Account

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c   [100 × ₹ 190]	19,000	By, A A/c [Sale]
To, Bank A/c [Expenses incurred]	500	[68 × ₹ 280]                                                                                                                                19,040
To, A A/c [Expenses paid by consignee]	1,520	[11 × ₹ 270]                                                                                                                                   2,970	22,010
To, A A/c [Commission due: ₹ 22,010 × 6%]	1,321	By, Goods Damaged A/c [WN: 1]	195
		By, Consignment Stock A/c [WN: 1]	3,900
To, P/L A/c [Profit on consignment transferred]	3,764
	26,105		26,105

Goods Damaged Account 

Particulars	(₹)	Particulars	(₹)
To, Consignment A/c	195	By, A A/c  [Sale of damaged calculator]	50
To, A A/c  [Commission on sale of damaged goods: ₹ 50 × 6%]	3	By, P/L A/c  [Net loss transferred – B/Fig.]	148
	198		198

N.B. As the commission is allowed on gross sales, consignee is also entitled to get commission on sale of damaged goods also. 

A Account

Particulars	(₹)	Particulars	(₹)
To, Consignment A/c [Sale]	22,010	By, Consignment A/c [Expenses incurred]	1,520
To, Goods Damaged A/c	50	By, Consignment A/c [Commission due]	1,321
		By, Goods Damaged A/c  [Commission on sale of damaged goods]	3
		By, Balance c/f	19,216
	22,060		22,060

Goods Sent on Consignment Account

Particulars	(₹)	Particulars	(₹)
To, Purchases/ Trading A/c [Transfer]	19,000	By, Consignment A/c	19,000

Books of A

B Account

 

Particulars	(₹)	Particulars	(₹)
To, Bank A/c [Expenses paid]	1,520	By, Bank A/c [Cash Sales: (₹ 22,010 –  ₹ 280)]	21,730
To, Commission A/c [Commission earned]	1,324	By, Consignment Debtors A/c [Credit Sales]	280
To, Balance c/f [Balance due: B/Fig.]	19,216	By, Bank A/c [Sale of damaged calculator]	50
	22,060		22,060

Consignment Debtors Account

Particulars	(₹)	Particulars	(₹)
To, B A/c [Credit sales]	280	By, Bank A/c [Collection]	250
		By, Commission A/c [Bad debts written-off]	30
	280		280

Commission Account

Particulars	(₹)	Particulars	(₹)
To, Consignment Debtors A/c [₹ 280 – ₹ 250]	30	By, B A/c	1,324
To, P/L A/c [B/Fig.]	1,294
	1,324		1,324

Workings Note:    

1. Value of goods damaged & unsold stock

	Units	(₹)
Cost of goods sent	100	19,000
Add: Consignor’s expenses	-	500
	100	19,500
Less: Goods damaged [ ₹ 19,500 × 1/100]	1	195
	99	19,305
Unsold stock = [100 – (68 + 11) - 1] = 20 units	₹ 19,305 × 20 / 99 = ₹ 3,900
∴ Value of 20 units

Illustration 11

RG Cellular of Kolkata consigned 100 mobile handsets to Techno Traders of Durgapur. The cost of each handset was ₹ 25,000. The consignor paid insurance ₹ 15,000, freight ₹ 8,000. An account sale was received from Pluto, showing gross sale proceeds of 80 units at ₹ 30,000 each. 

The expenses paid and deducted by him were: Carriage ₹ 2,000; Establishment expenses ₹ 10,300; Insurance ₹ 24,000; Commission ₹ 85,000. The handsets lying unsold with Pluto were valued at ₹ 5,05,000

Pass the journal entries in the books of Techno Traders given that maintains Consignment Inward A/c. 

