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UNIT 3

CONSIGNMENT ACCOUNTS

Introduction

Consignment is a commercial arrangement between two persons, which intends at


enabling a manufacturer/trader of goods to get his goods sold at far off places. This is
an effort to increase the sales of goods by widening the market.

Meaning of Consignment

Under Consignment, a person (generally a manufacturer/trader) sends his goods to


another person who is settled at a distant place. The latter sells the goods sent by the
former. The latter sells the goods for a commission, but does not undertake any liability
or risk or ownership in the goods. The latter does everything on behalf of the former.
The consignee sells the goods and after that remits back the sale proceeds to the
consignor.

Consignor

The consignor is the person who sends his goods to the other person to be sold at the
place of the latter. The consignor could be a manufacturer, wholesaler or importer of
goods.

Consignee

The consignee is the person who receives the goods from the consignor and sells them
on behalf of the consignor. He could be an individual or a trader in his area.

Consignment

Consignment itself is a set or series of transactions involved in the above. The


consignor considers it as an outward consignment and the consignee considers it as an
inward consignment.

Features of Consignment

1) It is a method adopted by manufacturers/wholesalers to increase the sales by


expanding their market far and wide.
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2) The person sending the goods is called the consigner and the person receiving
such goods to be sold is called the consignee. It will be outward consignment for the
consignor and inward consignment for the consignee.
3) The consignee does not purchase the goods from the consignor, he merely
receives them.
4) The consignor does not bear any risk or liability in the goods.
5) The consignee does everything – receiving the goods, selling them etc. on behalf
of and in the capacity of the agent of the consignee. The consignor and the consignee
act as master and agent.
6) All the consignment related expenses are paid and borne by the consignee, even if
the consignee pays any such expenditure, it will be on behalf of the consignor, to be
reimbursed later by the consignor.
7) When the consignor sends the goods to the consignee, it does result in a sale
transaction. A sale transaction takes place only when the goods are sold by the
consignee. The legal ownership or the property or the legal title in the goods remains
with the consignor, till they are sold by the consignee.
8) The consignee is entitled to a certain percentage of commission as agreed by both-
the consignor and consignee, on the sales done by the consignee, and in certain cases,
the consignee is also given a special commission called the ‘del credere commission’.
9) The consignee remits back all the sale proceeds to the consignor, after deducting
the expenses incurred and the commission.
10) The consignee is not liable to pay anything to the consignor on mere receipt of the
goods, but he becomes liable to remit the sale proceeds to the consignor, only after the
sales of the goods. The consignor debits the consignee’s account only when the
consignee sells the goods.
11) The consignee sends a document called the ‘Account Sales’ to the consignor at
regular intervals, to provide information to the consignor, about the sales, stock of
goods etc.

Certain terms under consignment

1. Proforma Invoice

A proforma invoice is a statement prepared and sent by the consignor to the


consignee, along with the goods. The proforma invoice contains information about the
goods (quantity, description, price etc.). The proforma invoice is similar to a regular
invoice, but it does not fix any liability on the part of the consignee. It is prepared and
sent only for information purposes and is thus called the proforma invoice.

Specimen of proforma invoice

PROFORMA INVOICE
Rajesh Electronics
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Dealers in Electronic Goods


No. 43, Promenede Street, Vallabh Vihar
Bangalore – 560 099
Phone no. 080 – 43939292
Fax: 43939292

VAT NO. 43967

Date: June 15, 2012

To,
Mr. Harish BS,
No. 49, III Cross,
Ashoka Puram,
Chennai.

Sl. Description of goods Price Quantity Total


no per
unit
1. Capacitors 100 100 10,000.00
2. LCD Panels 100 100 10,000.00
Total 20,000.00
Add: VAT @12%
2,400.00
Packing and transport
600.00
-ation charges
Grand Total
23,000.00
Rupees Twenty three
thousand only.

For Rajesh Electronics


Sd
Proprietor

E and OE

2. Account Sales

An account sales is a document prepared by the consignee and sent to the


consignor either periodically or at the end of the consignment. This document
is sent to the consignor to provide information about the sales done by the
consignee, the amount due etc.
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The following are the contents of an account sales:

1. Goods sold (cash and credit) and total cash received by the consignee.
2. The amount already advanced by the consignee to the consignor.
3. The expenses incurred by the consignee, related to the consignment such
as salesmanship, advertisement etc., to be deducted.
4. The balance due to be paid b y the consignee to the consignor (no.1-2 and
3)

Specimen of an Account Sales:

Account Sales of 100 mobile handsets received and sold on account of M/s
Univertell, Chennai.

100 D-4 mobile handsets sold @5,000/- each 5,00,000


Less:
1. Expenses –
Freight 2,000
Advertisement 5,000
7,000
2. Commission @10% on Rs. 5,00,000/-
3. Amount advanced on May 02, 2012 (Cheque no. 434936 50,000
dt May 02, 2012 drawn on SBM, Bangalore City branch) 1,00,000 1,57,000
3,43,000
Balance due – a demand draft no. 69746 issued by
SBM, Bangalore City branch enclosed.

E and OE For M/s.


Univertell

Bangalore
June 15, 2012
Proprietor

Amount advanced by the Consignee

The consignee becomes due to pay the consignor only after the goods are sold (certain
consignees however may pay a certain amount of money as advance, immediately on
receiving the goods. The consignee does this not out of any obligation, but out of good
faith. The consignee will deduct such a sum advanced, from the sale proceeds, before
the final settlement. This advance acts as a security deposit for the goods sent by the
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consignor. The advance sum is given in the form of cash or a cheque or a draft or an
acceptance.

Differences between consignment and sale

Sl. Point of Consignment Sale


No. difference
1. The parties Consignor and consignee. Seller and purchaser.
involved
2. The legal Get transferred directly from Get transferred from the
title/ownership in the consignor to the seller to the purchaser
the goods/risk purchaser by bypassing the immediately after the sale.
consignee, only when the
consignee sells the goods to
the purchasers.
3. The expenses Always have to be borne by Generally have to be borne by
the consignor. the purchaser.
4. Goods returns The consignee can always The buyer generally cannot
return the unsold goods. return the goods.
5. Invoice Proforma invoice. Full fledged invoice.
6. Accounts sales Has to be sent by the The purchaser does not have
consignee to the consignor. to send any such document.

Books of Consignor

The following are the journal entries to be passed in the books of the consignor:

(A consignor might simultaneously consign goods to several consignees at several


places. In such a case, a separate consignment account is opened to record the
transactions related to each consignment. This is done to calculate the profit or loss
separately on each consignment. Each consignment account is named after the place to
which the goods are consigned and is maintained separately for the purposes of
identification.)

1. When goods are sent to the consignee


Consignment to ---------------- a/c Dr xxxx
To Goods sent on consignment a/c xxxx
2. When consignment expenses are incurred
Consignment to ---------------- a/c Dr xxxx
To Cash/bank a/c xxxx
3. When an advance is received from the consignee
Cash, bank, bills receivable a/c Dr xxxx
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To Consignee’s a/c xxxx


4. When consignment related expenses are incurred
by the consignee
Consignment to ---------------- a/c Dr xxxx
To Consignee’s a/c xxxx
5. When the consignee reports sales through the
Account sales (total of cash and credit sales)
Consignee’s a/c Dr xxxx
To Consignment to ---------------- a/c xxxx
6. When the consignee incurs bad debts or allows
Discount.
Consignment to ---------------- a/c Dr xxxx
To Consignee’s a/c xxxx
7. To record the commission payable to the
consignee
Consignment to ---------------- a/c Dr xxxx
To Consignee’s a/c xxxx
8. When the amount of final settlement is received
from the consignee.
Cash/bank/Bills receivable a/c Dr xxxx
To Consignee’s a/c xxxx
9. To transfer the result of consignment to the
profit and loss a/c.
a) If there is a profit
Consignment to ---------------- a/c Dr xxxx
To Profit and loss a/c xxxx

b) If there is a loss
Profit and loss a/c Dr
To Consignment to ---------------- a/c xxxx
xxxx
10. To close the goods sent on consignment a/c
Goods sent on consignment a/c Dr xxxx
To Trading/purchases a/c xxxx

Ledger accounts to be opened – consignment account, consignee’s account,


cash/bank/bills receivable account, goods sent consignment account, profit and loss
account and trading account.

A note on consignment account

The consignment account (each of which is named after the place to which the goods are
consigned) is designed as a nominal account. The debit side represents the inputs into
the consignment and the credit side represents the output. Therefore a credit balance in
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this account represents profit and debit balance represents loss on account of that
consignment.

1. Ashok of Bangalore consigned 200 dresses costing Rs. 1,200/- each to his consignee
Kishore of Hubli. Ashok paid Rs. 3,500/- as expenses for the consignment. Kishore,
immediately after receiving the goods, sent an advance of Rs. 1,90,000/-.