Solution:

Books of Techno Traders
Journal

 

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Consignment Inward A/c [100 × ₹ 25,000]                                                                                                                                                                                                            DR.		25,00,000
	To, RG Cellular A/c			25,00,000
	(Being goods received from Jupiter)
	Consignment Inward A/c                                                                                                                                                                                                                                      DR.		36,300
	To, Bank A/c (₹ 2,000 + ₹ 10,300 + ₹ 24,000)			36,300
	(Being expenses paid for consignment)
	Bank A/c                                                                                                                                                                                                                                                                DR.		24,00,000
	To, Consignment Inward A/c (80 × ₹ 30,000)			24,00,000
	(Being goods received on consignment sold)
	Consignment Inward A/c                                                                                                                                                                                                                                       DR.		85,000
	To, Commission A/c			85,000
	(Being commission due from Jupiter)
	RG Cellular A/c                                                                                                                                                                                                                                                       DR.		5,05,000
	To, Consignment Inward A/c			5,05,000
	(Being stock lying unsold)
	Consignment Inward A/c                                                                                                                                                                                                                                       DR.		2,83,700
	To, RG Cellular A/c			2,83,700
	(Being balance of Consignment Inward A/c transferred to Jupiter account)
	RG Cellular A/c                                                                                                                                                                                                                                                      DR.		22,78,700
	To, Bank A/c			22,78,700
	(Being payment made for balance due to consignor)

Illustration 12

On Jan. 1, 2022 goods costing ₹ 1,32,000 were consigned by Shri G of Chennai to his agent Shri H in Amritsar at a pro-forma invoice price of 20% above cost. Shri G paid freight and other forwarding charges amounting to ₹ 4,000. The consignee was allowed ₹ 2,000 p.a. towards establishment costs, 5% commission on gross sales. Shri H paid ₹ 1,000 as godown rent and insurance for three months ended Mar. 31, 2022.

Three-fourths of the goods were sold at 331/3% profit on cost, half of which were credit sales. Balance stock was valued at pro-forma invoice price. Consignee reported that a customer who purchased goods worth ₹ 10,000was untraceable and his balance was considered to be unrealisable. All other the debtors cleared their dues. Shri H cleared his dues by sending a bank draft on Mar. 31, 2022.

Prepare necessary accounts in the books of Consignor, for 3 months ending on Mar. 31, 2022.

Solution:

Books of Shri G

Consignment to Amritsar Account

Particulars	(₹)	Particulars	(₹)
To, Goods Sent on Consignment A/c  [₹ 1,32,000 + 20% there off]	1,58,400	By, Shri H A/c   [Cash Sales – WN:1]	66,000
To, Bank A/c [Expenses incurred]
- Freight and other Forwarding Charges	4,000	By, Consignment Debtors A/c   [Credit sales – WN:1]	66,000
To, Shri H A/c [Expenses paid by consignee]
- Establishment Charges   [2,000 × 3/12]                                                                                          500		By, Goods sent on Consignment A/c	26,400
- Godown Rent and Insurance                                                                                                         1000	1,500	[Loading on goods sent: ₹ 1,32,000 ×  20%]
To, Shri H A/c [Commission due: 1,32,000 × 5%]	6,600
To, Consignment Debtors A/c   [Bad debt written off]	10,000	By, Consignment Stock A/c [WN: 2]	40,600
To, Stock Reserve A/c [WN:2]	6,600
To, P/L A/c [Profit on consignment transferred]	11,900
	1,99,000		1,99,000

Shri H Account 

 

Particulars	(₹)	Particulars	(₹)
To, Consignment to Amritsar A/c [Sales]	66,000	By, Consignment to Amritsar A/c   [Expenses incurred]	1,500
To, Consignment Debtors A/c	56,000	By, Consignment to Amritsar A/c   [Commission due]	6,600
[Collection made by consignee: (₹66,000  – 10,000)]		By, Bank A/c [Final remittance - B/Fig.]	1,13,900
	1,22,000		1,22,000

Consignment Debtors Account 

 

Particulars	(₹)	Particulars	(₹)
To, Consignment to Amritsar A/c [Sales]	66,000	By, Shri H A/c [Amount recovered by consignee]	56,000
		By, Consignment to Amritsar A/c  [Bad debt written off]	10,000
	66,000		66,000

Goods sent on Consignment Account 

Particulars	(₹)	Particulars	(₹)
To, Consignment to Amritsar A/c  [Loading on goods sent]	26,400	By, Consignment to Amritsar A/C  [Invoice price of goods sent]	1,58,400
To, Purchases/Trading A/c [Transfer]	1,32,000
	1,58,400		1,58,400

Workings Note:

1. Cash & credit sales made by consignee

	(₹)
Cost price of goods sent	1,32,000
Cost price of goods sold [ ₹ 1,32,000 × 3/4]	99,000
Add: Profit @ 33 1/3 % on Cost [ ₹ 99,000 × 33 1/3 %]	33,000
Total Sales	1,32,000
∴ Cash Sales [ ₹ 1,32,000 × 1/2]	66,000
∴ Credit Sales [ ₹ 1,32,000 × 1/2]	66,000

2. Value of unsold stock

	(₹)
Invoice Price of goods sent	1,58,400
Add: Consignor’s expenses [Being, freight and other forwarding charges]	4,000
	1,62,400
Unsold Stock [ 1/4th of the total goods = 1/4th ₹ 1,62,400]	40,600
Loading on stock on consignment
= Load on goods sent × ¼ = ₹ 26,400 × ¼	6,600

Illustration 13

Kunal of Kolkata consigned goods costing ₹ 45,000 to Quereshi of Meerut. The invoice price was made so as to show a profit of 331/3% on cost. Kunal paid ₹ 300 as carriage and ₹ 1,200 as freight & insurance, Goods costing ₹ 5,000 were destroyed while in-transit and the insurance company admitted the full claim. In Meerut, Quereshi paid ₹ 40 as carriage and ₹ 600 as godown rent. 2/3 rd of the goods received by Quereshi were sold by him. Quereshi sent a cheque to P for the sale proceeds after deducting the expenses incurred by him and the commission due to him: ordinary @ 5% and del credere @ 21/2%. 

Show the Consignment to Meerut A/c and Q’s A/c in Kunal’s Ledger.

Solution:

Books of Kunal

Consignment to Meerut Account

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c  [₹ 45,000 + 331/3% thereof]	60,000	By, Quereshi A/c [Sale – WN :2]	35,556
To, Bank A/c [Expenses incurred]
- Carriage                                                                                                                                          300		By, Goods Destroyed-in-Transit A/c [WN:1]	6,834
- Freight & Insurance                                                                                                                      1,200	1,500	By, Goods Sent on Consignment A/c  [Load on goods sent: 45,000 × 1/3]	15,000
To, Quereshi A/c [Expenses paid by consignee]		By, Consignment Stock A/c  [WN: 1]	18,301
- Carriage                                                                                                                                           240
- Godown Rent                                                                                                                                  600	840
To, Quereshi A/c [Commission due]
- Ordinary Commission [35,556 × 5%]                                                                                            1,778
- Del credere Commission  [35,556 × 21/2%]                                                                                    889	2,667
To, Goods Destroyed-in-Transit A/c  [loading on goods destroyed –WN: 1]	1,667
To, Stock Reserve A/c [Loading on unsold stock – WN: 1]	4,444
To, P/L A/c [Profit on consignment transferred]	4,573
	75,691		75,691

NB: Discount on bill being purely a finance charge, would be recorded in debit side of P/L A/c.

Quereshi Account 

Particulars	(₹)	Particulars	(₹)
To, Consignment to Meerut A/c [Sales]	35,556	By, Consignment A/c [Expenses incurred]	840
		By, Consignment A/c [Commission due]	2,667
		By, Bank A/c [Final remittance: B/Fig.]	32,049
	35,556		35,556

Workings Note:

1. Value of goods destroyed-in-transit and unsold stock 

	Invoice Price (₹)	Load (₹)
Goods sent	60,000	15,000
		[45,000 × 1/3]
Add: Consignor’s expenses [being, Carriage and Freight & Insurance]	1,500	-
	61,500	15,000
Less: Goods destroyed-in-transit	6,833	1,667
[Goods costing ₹ 5,000 were destroyed i.e. ₹ 5,000/ ₹ 45,000 = 1/9th of goods sent]
∴ Load on goods destroyed-in-transit = [₹ 15,000 × 1/9] = ₹ 1,667
	54,667	13,333
Add: Non-recurring expenses incurred by consignee [being, carriage]	240	-
	54,907	13,333
∴ Unsold stock = 1/3rd of goods received [See note]	54,907 × 1/3 = 18,302
∴ Value unsold stock
∴ Load on goods unsold stock = [₹ 13,333 × 1/3] = ₹ 4,444

2. Sales made by Quereshi

	(₹)
Cost of goods sent by consignor	45,000
Less: Cost of goods lost in transit	5,000
∴ Cost of goods received by consignee	40,000
Cost of goods sold by consignor [₹ 40,000 × 2/3]	26,667
Add: Profit @ 33 1/3% on Cost	8,889
∴ Sale made by Quereshi	35,556

Illustration 14

Veemal of Delhi sends a consignment of wall clocks to Anand of Kolkata and charges proforma invoice price so as to show a profit of 25% on cost. The agent received commission @ 5% on all sales plus 3% del credere commission on credit sales made by him. Stock of goods with the agent at the beginning of the year: 40 clocks at proforma invoice price ₹ 25,000. During the year ended 31st December 2011, Veemal had the following transactions with Anand:

(a) Proforma invoice price of 200 Clocks consigned to Anand: ₹ 1,25,000

(b) Railway charges and insurance on the consignment paid by Veemal: ₹ 3,500

(c) Advance received from Anand : ₹ 37,500

(d) Sales made by Anand;

      (i) 80 clocks for cash : ₹ 53,750

      (ii) 100 clocks on credit: ₹ 70,000 

(e) Selling expenses made by agent: ₹ 6,250 and discount allowed by him ₹ 2,500.

(f) 30 clocks were damaged by the railway for which Anand recovered ₹ 6,750. The damaged clocks were sold on cash by Anand at ₹ 5,750.

(g) Out of the clock sold on credit, ₹ 5,000 was irrecoverable and considered bad by the agent.

(h) The agent remitted the balance due by him by a bank draft.

Show necessary Ledger Accounts in the books of Veemal. 

Solution: 

Books of Veemal

Consignment to Kolkata Account

Particulars	(₹)	Particulars	(₹)
To, Consignment Stock A/c [Unsold stock]	25,000	By, Stock Reserve A/c	5,000
To, Goods sent on Consignment A/c [sent at IP]	1,25,000	[Load on opening stock : 25,000 × 25/125 ]
To, Bank A/c [Expenses incurred]		By, Anand A/c [Sale: ₹ 53,750 + ₹ 70,000]	1,23,750
- Railway charges & Insurance	3,500	By, Goods Sent on Consignment A/c	25,000
To, Anand A/c [Expenses paid by consignee]		[load on goods sent: ₹ 1,25,000 × 25/125]
- Selling expenses                                                                                                          6,250		By, Goods Damaged-in-Transit A/c  [WN: 1]	19,275
- Discount Allowed                                                                                                        2,500	8,750	By, Consignment Stock A/c [WN: 1]	19,275
To, Anand A/c [Commission due]
- Ordinary Commission  [1,23,750 × 5%]                                                                       6,188
- Del credere Commission  [70,000 × 3%]                                                                     2,100	8,288
To, Goods Damaged-in-Transit A/c [Load - WN: 1]	3,750
To, Stock Reserve A/c [Load on unsold stock – WN: 1]	3,750
To, P/L A/c [Profit on consignment transferred]	14,262
	1,92,300		1,92,300

Anand Account

Particulars	(₹)	Particulars	(₹)
To, Consignment A/c [Sales]	1,23,750	By, Bank A/c [Advance]	37,500
To, Goods Damaged-in-Transit A/c  [Insurance claim received]	6,750	By, Consignment A/c  [Expenses incurred]	8,750
To, Goods Damaged-in-Transit A/c  [Sale of damaged goods]	5,750	By, Consignment A/c [Commission due]	8,288
		By, Goods Damaged-in-Transit A/c  [Commission on sale of damaged goods]	288
		By, Bank A/c [Final remittance – B/Fig.]	51,250
	1,36,250		1,36,250

Goods Damaged-in-Transit Account 

 

Particulars	(₹)	Particulars	(₹)
To, Consignment A/c [Goods damaged]	19,275	By, Consignment A/c  [Load on goods damaged]	3,750
To, Anand A/c	288	By, Anand A/c [Insurance claim received]	6,750
[Commission on sale of damaged goods –  ₹ 5,750 × 5%]		By, Anand A/c [Sale of damaged goods]	5,750
		By, P/L A/c [Net loss – B/Fig.]	3,313
	19,563		19,563