Kishore, in the due course, sent an account sales stating that all the goods were sold @
Rs.1,800/- each and the total consignment expenses incurred by the him being Rs.
2,500/-. Kishore was entitled to a 10% commission. Kishore had also enclosed a
demand draft for the balance due from him.

Journalize the above transactions in the books of Ashok.

The following are the journal entries to be passed in the books of the consignee:
(When the goods arrive at the place of the consignee, the consignee need not pass any
journal entry because, the consignee does not become liable to pay anything until the
goods are sold)

1. When the consignee pays any expenses related


to the consignment.
Consignor’s a/c Dr xxxx
To Cash/bank a/c xxxx
2. When an advance is given to the consignor.
Consignor’s a/c Dr xxxx
To Cash/bank/bills payable a/c xxxx
3. When the goods are sold.
Cash/Bank/Debtor’s a/c Dr xxxx
To Consignor’s a/c xxxx
4. When commission becomes due to be received.
Consignor’s a/c Dr xxxx
To Commission a/c xxxx
5. When bad debts are incurred or discount is
allowed to debtors.
Consignor’s a/c Dr xxxx
To Debtors a/c xxxx
6. When the final balance is settled to the
consignor.
Consignor’s a/c Dr xxxx
To Cash/Bank/Bills payable a/c xxxx
7. To transfer commission to profit and loss a/c
Commission a/c Dr xxxx
To Profit and loss a/c xxxx
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2. Mahesh of Bagalkot received 1,000 units of auto components from Preetham of


Mangalore, to be sold on consignment basis. The cost of each component was
Rs.100/-. Mahesh incurred Rs.7,000/- as consignment related expenses and gave
Rs. 40,000/- immediately to Preetham as advance.

Mahesh sold all the components @ Rs. 160/-each. He was entitled for a selling
commission of 10%. Mahesh settled the balance due to Preetham through a bank draft.

Journalize the above transactions in the books of Mahesh.

Del-Credere Commission

Generally whenever the consignee comes across bad debts, such a loss is borne by the
consignor. In certain cases however, the consignee pays an additional commission
called the del-credere commission to the consignee, in addition to the selling
commission. When the del-credere commission is paid, the consignee will have to bear
the loss of bad debts. Such a commission also ensures that the consignee sells goods on
credit ,cautiously. When del-credere commission is paid, the consignee is also called the
del-credere agent.

Though the purpose of del-credere commission to make the consignee do credit sales,
cautiously and make him bear the loss of bad debts , it is actually calculated on the total
sales including cash sales, unless otherwise mentioned.

Over riding Commission

In certain cases the consignee is given a special commission to motivate him to put hard
work especially if the product is new or if the market is very competitive. Such a
commission is called ‘over riding’ commission.

Journal entries relating to bad debts, when del-credere commission is paid.

In the books of Consignor:

There is no entry in the books of the consignor because bad debts will not affect his
books. The bad debts will be borne by the consignee.

In the books of the consignee:

1. When bad debts are incurred


Bad debts a/c Dr xxxx
To Consignment Debtors a/c xxxx
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2. When bad debts are transferred


Del-credere commission a/c Dr xxxx
To Bad debts a/c xxxx

Notes:
1) If del-credere commission is greater than bad debts, such excess will be credited to
profit and loss a/c.
2) If bad debts are greater than del-credere commission, such excess will be debited to
profit and loss a/c

3. Mr. Gayan of Bangalore, consigned goods worth Rs. 50,000/- to Shravan of


Tumkur, to be sold on consignment. Gayan also incurred expenses of Rs. 3,000/-.

Shravan received the goods and incurred expenses of Rs. 2,000/-. Shravan sent a cheque
for Rs. 10,000/- immediately to Gayan as his advance.

Shravan sold all the goods as follows: Cash sales – Rs. 60,000/- and credit sales Rs.
20,000/-. A debtor worth Rs. 1,000/- did not pay. Shravan was entitled for a 3% selling
commission and 2% del-credere commission.

Shravan sent a cheque for the balance amount.

Journalize the above transactions in the books of both the parties.

4. Anil of Bangalore consigned 1,000 saris to his consignee Eshwar of Kolar. The cost
per
sari was Rs. 400/-. Anil paid Rs. 2,000/- towards packing and transportation expenses.

Eshwar received the saris and immediately sent Rs. 25,000/-as advance to Anil. Eshwar
sold all the saris as follows: 500 saris for cash @ Rs.500/- each and 500 saris @Rs.600/- on
credit. He however could not collect Rs. 3,000/- from a debtor. The consignee was
entitled for a 6% selling commission. The consignee’s expenses amounted to Rs. 1,000/-.

Eshwar sent an account sales stating the above and also enclosed an acceptance for the
balance. Anil received the bill and got it immediately discounted at a discount of Rs.
8,000/-.

5. Chandrashekar of Bangalore dispatched 250 wooden carvings costing Rs. 500/-


each to Kallesh of Chamarajanagara to be sold on behalf and at the risk of
Chandrashekar. The expenses of packing, forwarding, transportation and
insurance amounted to Rs. 2,500/-.
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Kallesh received the consignment and incurred Rs. 500/- as expenses. He immediately
sent Rs. 25,000/- as advance to Chandrasekhar. Kallesh reported that all the carvings
were sold at the price of Rs. 520/- each. The consignee was entitled to a 10% selling
commission. Kallesh sent an account sales detailing the above and also enclosed bank
draft with the same towards the balance.

Prepare the consignment, goods sent on consignment and consignee’s accounts in the
books of Chandrasekhar. Also prepare the account sales.
Solution:

Goods returned by the consignee and closing stock

Goods returned by the Consignee.

The consignee, on certain occasions may return some goods to the consignor for reasons
such as unsuitability, wrong dispatch of goods etc. These goods become unavailable for
sale at the place of the consignee and therefore must be credited to the consignment
account by passing the following journal entry.

Goods sent on consignment a/c Dr xxxx


To Consignment to ------------ a/c xxxx

If the consignee incurs any expenses on returning the goods, such expenses must be
recorded through the following journal entry:

Consignment to ------------ a/c Dr xxxx


To Consignee’s a/c xxxx

If the consignor himself incurs any expenses while receiving such goods, such expenses
must be recorded through the following journal entry:

Consignment to ------------ a/c Dr xxxx


To Cash/bank a/c xxxx

Closing stock:

At times, when the consignee sends the account sales to the consignor, he might still have
some goods unsold with him. The consignor has to record such closing stock by passing
the following journal entry:
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Consignment stock a/c Dr xxxx


To Consignment to ------------ a/c xxxx

The consignment stock account is shown in the balance sheet on the assets side.

Such consignment stock has to be shown in the consignment account at the beginning of
the next period, by reversing the above as follows:

Consignment to ------------ a/c Dr xxxx


To Consignment stock a/c xxxx

Thus, the closing stock of the previous period becomes the opening stock of the current
period.

The goods returned, or consignment stock will not affect the books of the consignee as
would not have become liable for such goods.

6. Mr. Narendra of Bangalore, consigned 1,000 units of electronic components


costing Rs. 100/- each to Mahendra of Raichur. Narendra spent the following
amounts: packing Rs. 2,000/-, transportation Rs. 2,500/- and insurance Rs.
500/-.

Mahendra already had 100 such components as the closing stock of the previous period.
He received the fresh consignment by spending Rs. 1,000/- towards various expenses.
Mahendra was entitled to 5% selling commission and 2% del-credere commission. He,
immediately after receiving the goods sent Rs. 25,000/- as his advance money.

Mahendra sent an account sales stating that he was able to sell 1,050 units @ Rs. 140/-
each. He returned 20 units of goods. He also enclosed a cheque for the balance due to
Narendra. It was the policy of Narendra to value any closing stock on returns at cost
price itself. Mahendra had also spent Rs. 200/- on returning the goods.

Prepare the consignment, consignee’s and the goods sent on consignment accounts in the
books of Narendra.

Valuation of stock

Certain situations require valuation of stock left unsold at the place of consignee, on the
date of final accounts of the consignee, or on the date of preparation of account sales by
the consignee.
The stock so remaining is valued at the lesser of cost price or market price plus a
proportionate share of non-recurring expenses. Non-recurring expenses are those which
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are incurred to lift the goods at the place of consignor and deliver them at the place of the
consignee.

Examples: Packing and packaging, transportation, insurance, forwarding, octroi, transit


insurance, cartage of goods from to the actual premises of consignee etc.

The expenses must be proportionately added to the value of closing stock because,
without incurring those expenses, the goods cannot be physically delivered at the place
of the consignee.

Recurring expenses are those which are incurred after the goods have been delivered at
the place of consignee such as – warehousing, selling, advertising etc.

7. Harish of Bangalore consigned 1,000 pairs of sunglasses to his consignee – Das


of Udupi. The cost per pair of sunglasses was Rs. 600/-. Harish spent the
following amounts for the consignment – packing and forwarding Rs. 2,000/-,
transportation Rs. 2,000/- and miscellaneous Rs. 1,000/-

Das received the sunglasses at Udupi by spending the following: clearing expenses Rs.
600/- and cartage Rs. 400/-. Das immediately sent a cheque for Rs. 1,00,000/- to Harish
as advance.

Das sent an account sales to Harish mentioning the following information:


- 900 pairs of sunglasses sold @ Rs. 800/- per pair for cash and 50 pairs sold @ Rs. 900/-
each on credit.
- Other expenses incurred – warehousing Rs. 2,000/-, salesmanship and advertising Rs.
3,000/-
- Discount allowed to debtors Rs. 1,000/-
- Consignee’s commission @ 10% on gross sales.

Das enclosed a cheque for the balance amount.

Prepare the following accounts in the books of the consignor – consignment account,
consignee’s account and goods sent on consignment account and consignor’s account in
the books of the consignee.

Normal and abnormal loss

Normal loss:

This loss occurs by the way of reduction in the quantity of goods, on account of the
inherent nature of goods. This loss cannot be avoided in spite of the highest amount of
care taken while handling them. This happens because of factors like evaporation,
shrinkage etc.
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In order to absorb the amount of normal loss, the cost of the closing stock is
proportionately increased so as to absorb such loss.

The value of the closing stock is calculated as follows:

Value of goods sent x quantity of closing stock


Net quantity received by the consignee

According to this method, the units which reach the place of the consignee bear the value
of normal loss. The normal loss however will not affect the books of the consignee.

8. Mr. Kannan of Bangalore consigned 1,000 kgs of oil to his consignee – Murthy of
Mandya. The cost per kg of oil was Rs. 100/-. Kannan paid the following expenses:
packing Rs. 4,500/-, transportation Rs. 900/-, insurance Rs. 1,800/-.
Murthy received the oil by paying Rs. 5,300/- towards various expenses. He
immediately sent a cheque of Rs. 20,000/- as his advance.Murthy, later sent an account
sales which reported sales of 800 kgs of oil @Rs. 190/- per kg. He was entitled to a
commission of 3%. He also enclosed a demand draft for the balance due from him.

100 kgs of oil were still in stock with Murthy.

The oil is prone to loss by evaporation, which is inevitable.

Prepare ledger accounts in the books of Kannan and Murthy.

Abnormal loss
An abnormal loss is that which can be avoided by taking proper care or precaution.
Examples of abnormal loss are loss by theft, pilferage, fire etc.

This loss is not allowed to affect the consignment account as it will unduly affect profit.
Therefore, this loss is directly transferred to the profit and loss account and credited to
the consignment account.

The following is the journal entry (in the books of consignor)

Profit and loss a/c Dr xxxx


To Consignment a/c xxxx

If the goods are insured, the journal entries will be as follows:

Insurance claims a/c Dr xxxx


To Consignment a/c xxxx
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When the insurance company accepts the claim.

Insurance Co. a/c (claim admitted) Dr xxxx


Profit and loss a/c (balance amount) Dr xxxx
To Insurance claim a/c xxxx

The abnormal loss will not affect the books of the consignee.

9. Sathyanarayana of Bangalore sent a consignment to Ramesh of Bijapur of 10


T.V sets each costing Rs. 24,000/- and the consignor spent the following: freight
Rs. 14,000/-, insurance Rs. 6,000/-.

One T.V set was completely damaged in transit and the insurance company paid Rs.
18,000/- towards the loss.

Ramesh sold 7 T.V sets @ Rs. 30,000/- each and paid Rs. 6,600/- towards insurance and
warehousing. He sent Rs. 1,80,000/- by a cheque. He was entitled to 5% commission.

Prepare ledger accounts in the books of both the parties.

10. Badri of Bangalore consigned 5,000 kgs of chemical to his consignee – Deepak of
Koppala. The cost of the chemical was Rs. 40/- per kg. Badri also paid the
following expenses – Rs. 250/- carriage, Rs. 1,250/- freight and Rs. 1,000/- as
insurance in transit. 500 kgs of chemical were accidentally destroyed while in
transit for which Badri received Rs. 12,500/- as insurance compensation.
Deepak immediately sent Rs. 50,000/- as his advance.

Deepak sent an account sales stating the following:


a) 3,500 kgs of chemical sold at Rs. 47.50 per kg.
b) Expenses incurred Rs. 2,500/- godown rent, Rs. 3,750/- salesman’s salary.
c) Commission @ 5% on sales.
d) Loss of 20 kgs of chemical (unavoidable).
e) Deepak had enclosed a cheque for the balance due.

Prepare ledger accounts in the books of both the parties.

II. Consignment at invoice price

Goods may be sent by the consignor to the consignee at a higher price than the cost price.
Such a price is called the invoice price. The consignee is instructed to sell the goods at the
invoice price or at a higher price if possible. This is done in order to avoid the consignee
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knowing the profit earned by the consignor. The price after profit being so added is also
called the loaded price.

When the goods are sent to the consignee at invoice price, the goods sent to the consignee
is debited to the consignment account at the invoice price similarly, the closing stock of
the consignment is credited to the consignment account at invoice price. The
consignment account therefore will not reveal the profit as consignment sales are also
credited to the sales account at invoice price.

The following entries are necessary to eliminate profit (loading) from the goods and
enable the consignment account to reveal the profit.

1. To eliminate the profit in the goods sent to the


consignee
Goods sent on consignment a/c Dr xxxx
To Consignment to ------------- a/c xxxx
2. To eliminate the profit in the closing stock with
the consignee.
Consignment a/c Dr xxxx
To Stock reserve a/c (or consignment stock xxxx
Adjustment a/c)

The stock reserve (profit in the closing stock) is subtracted from the stock, in the balance
sheet and the stock is shown finally at the cost price.
At the commencement of the next year, the stock and stock reserve are transferred back
to the consignment account by passing the following journal entries:

1. To transfer consignment stock


Consignment to --------- a/c Dr xxxx
To Consignment stock a/c xxxx
2. To transfer stock reserve a/c
Consignment stock reserve a/c Dr xxxx
To Consignment to ----------- a/c xxxx

Therefore, the stock will appear on the debit side and the stock reserve will appear on the
credit side of the consignment account.

These aspects - invoice price, loading, elimination of profit, will not affect the books of
the consignee in any way.

11. Naresh of Bangalore consigned on January 01, 2012, 100 rechargeable torches to
Chirag of Gadag, to be sold on behalf and at the risk of Naresh. The cost of
each torch was Rs. 500/- but the invoice price was Rs. 600/- each. Chirag was
instructed to sell the torch @ Rs.600/- each or at a higher price if possible.
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Naresh incurred Rs. 2,000/- on freight and insurance of the goods and immediately
received Rs. 20,000/- through a cheque as advance.

Chirag received the goods and incurred the following expenses – taxes Rs. 1,000/-, rent
Rs. 800/- and insurance Rs. 600/-. Chirag could sell 80 torches by July 31, 2012 at Rs.
50,000/-. He was entitled for a commission of 5% on the proforma invoice price and 25%
of any surplus price realized. Chirag, also sent a cheque for the balance due from him.

In the books of Naresh:

1. Pass journal entries


2. Prepare ledger accounts
3. Show how the consignment stock would appear in the balance sheet, if prepared
on July 01, 2012.

Invoice Price – Memorandum Column Method

The consignment and goods sent on consignment accounts under this method will have
two columns on each. One is used for invoice price (loaded) amount and the other for
cost price. Any transaction relating to goods will be recorded in both – cost and invoice
price. These are generally goods sent and closing stock. The cost price columns are
operative and are used to calculate profit or loss on consignment. The invoice price
columns are merely memorandum columns. The invoice price columns need not be
either totalled or balanced, as they do not serve any purpose.

12. Ronak of Bangalore consigned 100 travel bags costing Rs. 400/- each to his
consignee – Janak of Hassan, at an invoice price of Rs. 700/- each, to be sold at
the risk and behalf of the former. Ronak also paid the following expenses –
packing Rs. 1,000/-, transportation Rs. 1,500/- and insurance Rs. 500/-.

Janak received the goods and paid Rs.1,000/- as clearing charges. He also sent Rs.
20,000/- to Ronak as advance. Janak sent an account sales to Ronak reporting the sales of
90 bags at a total amount of Rs. 67,500/-. He had further spent Rs. 5,000/- towards
warehousing, salesmanship and advertising. He was entitled for a selling commission of
10%. He had also enclosed an acceptance for the balance due to Ronak.

Prepare the consignment account and goods sent on consignment account with
memorandum in the books of Ronak.