Workings Note:

1. Value of Goods Damaged in Transit & Unsold Stock

	Units	(₹)
IP of goods sent	200	1,25,000
Add: Consignor’s expenses [being, Railway charges & Insurance]	-	3,500
Less: Goods Damaged-in-Transit [1,28,500 × 30/200]	200	1,28,500
Load on Goods Damaged-in-Transit: Total load × 30/200 = ₹ 1,25,000 ×  30/200 = ₹ 3,750	30	19,275
∴ Value of goods received by consignee	170	1,09,225
Unsold Stock = [40 + 200 – 30 – (80 + 100)] = 30 units	₹ 1,09,225 × 30 / 170    = ₹ 19,275
∴ Value of unsold stock of 30 units
Load on unsold stock: Total load × 30/200 = ₹ 1,25,000 × 30/200 = ₹ 3,750

Illustration 15

The Account Sales received from an agent disclosed that the total sales effected by him during 2021-22 amounted to ₹ 4,50,000. This included ₹ 3,12,500 for sales made at invoice price which is cost plus 25% and the balance at 10% above the invoice price. He incurred expenses to the tune of ₹ 5,000 out of which a sum of ₹ 1,800 is recurring in nature. Forwarding expenses of the Consignor totalled ₹ 2,400. The Agent had remitted the balance due from him through Bank Draft after deducting the expenses. 5% commission on gross sales, bad debts ₹ 850 and a Bills payable accepted by him for ₹ 10,000.

The value of unsold stock at original cost lying with the Agent as on 31st March, 2022 amounted to ₹ 50.000.

You are required to prepare the Consignment Account and the Consignee’s Account in the Books of the Consignor.

Solution: 

Books of Consignor

Consignment Account

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c  [WN:1]	5,00,000	By, Consignment Debtors A/c [Sale]	4,50,000
To, Bank A/c [Expenses incurred]		By, Goods sent on Consignment A/c [Load on goods sent – WN:1]	1,00,000
- Forwarding Expenses	2,400	By, Consignment Stock A/c [WN: 2]	63,200
To, Consignee A/c [Expenses paid by consignee]
- Non-recurring Expenses  [5,000 – 1,800]                                                                      3,200
- Recurring Expenses                                                                                                      1,800	5,000
To, Consignee A/c   [Commission due: ₹ 4,50,000 × 5%]	22,500
To, Consignment Debtors A/c [Bad debt]	850
To, Stock Reserve A/c  [Load on unsold stock – WN: 2]	12,500
To, P/L A/c [Profit on consignment transferred]	69,950
	6,13,200		6,13,200

Consignee Account

 

Particulars	(₹)	Particulars	(₹)
To, Consignment Debtors A/c	4,49,150	By, Bills Receivable A/c	10,000
[Collection from debtors: ₹ 4,50,000 – ₹ 850]		By, Consignment A/c [Expenses incurred]	5,000
		By, Consignment A/c [Commission due]	22,500
		By, Bank A/c [Final remittance - B/Fig.]	4,11,650
	4,49,150		4,49,150

Workings Note:    

1. Goods sent on consignment

	(₹)
Total sales	4,50,000
Less: Sales made at invoice price	3,12,500
∴ Sales made at invoice price plus 10%	1,37,500
∴ Total sales at invoice price [₹ 3,12,500 + (₹ 1,37,500 × 100/110)]	4,37,500
Less: Loading on above [₹ 4,37,500 × 25/125]	87,500
∴ Cost of Goods sold	3,50,000
Add: Unsold stock	50,000
∴ Cost of goods sent on consignment	4,00,000
Add: Loading @ 25%	1,00,000
Goods sent on consignment [at IP]	5,00,000

2. Value of unsold stock 

	(₹)
Original cost of unsold stock (given)	50,000
Add: Loading [ ₹ 50,000 × 25%]	12,500
	62,500
Add: Proportionate expenses of consignor [ ₹ 2,400 × 62,500 / 5,00,000]	300
Proportionate non-recurring expenses paid by consignee  [ ₹ 3,200 × 62,500 / 5,00,000]	400
∴ Value of unsold stock	63,200