Shortage of closing stock


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The quantity of closing stock, when physically verified, may be found to be short. This
results in a loss and has to be adjusted. The units found to be missing must be valued on
similar lines of valuing closing stock. The following are the journal entries:

1. To record the loss and credit it to consignment


account.
Stock deficiency a/c Dr xxxx
To Consignment to ------------ a/c xxxx

2. To transfer such loss


a) If such a loss is agreed to be borne by
consignor himself.
Profit and loss a/c Dr xxxx
To Stock deficiency a/c xxxx

The loss of stock as explained above will not affect the books of the consignee, it is agreed
to be borne by the consignor.

b) If such a loss is agreed to be borne by


consignee.
Consignee’s a/c Dr xxxx
To Stock deficiency a/c xxxx

Simultaneously, this loss will be recorded in the books of the consignee, by passing the
following journal entry:

Stock deficiency a/c Dr xxxx


To Consignor‘s a/c xxxx

To transfer such a loss to the profit and loss account.

Profit and loss a/c Dr xxxx


To Stock deficiency a/c xxxx

13. Patil of Bangalore consigned 1,000 pens costing Rs. 100/- each to Manjunath of
Shivamogga, to be sold on behalf of and at the risk of Patil. Patil spent Rs.
3,000/- to send the goods to Manjunath.

Manjunath received the goods and immediately sent Rs. 30,000/- as his advance. He,
later sent an account sales to Patil stating that 900 pens had been sold @ Rs. 140/- each
and that his commission was 10% of the sales. He also mentioned that there was a
shortage of 10 pens, when a stock taking was done. Manjunath had enclosed an
acceptance for the balance due. According to the agreement, any loss arising because of
loss of goods had to be borne by the consignor himself.
18

Prepare the following ledger accounts in the books of the consignor- consignment
account and consignee’s account. Pass journal entries relating to the loss of stock.

14. Mohan of Bangalore consigned 500 computer key boards to his consignee –
Rohan of Haveri, to be sold on behalf and at the risk of the consignor. The cost
of each key board was Rs. 200/-. Mohan incurred Rs. 5,000/- towards expenses
of consignment.

Rohan received the consignment by spending Rs. 2,000/- towards handling charges. He
immediately sent to Mohan Rs. 40,000/- as advance.

Rohan sent an account sales to Mohan stating the following: 450 key boards were sold @
Rs.300/- each and that he had deducted his selling commission @10% from the sale
proceeds. He had enclosed a cheque for the balance due.

A stock taking of the unsold key boards revealed that there was a shortage of one unit.
According to the consignment agreement, any such loss had to be borne by the
consignee.

Prepare the following:

1. Consignment and consignee’s account in the books of consignor.


2. Consignor’s account in the books of the consignee.
3. Journal entries relating to the stock lost in the books of both.

15. Babu of Bangalore sent 100 calculators to his consignee – Satish of Bellary to be
sold on behalf and at the risk of the consignor. The calculators cost Rs. 300/-
each. Babu spent Rs. 500/- to send the goods.

Satish received the goods by spending Rs. 500/- on handling, clearing and other charges.
He immediately sent Rs. 10,000/- to Babu as his advance. Satish was entitled to a selling
commission of 8%. Satish later sent an account sales to Babu stating that he had sold 90
calculators @ Rs. 410/- each piece.

Owing to import liberalization the value of such calculators came down to Rs. 250/-,
which affected the closing stock.

Prepare ledger accounts in the books of both the parties.

Previous years’ Question Papers


19

1. (When Unsold Stock & Abnormal Loss adjustment is given)

Nanadi Electronics, Poona consigned 5,000 units of Electronic Components @ Rs. 300
each to Mr.Manju of Mysore on 1st Jan 2010. Nanadi Electronics paid Rs.10,000 for
packing, Rs.40,000 for Freight charges and Rs.20,000 towards Insurance. During transit
200 units were destroyed and Insurance claim was settled at Rs.60,000 and was directly
paid to Consignor. Mr.Manju took delivery of the consignment on 05-01-2010 and
accepted bill for Rs.5,00,000 for 3 months. On 31-03-2010 Mr.Manju reported the
following a) 3000 units were sold @ Rs.420 each b) 1400 units were sold @ Rs.450 each on
Credit c) Expenses were: Unloading charges Rs.14,400, Godown Rent Rs.12,000,
Advertising Rs.10,000 and Salesmen's Salary Rs.30,000. Mr. Manju entitled to an ordinary
commission @ 5% on all sales. Consignee remitted the balance due from him through a
Bank draft.

Prepare Consignment a/c and Consignee's a/c in the books of Consignor.

(BBM APRIL/MAY 2011 MYU /15 Marks)

Solution:

Accounting records in the books of consignor

Consignment to Mysore Account


Date Particulars Amount Date Particulars Amount
1/1/201 To Goods sent on 15,00,000 By Mr.Manju’s a/c 18,90,000
0 consignment a/c By Goods Damaged
To Bank a/c 70,000 in Transit a/c 62,800
To Mr.Manju’s a/c 66,400 ByConsignment stock 63,400
To Mr.Manju’s a/c 94,500 a/c
To P& L a/c 2,85,300
20,16,200 20,16,200

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To Purchases a/c 15,00,000 By Consignment to 15,00,000
Mysore a/c

Goods Damaged in Transit Account


Date Particulars Amount Date Particulars Amount
To consignment to 62,800 By Bank a/c(claims) 60,000
Mysore a/c By P&L a/c 2,800
20

62,800 62,800

Mr. Mr.Manju ‘s a/c {consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 18,90,000 By Consignment to 66,400
Mysore a/c3 Mysore a/c
By Consignment to 94,500
Mysore a/c
By B/R a/c 5,00,000
By Balance c/d 12,29,100
18,90,000 18,90,000

Working Notes:

1. Expenses by consignor= (packing, Freight & insurance) =10,000+40,000+20,000=70,000

2. Expenses by consignee – (Unloading charges, Godown Rent, Advertising and


Salesmen's

Salary) = 14,400+ Rs.12,000+ Rs.10,000 + Rs.30,000= Rs.66,400

3. Calculation of sales

(a) 3000 x420 =12,60,000

( b) 1400 x.450 =6,30,000


Total sales = 18,90,000

4. Calculation of commission

Commission @ 5% on all sales= 5/100 x18,90,000 = 94,500

5. Calculation of value of consignment stock

No of units consigned =5,000


No of units damaged = 200
= 4800
No of units unsold = 200
No of units sold = 4,600
Value of consignment stock
21

Cost of unsold units = (200x300) 60,000


Add: Proportionate expenses of Consignor
(70000/5000 x200) 2800

Add: Proportionate expenses of Consignee 600 3,400


(Only unloading charges) (14400/4800 x 200)
Value Of Consignment Stock 63,400

6. Calculation of amount of abnormal loss

No of units damaged in transit =200

Value of damaged units in transit

Cost of damaged nits = (200x300) 60,000


Add: Proportionate expenses of Consignor
(70000/5000 x200) 2800

Add: Proportionate expenses of Consignee Nil 2,800


(Only unloading charges) (14400/4800 x 200)
Amount of abnormal loss 62,800

2. (When Goods consigned at Invoice Price, Unsold Stock and Abnormal Loss
adjustment is given)

Amco Batteries Ltd. Bengaluru consinged 1.500 Batteries costing Rs.5,000 each invoiced to
Manju Eletricals Mangalore @ cost + 25%. The Consignor paid Rs.75,000 towards Freight
charges and Insurance Rs.30,000. During transit, it was found that 10 Batteries were
damaged and insurance company settled the claim for Rs.45,000. Manju Electricals
received the balance of consigned goods and paid unloading and clearing charges
Rs.14,900. They accepted a bill drawn for 3 months Rs.20,00,000 as an advance. Manju
Electricals sold 800 Batteries for cash @ Rs.6,500 each and 450 Batteries on Credit @ Rs.7,000
each. They spent Rs.42,000 for godown rent, Rs. 6,500 for Advertisement and Rs.30,000 as
Salesman Salary. The Consignee entitled to get an ordinary commission @ 5% on all sales
and Del-credere commission @2% on credit sales. Assume that Manju Eletricals remit the
balance dure to the consignor by Bank draft. Prepare Consignment a/c, Consignee’s a/c
and Abnormal loss a/c in the books of Amco Batteries Ltd.
-B.Com NOV./DEC.2010 MYU/20 Marks

Solution :

Accounting records in the books of Amco Batteries

Consignment to Mysore Account


22

Date Particulars Amount Date Particulars Amount


ToGoods sent on By Manju 83,50,000
consignment a/c 93,75,000 Electicals a/c
To Bank a/c 1,05,000 By Goods sent on 18,75,000
To Manju Electicals a/c 78,500 consignment a/c
To Manju Electicals a/c 4,80,500 (loading)
ToConsignmentstock By Abnormal Loss
reserve a/c(loading) 3,00,000 a/c 63,200
To Abnormal Loss a/c 12,500 ByConsignment 15,16,800
stock a/c
To P&L a/c 14,53,500
1,17,92,500 1,17,92,500

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To Goods sent on 18,75,000 By Consignment to 93,75,000
consignment a/c Mysore a/c
(loading)
To Purchases a/c 75,00,000
93,75,000 93,75,000

Abnormal Loss Account


Date Particulars Amount Date Particulars Amount
To Consignment to 63,200 By Bank a/c (claim) 45,000
Mysore a/c By Consignment to 12,500
Mysore a/c 5,700
50,700 By P& L a/c 50,700

Manju Electricals a/c {consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 83,50,000 By Consignment to
Mysore a/c4 Mysore a/c 78,500
By Consignment to 4,80,500
Mysore a/c
By Bank a/c 77,91,000
83,50,000 83,50,000

Working notes:

1.Calcualtion invoice price

Invoice price =Cost price + profit/loading


23

IP= 5,000 +25%=5,000+1,250 = Rs 6,250


Value of goods consigned at invoice price =6,250x 1,500 = Rs 93,75,000
Total loading =1250x1500= Rs 18,75,000
2. Expenses by consignor (Amco Batteries)

Freight charges and Insurance (Rs75,000+30,000)= Rs 1,05,000

3. Expenses by consignee (Manju Electricals Mangalore)

Godown rent, Advertisement and Salesman Salary(42,000+6,500+ 30,000)= Rs 78,500

4. Sales

Cash sales= 800 x 6,500= Rs 52,00,000


Credit sales=450x 7,000= Rs 31,50,000
Total sales = Rs 83,50,000
5. Calculation of commission

Ordinary commission @ 5% on 83,50,000 = Rs 4,17,500


Del-credere commission @2% on 31,50,000= Rs 63,000
Total commission =4,80,500
6. Calculation of consignment stock at invoice price

Batteries Consigned --------------------------1500


Less :Batteries sold (cash +credit)-------- 1,250
Less : Batteries damaged -----------------------10
Unsold Batteries--------------------------------240
Value of unsold Batteries i.e. consignment stock= 240x6,250= Rs 15,00,000
Add: proportionate expenses by consignor=1,05,000 x 240 /1,500= Rs 16,800
Add: Expenses of consignee= Nil
Value of consignment stock=15,00,000 +16,800 = Rs 15,16,800
Loading in consignment stock reserve = Rs3,00,000 i.e. Consignment Stock Reserve a/c
7. Calculation of amount of abnormal loss

Abnormal loss quantity(damaged) =10 Batteries


Value of 10 damaged Batteries at invoice price =10x Rs 6250=62,500
Add: Expenses by consignor=1,05,000 x 10 /1,500 =Rs 700
24

Add: Expenses by Consignee = Nil


Abnormal loss amount= 63,200
8. Actual loss = Abnormal loss amount –Loading included – Insurance claim

=Rs 63,200 –Rs 12,500 – Rs 45,000

=Rs 5,700

3. (When Sales Commission, Abnormal loss adjustment is given)

Sagar Electronics, Bangaluru consinged 2,500 units of Electronic Components @ Rs. 400
each to Mr.Ramu of Mysore on 1st Jan 2010. Sagar Electronics paid Rs.5,000 for packing,
Rs.20,000 for Freight charges and Rs.10,000 towards Insurance. During transit 100 units
were destroyed and Insurance claim was setted at Rs.30,000 and was directly paid to
Consignor. Mr.Ramu took delivery of the consignment on 05-01-2010 and accepted bill for
Rs.2,50,000 for 3 months. On 31-03-2010 Mr.Manju reported the following:
a) 1500 units were sold @ Rs.420 each
b) 700 units were sold @ Rs.450 each on Credit
c) Expenses were: Unloading charges Rs.7,200, Godown Rent Rs.6,000, Advertising
Rs.5,000 and Salesmen's Salary Rs.15,000.
Mr. Manju entitled to an ordinary commission @ 5% and delcredare commission at 2.5% on
all sales. Consignee remitted the balance due from him through a Bank draft.
Prepare Consignment a/c and Consignee's a/c and Goods damaged in Transit a/c.
-B.Com NOV./DEC.2010 MYU/20 Marks

Solution:

Accounting records in the books of consignor

Consignment to Bangalore Account


Date Particulars Amount Date Particulars Amount
01-1- To Goods sent on 31-3- By Manju’s A/C 9,45,000
2004 consignment A/C 10,00,000 2004 By Goods damaged in 41,400
‘’ To Bank A/C 1
35,000 ‘’ Transit a/c
‘’ To Mr.Ramu A/C2 33,200 31-3- By Consignment Stock 83,400
‘’ To Mr.Ramu A/C4 70,875 2004 A/C6
By Profit & Loss A/C 69,275
11,39,075 11,39,075

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
-01- To Purchases A/C 10,00,000 1-01- By Consignment to 10,00,000
2004 2004 Bangalore a/c3
10,00,000 10,00,000
25

Goods Damaged in Transit Account


Date Particulars Amount Date Particulars Amount
5-01- To Consignment to 41,400 5-01- ByBank 30,000
2004 Bangalore a/c5 2004 A/C(Insurance claim)
By Profit & Loss A/C 11,400
41,400 41,400

Mr. Ramu ‘s a/c {consignee)


Date Particulars Amount Date Particulars Amount
31-3- To Consignment to 9,45,000 31-3- By Consignment to 33,200
2004 Bangalore A/C 3
2004 Bangalore a/c 2
‘’ ByConsignment to 70,875
‘’ Bangalore a/c 4
‘’ By B/R A/C 2,50,000
‘’ By Bank A/C 5,90,925
9,45,000 9,45,000

Working Notes:
1. Expenses by Consignor -
Packing Rs.5,000+ Freight charges Rs.20,000 + Insurance Rs.10,000 =Rs 35,000
2 .Expenses by Consignee i.e. Manju
Unloading charges Rs.7,200+Godown Rent Rs.6,000+Advertising Rs.5,000 +Salesmen's
Salary Rs.15,000 =Rs33,200
3. Calculation of sales
(a) 1500 units x Rs.420 each ----------- Rs 6,30,000
(b) 700 units xRs.450 each on Credit--- ---- Rs 3,15,000
Total sales -----------------------------------Rs 9,45,000
4. Calculation of Commission
Ordinary commission @5% -------------------- Rs 9,45,000 x 5/100 = Rs 47,250
Delcredre commission @ 2.5% on all sales--- Rs 9,45,000 x2.5/100 =Rs 23,625
Total commission -------------------------------------------------------------Rs 70,875
5. Calculation of value of abnormal loss and actual abnormal loss amount

No of units lost in transit ----100


26

Proportionate cost of units lost in transit (100 units x Rs 400) 40,000


Add: Proportionate amount of expenses incurred by consignor on units 1,400
lost in transit- (Packing Rs 5,000+ freight Rs 20,000+ insurance Rs 10,000) x
100/2500
Value of abnormal loss goods 41,400
Less: Insurance claim claimed 30,000
Actual amount of abnormal loss 11,400

6. Calculation of value of closing stock i.e. Consignment stock of goods unsold


(Consignment Stock)

No units consigned 2,500 units


Less: Units destroyed in transit ------100 units
Units sold -----------------------2,200 units 2,300 units
Consignment stock 200 units

Value of Consignment stock

Proportionate cost of units lost in transit (200 units x Rs 400) 80,000


Add: Proportionate amount of expenses incurred by consignor on 2,800
units lost in transit- (Packing Rs 5,000+ freight Rs 20,000+
insurance Rs 10,000) x 200/2500
Add: proportionate amount of expenses incurred by consignee- 600
(unloading charges Rs 7200 x 200units/2400units)
83,400

Note: To calculate abnormal loss on account of goods damaged in transit, only expenses incurred by
consignor is considered and expenses incurred by consignee are not considered.

4. (When Abnormal Stock & Loss are given)

Sagar sent 1000 articles to his agent Chandan at an invoice price of Rs.25 per article, which
is Cost +25% profit and paid freight and cartage Rs.920. Chandan sold 600 articles at Rs.30
per Article and sent an account sales deducting Rs.400 for storage charges and Rs.600 for
selling expenses. He charged 10% Commission on the gross sale proceeds and remitted
the amount due to Sagar. Chandan also informed Sagar that 100 articles had been damaged
in transit and they fetched only 70% of their cost. Prepare necessary Ledger accounts in the
books of Consignor.
B.Com Nov./Dec 2009 /MYU/20 Marks

Solution:

Accounting records in the books of Amco Batteries


27

Consignment to Chandan Account


Date Particulars Amount Date Particulars Amount
To Goods sent on 25,000 By Chandans a/c 4
18,000
consignment a/c 1 By Goods sent on 5,000
To Bank a/c2 920 consignment
To Chandan a/c 3
1,000 a/c1(load) 7,776
To Chandan a/c5 1,800 By Consignment stock
To Consignment Stock a/c6 2,776
Reserve a/c6(load) 1,500 By Abnormal Loss
To Abnormal Loss a/c8 500 a/c7
To P& L a/c 2,832
33,552 33,552

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To Consignment to 5,000 By Consignment to 25,000
Chandan a/c 1
Chandan a/c 1
(loading) 18,750
To Purchases a/c 25,000 25,000