Illustration 16

Mr. P consigned goods to Mr. D, his agent at Dhanbad, at cost price of ₹ 40,000. Mr. P’s accountant at the end of the year drew up the agent account as below:

Mr. D Account

Particulars	(₹)	Particulars	(₹)
To, Goods	40,000	By, Cash	25,000
To, Cash-Freight	3,000	By, Balance	19,300
To, P/L A/c	1,300
	44,300		44,300

Mr. D sold part of the goods for ₹ 45,000, which exceeded by ₹ 9,000 their invoice value. He collected₹ 38,000 after allowing discount of ₹ 2,000 to customers. Bad Debts came to ₹ 1,000 and his expenses to ₹ 800 (including ₹ 200 for loading and cartage). Mr. D was entitled to a 5% commission on cash collected.

From the above information draw up Consignment A/c, Consignment Debtors A/c and Mr. D A/c in the books of Mr. P.

Solution:

Books of Mr. P

Consignment to Dhanbad Account 

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c  [Rectification - WN:1]	40,000	By, Consignment Debtors A/c  [Credit Sale]	45,000
To, Mr. D’s A/c  [Consignor’s expenses - rectified]		By, Consignment Stock A/c  [WN: 2]	4,320
- Freight	3,000
To, Mr. D A/c [Expenses paid by consignee]
- Loading & Cartage                                                                                                             200
- Other Expenses [ ₹ 800 – ₹ 200]                                                                                           600	800
To, Mr. D A/c  [Commission due: 5% on ₹ 38,000]	1,900
To, Consignment Debtors A/c
- Discount Allowed                                                                                                               2,000
- Bad debt                                                                                                                            1,000	3,000
To, P/L A/c [Profit on consignment transferred]	620
	49,320		49,320

Mr. D Account

 

Particulars	(₹)	Particulars	(₹)
To, Balance b/f	19,300	By, Goods A/c [Rectification – WN: 1]	40,000
To, Consignment Debtors A/c  [Collection from Debtors ]	38,000	By, Consignment A/c [Expenses of consignor – rectified]	3,000
		By, P/L A/c [Profit wrongly included - rectified]	1,300
		By, Consignment A/c [Commission due]	1,900
		By, Consignment A/c [Expenses paid]	800
		By, Balance c/f [Balance due: B/Fig.]	10,300
	57,300		57,300

Consignment Debtors Account 

 

Particulars	(₹)	Particulars	(₹)
To, Consignment A/c [Sales]	45,000	By, Dharani A/c [Amount collected]	38,000
		By, Consignment A/c [Discount Allowed]	2,000
		By, Consignment A/c [Bad debt]	1,000
		By, Balance c/f [B/Fig.]	4,000
	45,000		45,000

Workings Note:

1.  Rectification of errors    

Transaction	Rectification Entry
Goods sent on consignment	Consignment A/c                                                                                                                              DR.	40,000
	To Goods Sent on Consignment A/c		40,000
	Goods A/c                                                                                                                                         DR.	40,000
	To Mr. D A/c		40,000
Expenses paid by Nripesh	Consignment A/c                                                                                                                             DR.	3,000
	To Mr. D A/c		3,000
Cash received from Mr. D	No Rectification Entry is needed
Profit	P/L A/c                                                                                                                                              DR.	1,300
	To Mr. D A/c		1,300

2. Cost price of unsold stock 

	(₹)	(₹)
Cost of goods sent		40,000
Less: Cost of goods sold:
Sales	45,000
Less: Margin over Invoice Price	9,000	36,000
∴ Cost of unsold stock		4,000

3. Value of Unsold Stock

	(₹)
Cost of unsold goods [WN:2]	4,000
Add: Proportionate expenses of consignor [ ₹ 3,000 × 4,000/ 40,000]	300
Add: Proportionate expenses of consignee [ ₹ 200 × 4,000 / 40,000]	20
	4,320

Illustration 17

The account sales received from an agent disclosed that the sales made at 10% above the price was 44% of the sales made at invoice price which is cost plus 25%. All the sales are made on credit basis. He incurred expenses to the tune of ₹ 5,000, out of which a sum of ₹ 1,800 is recurring in nature. Forwarding expenses of the consignor₹ 2,400. The agent had remitted the balance due from him through bank draft of ₹ 4,11,650 after deducting the expenses, 5% commission on gross sales, bad debts ₹ 850 and a bill payable accepted by him for ₹ 10,000. The value of unsold stock at original cost lying with the agent amounted to ₹ 50,000. You are required prepare Consignment Account and the Agents’ Account in the books of the consignor.

Solution:

Books of Consignor

Consignment Account

Particulars	(₹)	Particulars	(₹)
To, Goods sent on Consignment A/c	5,00,000	By, Consignment Debtors A/c [Credit  Sale: WN:1]	4,50,000
- Goods sent at IP [WN:2]		By, Goods sent on Consignment A/c  [Loading on unsold stock – WN:2]	1,00,000
To, Bank A/c [Expenses incurred]	2,400	By, Consignment Stock A/c [WN:3]	63,200
- Forwarding Expenses
To, Agent A/c [Expenses paid by consignee]
- Non-recurring Expenses [5,000 – 1,800]                                                                    3,200
- Recurring Expenses                                                                                                       1,800	5,000
To, Agent A/c [Commission due: WN:1]	22,500
To, Consignment Debtors A/c [Bad debt]	850
To, Stock Reserve A/c  [loading on unsold stock – WN:3]	12,500
To, P/L A/c [Profit on consignment transferred]	69,950
	6,13,200		6,13,200

Agent Account

 

Particulars	(₹)	Particulars	(₹)
To, Consignment Debtors A/c	4,49,150	By, Bills Receivable A/c [Advance received]	10,000
[Collection from credit Sales: 4,50,000 - 850]		By, Consignment A/c [Expenses incurred]	5,000
		By, Consignment A/c [Commission due –WN:1]	22,500
		By, Bank A/c [Final remittance]	4,11,650
	4,49,150		4,49,150

Workings Note:

1. Calculation of sales and commission due to consignee:

Let total sales be ₹ X.

∴ Commission = 5% of X = 0.05 X

Now from Consignee A/c: 

Final remittance 
from consignee   =     Collection from Consignment Debtors   -    B/R received  (as advance)   -  Expenses incurred by consignee  -  Commission due

Or, 4,11,650 = (X – ₹ 850) – 10,000 – 5,000 – 0.05 X

Or, 4,11,650 = 0.95X – ₹ 15,850

Or, 0.95X = ₹ 4,27,500

Or, X = ₹ 4,50,000

∴ 0.05X = ₹ 4,50,000 × 5%

            = ₹ 22,500

2. Goods sent on consignment:

According to the problem:

 Total Sales = Sales made at invoice price + Sales made at invoice price plus 10%

Let, sales made at invoice price = Y

∴ Sales made at invoice price plus 10% = 0.44Y

Now, total sales = ₹ 4,50,000  (Computed in WN:1) 

∴ ₹ 4,50,000 = Y + 0.44Y

Or, Y = ₹ 4,50,000/ 1.44 = ₹ 3,12,500    (i.e. Sales made at invoice price)

∴ 0.44Y = ₹ 1,37,500    (i.e. Sales made at invoice price plus 10%) 

Now, the invoice price of the goods which is sold at a higher rate [i.e. IP + 10% thereof]

= ₹ 1,37,500 × 100/ 110

= ₹ 1,25,000

∴ Invoice price of goods sold = ₹ 3,12,500 + ₹ 1,25,000.

                                               = ₹ 4,37,500

∴ Cost of goods sold = ₹ 4,37,500 × 100/125

                                  = ₹ 3,50,000

∴ Goods sent on consignment (at cost) = Cost of goods sold + unsold stock

                                   = ₹ 3,50,000 + ₹ 50,000

                                   = ₹ 4,00,000

∴ Goods sent on consignment (at invoice price) = Cost of goods sent + Loading @ 25% 

                                   = ₹ 4,00,000 + 25% thereof

                                   = ₹ 5,00,000

3. Valuation of unsold stock:

	(₹)
Cost of unsold stock	50,000
Add: Load [ ₹ 50,000 × 25%]	12,500
∴ IP of unsold stock	62,500
Add: Consignor’s proportionate expenses [ ₹ 2,400 × 62,500/ 5,00,000]	300
Consignee’s proportionate non-recurring expenses  [ ₹ 3,200 × 62,500/ 5,00,000]	400
∴ Value of unsold stock	63,200