Abnormal Loss Account


Date Particulars Amount Date Particulars Amount
To Consignment to 2,776 By Consignment to 500
Chandan a/c7 Chandan a/c8
By Bank a/c (sale of 1,400
damaged articles)8
By P&L a/c 876
2,776 2,776

Chandan Account {consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 18,000 By Consignment to 1,000
Chandan a/c4 Chandan a/c3
By Consignment to 1,800
Chandan a/c5
By Balance c/d 15,200
18,000 18,000
Working notes:
1. Calculation of loading in goods sent on consignment
Value of goods consigned at invoice price =25x 1,000 = Rs 25,000
Loading =25% on cost means 20% on selling price
=25,000 x20/100=Rs5,000
28

2. Expenses by consignor (Sagar)


Freight charges and cartage =920
3. Expenses by consignee (Chandan)
Storage charges and selling expenses =400+600 =1,000
4. Sales
600 articles x Rs 30= 18,000
5. Calculation of commission
Commission 10% on sales of Rs 18,000 = Rs 1,800
6. Calculation of consignment stock
Articles Consigned -------------------------1,000
Less : Articles sold-------------------------600
Less : Articles damaged -------------------100
Unsold Articles -----------------------------300
Value of unsold Articles i.e. consignment stock= 300 x25= Rs7,500
Add: proportionate expenses by consignor=920 x300/1,000=Rs 276
Add: Expenses of consignee= nil
Value of consignment stock=Rs 7,776
Loading in consignment stock= 7,500 x 20/100=Rs 1,500 i.e. Consignment Stock
Reserve
7. Calculation of amount of abnormal loss
Abnormal loss quantity =100 Articles
Value of damaged Articles at invoice price= 100 x Rs 25=Rs2,500
Add: expenses by consignor=920 x300/1,000=Rs 276
Add: Expenses by Consignee = Nil
Amount of abnormal loss at cost = R2,500 +Rs 276 =Rs 2,776
Actual loss on damaged articles:
Actual loss on damaged articles= Amount of abnormal loss at invoice price – loading – 70%
of cost realised
=Rs 2,776 – Rs 500 – Rs 100 x 20 x 70/100
=Rs2,776 –Rs500 –Rs 1,400
=Rs 876
29

Loading in abnormal loss Articles =Rs500


5. (When Commission, Stock & Abnormal loss is given)

On 1st June 2009 ABC & Co., of Mangalore consigned 100 Cases of Toys to Manvi & Co., of
Mysore. The Cost of consignment amounted to Rs.7,500 but the goods were charged at pro-
forma invoice price so as to show a profit of 25% on Sales. The Consigner paid Rs.600
towards freight and insurance. On acceptance for Rs.3,000 bill was received from the
Consignee and it was discounted for Rs.2,900. The Consignee had paid Rs.1,000 towards
unloading and Rs.200 towards carriage. One Case was lost in transit and Rs.50 was
received from the insurance company by the Consignor in full settlement of the claims.
The Consignee has sold 80 Cases for Cash Rs. 12,000. The Consignee is entitled to a
commission of 5% on Sale Proceeds. The Consignee enclosed a Bank draft for the balance
due.

Prepare the necessary Ledger accounts in the books of ABC & Co.,

(B.Com Nov./Dec 2011 /MYU/)20 Marks

Solution:

Accounting records in the books of ABC& Co

Consignment to Mysore Account


Date Particulars Amount Date Particulars Amount
To Goods Sent on 10,000 By Manvi & Co 4 12,000
Consignment 1
ByGoods Sent on 2,500
To Bank a/c 2 600 Consignment1(loading)
To Manvi & Co 3 1,200 By Abnormal Loss 106
To Manvi &Co5 600 a/c 7
2,244
To Consignment Stock 475 By Consignment Stock
Reserve a/c6 a/c6
To Abnorma Lossl a/c8 25
To P&L a/c 3,950
16,850 16,850

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To Consignment to 2,500 By Consignment to 10,000
Mysore a/c 1 7,500 Mysore a/c 1
(loading) 10,000 10,000
To Purchases a/c

Abnormal Loss Account


Date Particulars Amount Date Particulars Amount
30

To Consignment to 106 By Bank a/c (sale of 50


Mysore a/c7 damaged articles)
By Consignment to 25
Mysore a/c
By P&L a/c 31

106 106

Manvi &Co Account {consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 12,000 By Consignment to 1,200
Mysore a/c4 Mysore a/c3
By Consignment to 600
Mysore a/c5
By B/R a/c 3,000
By Balance c/d 7,200
12,000 12,000

Working notes:
1. Calculation of loading in goods sent on consignment
Value of cases of Toys consigned at invoice price = cost + profit
Loading / profit =25% on sales means 33.33% or 1/3 on cost
= Rs.7,500+1/3 of 7,500
=Rs7,500 +2,500
=Rs 10,000
2.Calculation of commission
Commission 5 % on sales of Rs12,000= Rs600
3. Calculation of amount of abnormal loss
Abnormal loss quantity = 01 case of Toys
Value of 01 case of Toys------------------------ = Rs. 100
Add: expenses by consignor=600 x1/100--------=Rs. 06
Add: Expenses by Consignee = Nil
Amount of abnormal loss= Rs. 106
Actual loss= Amount of abnormal loss – loading - Amount realised on sale of damaged
articles
Actual loss =Rs106 – Rs 25 – Rs 50 =Rs.31
4.Calculation of consignment stock
31

Cases of Toys Consigned -------------------------100


Less : Cases of Toys sold---------------------80
Less : Cases of Toys damaged ---------------01 81
Unsold Cases of Toys ---------------------------- 19
Value of unsold Cases of Toys i.e. consignment stock= 19/ 100 x Rs10,000 =Rs1900
Add: proportionate expenses by consignor---------- --= 19/100 x 600 =Rs 114
Add: Expenses of consignee---------------------------- =19/99 x 1,200 =Rs 230
(Unloading and carriage=Rs 1,000+ Rs.200)
Value of consignment stock=Rs Rs1900+ Rs 114+ Rs 230 =Rs 2244
Loading in consignment stock =Rs 1,900 x 25/100 =Rs 475

6. (When the Commission & Unsold stock adjustment is given)

Aloknath of Bombay consigned 100 Cases of goods to Ramanath of Madras to be sold on


his risk. The cost of one case of goods was Rs.150. Aloknath paid Freight Rs.600 and
insurance Rs.200. Ramanath sent a Bank Draft to Aloknath for Rs.10,000 towards advance
and sent an account sales showing that 80 Cases were sold at Rs.220 each. Expenses
incurred by Ramanath were; Carriage Rs.100, Godown Rent Rs.500 and Advertisement
Rs.300. He is entitled to a commission of 5% on Sales.
Prepare necessary Ledger accounts in the books of Aloknath.
( B.Com April/May 1999 BU /8 Marks)

Solution: Accounting records in the books of Aloknath (Consignor)

Consignment to Madras Account


Date Particulars Amount Date Particulars Amount
To Goods Sent on 15,000 By Ramanath’s a/c3 17,600
Consignment a/c By Consignment Stock
To Bank a/c1 800 a/c5 3,160
To Ramanath a/c 2
900
To Ramanth’s a/c4 880
To Profit & loss a/c 180
17,760 17,760

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To purchases A/C 15,000 15,000
32

15,000 By Consignment to 15,000


Madras Account

Mr. Ramnath’s a/c {consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 17,600 By Consignment 900
Madras a/c Madras a/c
By consignment to
Madras a/c 880
By Bank a/c 10,000
By Balance 5,820
17,600 17,600

a. Calculation of Commission:
Sales -80 cases x Rs220= 17,600
Commission @ 5% on sales----17,600 x5/100 = Rs.880
b. .Calculation of value of Consignment stock
No. of cases consigned---100 cases
Less : No of cases sold--- 80 cases
No of cases unsold--- 20 cases
Proportionate amount of cost of unsold cases -20cases x 150 = 3000
Add: Proportionate amount of expenses by consignor -800x 20/100 = 160
(Freight600+ insurance 200)
Add: Expenses by consignee: Carriage= Rs.100 x 20/100 = 20
Consignment stock =Rs3,000 + Rs 160 +Rs 20 = 3180

7. (When the Unsold Stock & Abnormal Loss is given)

Mohan of Chennai Consigned 2000 Chairs to Chandran of Calcutta at an invoice price of


Rs.300 each. Mohan paid freight Rs.20,000 and insurance Rs.3,000. During the Voyage 200
Chairs were totally damaged by fire and had to be thrown overboard. Chandran took
delivery of the remaining Chairs and paid Rs.28,800 as Customs duty. He sold 1,600 Chairs
at Rs.440 each after incurring expenses on godown rent and advertisement amounting to
Rs.4,000. Calculate the Value of Abnormal Loss and the value of Closing Stock,