Exercise

A. Theoretical Questions

Multiple Choice Questions

1. Which class of account is Consignment Account?
   (a) Personal Account
   (b) Real Account 
   (c) Representative Personal Account 
   (d) Nominal Account 
2. The balance in consignment account shows _______.
   (a) Amount receivable from consignee
   (b) Amount payable to consignee 
   (c) Profit/ loss on consignment 
   (d) Closing stock with consignee
3. Which of the following commission is allowed by the consignor to the consignee to encourage the consignee for putting-up hard work in introducing new product in the market? 
   (a)  Del-credere Commission 
   (b)  Over-riding Commission 
   (c)  Hard work Commission 
   (d)  Ordinary Commission 

Solution: 

1

d

2

c

3

b

 B. Numerical Questions

CMA book unsolved questions solution

1.Hardik consigned to Jamal of Jabalpur 400 boxes of goods at a cost of ₹ 5,000 per box and incured the following expenses in connection with the same – Carriage ₹9,400, Freight ₹34,800 and Insurance ₹1,25,000. On arrival of the boxes at Jabalpur, Jamal paid Clearing charges ₹ 31,200, Cartage ₹ 9,600 and Godown rent  ₹2,000. On arrival of the goods at the godown, 60 boxes were found to be damaged and a sum of ₹3,00,000 was realized from the insurance company by way of compensation. 240 of the remaining boxes were sold at a total price of ₹22,00,000.

Jamal is entitled to an ordinary commission of 5% and 2% del-credere commission on sales in addition to reimbursement of expenses incurred. He sent to Hardik an Account Sales together with a bank draft for the balance due to Hardik.

You are required to prepare Consignment Account in the books of Hardik and pass journal entries in the books of Jamal.

Solution: 

Books of Hardik

Consignment Account

Dr.				Cr.
Particulars		A/c.	Particulars	A/c.
To Goods sent on Consignment A/c [400 X A/c. 5,000]		20,00,000	By Goods Damaged A/c [WN: 1	3,25,380
To Bank A/c [Expenses incurred]			By Jamal A/c [Sales]	22,00,000
- Carriage	9,400		By Consignment Stock A/c [WN:1]	5,54,300
- Freight	34,800
- Insurance	1,25,000	1,69,200
To Jamal A/c
- Clearing Charges	31,200
- Cartage	9,600
- Godown Rent	2,000	42,800
- Ordinary commission: (22,00,000 X 5%)	1,10,000
- Del credere commission (22,00,000 X 2%)	44,000	1,54,000
By P/L A/c [Profit on consignment transferred]		7,13,680
		30,79,680		30,79,680

Books of Jamal

Journal

Date	Particulars		Dr. (₹)	Cr. (₹)
….	Hardik A/c	Dr.	42,800
	To Bank A/c [31,200 + 9,600 + 2,000]			42,800
	[Being expenses paid on receipt of the boxes]
….	Bank A/c	Dr.	22,00,000
	To Hardik A/c			22,00,000
	[Being sales made on behalf of Hardik]
….	Hardik A/c	Dr.	1,54,000
	To Ordinary Commission A/c			1,10,000
	To Del credere Commission A/c			44,000
	[Being commission due from Hardik]
….	Hardik A/c	Dr.	20,03,200
	To Bank A/c			20,03,200
	[Being final balance paid to Hardik]

WORKINGS:

1. Valuation of goods damaged and unsold stock

	Boxes	₹
Cost of goods sent	400	20,00,000
Add: Consignor’s expenses (being, carriage, freight and insurance)	-	1,69,200
	400	21,69,200
Less: Goods lost in transit [₹. 21,69,200 x 60 /400]	60	3,25,380
	340	18,43,820
Add: Non-recurring expenses incurred by consignee (being, Clearing charges and cartage)	-	40,800
	340	18,84,620
Unsold Stock = [400 – (60 + 240)] = 100 boxes
Value of 100 boxes	₹ 18,84,620 (100/340) = ₹ 5,54,300