– B.COM-2000 BU/8 Marks

Solution:

Working Notes:
33

1. Calculation of consignment stock :


No of chairs consigned -----2,000
Less: No of chairs sold----- 1,600
Balance 400
Less: No of chairs damaged ---------200
No of chairs unsold --------------------200
Value of consignment stock:
Value of 200 chairs x invoice price Rs300--------=Rs 60,000
Add: Proportionate expenses by consignor:
( 20,000+3,000) =200 x23,000/2,000----------------=Rs 2,300
Add: Proportionate expenses by consignee:
Customs duty= 200 x28,800/1,800----------------- =Rs 3200
Value of consignment stock =Rs 65,500
b. Calculation of abnormal loss:
Abnormal loss ( chairs damaged) = 200
Value of 200 chairs x invoice price Rs300--------=Rs. 60,000
Add: Proportionate expenses by consignor:
( 20,000+3,000) =200 x23,000/2,000----------------=Rs.2,300
Add: Proportionate expenses by consignee: NIL
Value of abnormal loss = Rs. 62,300

8. (When Commission adjustment is given)

Jaykumar of Ahmadabad consigns two Refrigerators costing Rs.20,000 to Babu of Surat


and incurs Rs.1, 200 as Freight Rs.1,000 for Insurance and Rs.500 towards Handling
charges. Babu is entitled to a commission of 10% and also 5% as del-credere commission.
Babu spends 1,500 towards Godown Rent and Rs.1, 000 for Miscellaneous Expenses. Babu
sells one Refrigerator for 25,000 and remits Rs.20,000 to Jaykumars a/c. The other
Refrigerator was sold for Rs.28,000 but Rs.3,000 remained unrealized and subsequently
became a Bad debt. The Consignee remitted the balance due from him also with the
account Sales.

Show the necessary Ledger accounts as they would appear in the books of Jaykumar and
Babu.

Solution:

In the books of Jayakumar


34

Consignment to Surat Account


Date Particulars Amount Date Particulars Amount
To Goods sent on 20,000 By Mr. Babu’s a/c 3 53,000
consignment a/c
To Bank a/c1 2,700
Mr.Babu’s a /c 2
2,500
To Babu’s a/c4 6,700
To P & L a/c 21,100
53,000 53,000

Goods Sent on Consignment Account


Date Particulars Amount Date Particulars Amount
To Purchases a/c 20,000 By Consignment to 20,000
Surat a/c
20,000 20,000

Mr.Babu’s a/c (consignee)


Date Particulars Amount Date Particulars Amount
To Consignment to 53,000 By Consignment to 2,500
Surat a/c Surat a/c2
By Consignment to 6,700
Surat a/c4
By Bank a/c 20,000
23,800
53,000 53,000

1. Expenses by consignor
(Freight,Insurance & Handling charges) =Rs.1,200+ Rs.1,000+ Rs.500 = Rs 2,700
2. Expenses by Babu
(Godown Rent &Miscellaneous Expenses)=Rs1, 500 + Rs.1,000 = Rs 2,500
3. Sales
Cash sales= Rs 25,000
Credit sales=–Rs28, 000
Total sales =Rs53, 000
4. Commission
Ordinary commission @ 10% on all sales= 53,000 x 10/100 =Rs5, 300
Del-credre Commission @ 5% on cr sales =Rs 28,000 x 5/100 = Rs 1,400
Total commission =Rs6, 700
35

Ledger accounts in the books of Mr. Babu

JayaKumar’s Account
Date Particulars Amount Date Particulars Amount
To Bank a/c1 2,500 By Bank a/c 25,000
To Commission 2 6,700 By Consignment Drs 28,000
To Bank a/c 20,000 a/c
To Balance c/d 23,800
53,000 53,000

Commission Account
Date Particulars Amount Date Particulars Amount
To Bad debts a/c 3,000 By JayaKumar’s a/c 6,700
To P&L a/c 3,700
6,700 6,700

Consignment Debtors a/c


Date Particulars Amount Date Particulars Amount
To Jayakumar’s a/c 28,000 By Bank a/c 25,000
By Bad debts a/c 3,000
28,000 28,000

Working Notes:
1. Expenses by Babu
(Godown Rent &Miscellaneous Expenses) =Rs1, 500 + Rs.1, 000 = Rs 2,500
2. Commission Calculation
Ordinary commission @ 10% on all sales= 53,000 x 10/100 =Rs5,300
Del-credre Commission @ 5% on cr sales =Rs 28,000 x 5/100 = Rs 1,400
Total commission =Rs6, 700
9. (When Loss & Stock Reserve adjustment is given)

2000 Boxes of Tea costing Rs.10,000 are consigned to Periakulam at an invoice price of
Rs.15, 000. Out of which 100 boxes are totally destroyed by fire and the claim was admitted
by the Insurance Company, 75% of the invoice price of the goods lost. The expenses of the
Consignment prior to loss are Rs.2, 000 and after losses are Rs.3, 900 of which Rs.1, 900 are
of non-recurring nature. The commission and selling expenses are Rs.6, 000. An account
sale is received for 1,100 boxes showing gross sales proceeds of Rs.14, 000.

Show Consignment account and loss by fire accident in the books of Consignor.
(Ans: Loss Rs.1, 700/B.COM/BU)
36

Solution:

Working notes:
1. Expenses by Consignor
(Expenses prior to loss + expenses after loss)= Rs.2, 000 + Rs.3, 900 =5,900
2. Expenses by Consignee & commission = Rs 6,000
3. Loading in goods sent on consignment
Invoice price of goods consigned =Rs 15,000
Cost price of goods consigned =Rs 10,000
Loading = Rs 5,000
4. Loss by fire
No of Boxes destroyed by fire =100
Value of damaged boxes= 100 x 15,000/2,000--------------= Rs750
Add: Proportionate expenses prior to loss------= Rs 2,000 x 100 /2000=Rs 100
Total loss=Rs 850
Claim 75% of invoice price = Rs750 x 75 /100 =Rs 563
5. Loading included in the loss= Rs 750 – Rs 500 = Rs 250
6.Actual loss =Rs 850 – Rs 250 - Rs 563= Rs 37
7. Value of consignment Stock:
No of boxes consigned------------- =2,000
Less: No of boxes sold-------------=1,100
Less: No of boxes destroyed-------=100
No of boxes unsold-----------------=800
Value of 800 boxes @ Invoice price = 800 x 15,000/2,000 =Rs 6,000
Add: proportionate expenses prior to loss =800 x Rs 2,000/2000 boxes=Rs800
Add: proportionate nonrecurring expenses after loss = 800 x1900/1900boxes=Rs 800
Total value of stock =7,600
Loading in the consignment stock ( Stock Reserve)
Total loading of all boxes = Rs5, 000
So loading for 800 boxes=800 x 5000/2000 = Rs 2,000

Consignment to Periakulam Account


Date Particulars Amount Date Particulars Amount
To Goods sent on 15,000 By Consignees a/c 14,000
consignment a/c By Goods sent on 5,000
To Bank a/c1 5,900 consignment a/c3
To Consignee’s a/c2 6,000 By Loss by Fire a/c4 850
To Loss by Fire a/c 5
250 By Consignment stock 7,600
To Consignment Stock a/c7 1,700
Reserve a/c 2,000 By P & L a/c
29,150 29,150

Goods Sent on Consignment Account


37

Date Particulars Amount Date Particulars Amount


To Consignment to 5,000 By Consignment to 15,000
periakulam a/c Periakulam a/c
To Purchases a/c 10,000
15,000 15,000

Consignee’s A/C
Date Particulars Amount Date Particulars Amount
To Consignment to 14,000 By Consignment to 6,000
periakulam a/c Periakulam a/c
By Balance c/d 8,000

14,000 14,000

Loss by Fire Accident a/c


Date Particulars Amount Date Particulars Amount
To consignment to 850 By Bank a/c (claim) 563
Periakulam a/c By Consignment to
Periakulam a/c5 250
By P& L a/c 37

850 850

10. (When normal, del-credere and overriding commission adjustment is given)

Williams of Madras consigned 300 chests of Tea at Rs.2,000 per chest to Johnson of New
Delhi paying freight Rs.4,000 and other expenses Rs.2,000. Johnson sold 250 chests at
Rs.2,500 per chest on credit and 25 chests at Rs.2,200 per chest for cash. Johnson spent for
freight and octroi Rs. Rs.3,000 and other expenses Rs.1,000 He remitted the amount due to
Williams after deducting his commission at 5% (normal), 2.5% (over riding), and ½% del-
credere commission (del-credere commission to be given on total sales). Johnson found
that one customer to whom credit of 40 days was allowed paid only Rs.4,500 out of the
total amount of Rs.5,000 due from him in full settlement of account. Other customers paid
the amount on due dates.

Pass Journal entries in the books of both the parties.


B.COM/BU/2001/16 MARKS
(Profit: Rs.66,150, Consignment Stock Rs.50,750, Balance received Rs.6,21,000) –

Solution:

Journal Entries in the books of Williams of Madras (Consignor)


Sl.No. Particulars L/F Dr. Rs. Cr. Rs.
38

1. Consignment to Delhi a/c Dr 6,00,000


To Goods sent on consignment a/c 6,00,000
(Being the Tea chests sent on Consignment)
2 Consignment to Delhi a/c Dr 6,000
To Cash/bank a/c 6,000
(Being the freight & other expenses paid)
3 Consignment to Delhi a/c Dr 4,000
To Johnson of New Delhi 4,000
(Being the freight and octroi & other
expenses paid by Consignee)
4 Johnson of New Delhi Dr 6,80,000
To Consignment to Delhi a/c 6,80,000
(Being the account sales sent by Consignee)
5 Consignment to Delhi a/c Dr 500
To Johnson of New Delhi a/c 500
(Being the Bad debts incurred by
Consignee)
6 Consignment to Delhi a/c Dr 54,400
To Johnson of New Delhi a/c 54,400
(Being the Commission due to Consignee)
7 Cash/bank a/c Dr 6,21000
To Johnson of New Delhi a/c 6,21,000
(Being the final payment made by
Consignee)
8 Consignment to Delhi a/c Dr 66350
To Profit and loss a/c 66350
(Being the Profit on Consignment tr. to
P&L a/c)
9 Goods sent on consignment a/c Dr 6,00,000
To Trading/Purchases a/c 6,00,000
(Being the goods sent on consignment tr. To
Trading/Purchases a/c)

Calculation of Commission:
a. Normal Commission = 680000x5% = 34,000
b. Over riding Commission = 680000x2.5% = 17000
c. Delcredere Commission = 680000x1/2 = 3,400
Total = 54400

Calculation of Closing Stock:


Total no. of Tea Chest sent to Johnson of New Delhi = 300
Less: No. of Tea Chests sold (250+25) = 275
No. of Tea Chest Unsold/Closing Stock = 25
39

Cost price of 25 Chests ……………………= 25x2000 = 50000


Add: Proportionate expenses of Consignor = 6000/300x25 = 500
Add: Proportionate expenses of Consignee = 3000/300x25 = 250
Total Value of Closing Stock = 50750

Journal entries in the books of Johnson of New Delhi (Consignee)

Debit Credit
Date Particulars L.F
Rs. Rs.
Williams of Madras a/c Dr 4,000
1 To Bank a/c 4,000
(Being the consignment expenses incurred)
Bank a/c Dr 55,000
Consignment Debtor a/c Dr 6,25,000
2 To Williams of Madras a/c 6,80,000
(Being cash and credit sales made & sent a/c
sales)
Bank a/c Dr 6,24,500
Williams of Madras a/c Dr 500
3 To Consignment Debtor a/c 6,25,000
(Being the collection from debtors and the bad
debts debited to the consignor’s a/c)
Williams of Madras a/c Dr 54,400
4 To Commission a/c 54,400
(Being commission due from consignor)
Williams of Madras a/c Dr 6,21,000
5 To Cash / Bank a/c 6,21,000
(Being the final payment made )

Short Answer Questions:

1. What is consignment?
2. Who is a consignor?
3. Who is a consignee?
4. What is a proforma invoice?
5. What is an account sales?
6. What is the nature of consignment account?
7. What is meant by del-credere commission?
8. What is meant by over riding commission?
9. Who bears the loss of bad debts in consignment?
40

10. What is meant by goods consigned at invoice price?


11. Who bears the loss of goods, under consignment?
12. Why is the consignee’s account not debited when goods are sent to the consignee?
13. Why are non-recurring expenses added to consignment stock?
14. Why does the consignee send an account sales to the consignor?
15. Why does the consignee pay an advance to the consignor?

Long Answer Questions:

1. Explain the features of consignment.


2. Draw a specimen of a proforma invoice with imaginary details.
3. Draw a specimen of an account sales with imaginary details.
4. How is the consignment stock valued?
5. Differentiate between normal loss and abnormal loss.
6. Differentiate between recurring and non-recurring expenses.
7. How is the loss of goods treated in consignment accounting?
8. How is the fall in market value of goods treated in consignment?
9. Distinguish between recurring and non-recurring expenses with appropriate
examples.
10. What is meant by invoice price? Why are goods sent to the consignee at invoice
price?
11. What is meant by stock reserve? How is it treated in consignment accounts?

Mention whether the following statements are true or false and also explain why.

1. Consignment and sales are same.


2. Consignment account is a nominal account.
3. Over riding commission and del-credere commission are different.
4. Normal loss and abnormal loss are treated alike.
5. The relationship between consignor and consignee is that of a seller and buyer.
6. When goods are consigned, the amount is debited to the consignee’s account.
7. The consignee does not record anything on receiving the goods from the
consignor.

Problems

Problem 1: Journal entries in the books of the consignor.

Keshav of Mysore consigned 500 saris of the value of Rs. 5,000/- each to his consignee
Sanjay of Davengere. Keshav paid Rs. 10,000/- as expenses for the consignment. Sanjay
immediately after receiving the goods, sent an advance of Rs. 2,00,000/-.

Sanjay in the due course, sent an account sales stating that all the saris were sold @
Rs.7,000/- each and the total consignment expenses incurred by the consignee being Rs.
41

4,000/-. Sanjay was entitled to a 7% commission. Sanjay had also enclosed a demand
draft for the balance.

Journalize the above transactions in the books of Keshav.

Answer: Consignment profit Rs. 7,41,000/-, demand draft for the balance Rs. 30,51,000/-

Problem 2: Journal entries in the books of the consignee.

Bsavaraja of Madikere received 2,700 pieces of woolen shawls from Dheeraj of


Bangalore, to be sold on consignment process. The cost of each woolen shawl was
Rs.300/-. Basavaraja incurred Rs.2,500/- as consignment related expenses and gave Rs.
50,000/- immediately to Dheeraj as advance.

Basavaraja sold all the shawls @ Rs. 420/-each. He was entitled for a selling commission
of 8% . Basavaraja settled the balance due to Dheeraj through a bank draft.

Journalize the above transactions in the books of Basavaraja.

Answer: Demand draft for the balance Rs. 9,90,780/-

Problem 3: Bad debts with del-credere commission.

Mr. Karthik of Bangalore, consigned goods worth Rs. 5,70,000/- to Gopal of Arsikere to
be sold on consignment. Karthik also incurred expenses of Rs. 10,000/-.

Gopal received the goods and incurred expenses of Rs. 7,000/-. Gopal sent a cheque for
Rs. 40,000/- immediately to Karthik as his advance.

Gopal sold all the goods as follows: Cash sales – Rs. 5,00,000/- and credit sales Rs.
4,00,000/-. A debtor worth Rs. 3,000/- did not pay. Gopal was entitled for a 5% selling
commission and 3% del-credere commission.

Gopal sent a cheque for the balance amount.

Journalize the above transactions in the books of both the parties.

Answer: Transferred to profit and loss a/c - Commission Rs. 45,000/- and del-credere
commission Rs. 24,000/-

Problem 4: Bad debts in the absence of del-credere commission, and bill discounted.
42

Raghu of Bangalore consigned 200 batteries to his consignee Babu of Mandya . The cost
per battery was Rs. 1,000/-. Raghu paid Rs. 1,000/- towards packing and transportation
expenses.

Babu received the batteries and immediately sent Rs. 14,000/-as advance to Raghu. Babu
sold all the batteries as follows: 150 batteries for cash @ Rs.1400/- each and 50 batteries
@Rs.1,600/- on credit. He, however could not collect Rs. 4,000/- from a debtor. The
consignee was entitled for a 3% selling commission. The consignee’s expenses amounted
to Rs. 2,000/-.
Babu sent an account sales stating the above and also enclosed an acceptance for the
balance. Raghu received the bill and got it immediately discounted at a discount of Rs.
1,300/-.

Journalize the above transactions in the books of both the parties.

Answer: Profit Rs. 73,000/- and due from consignee Rs. 2,61,300/-

Problem 5: Loss on consignment, ledger accounts and account sales.

Pramod of Bangalore dispatched 1000 lampshades costing Rs. 200/-each to Dinesh of


Chitradurga to be sold on behalf and at the risk of Pramod. The expenses of packing,
forwarding, transportation and insurance amounted to Rs. 1,700/-.

Dinesh received the consignment and incurred Rs. 1,300/- as expenses. He immediately
sent Rs. 50,000/- as advance to Pramod. Dinesh reported that all the lampshades were
sold at the price of Rs. 225/- each. The consignee was entitled to a 15% selling
commission. Dinesh sent an account sales detailing the above and also enclosed bank
draft with the same towards the balance.

Prepare the consignment, goods sent on consignment and consignee’s accounts in the
books of Pramod. Also prepare the account sales.

Answer: Loss on consignment Rs. 11,750/-, final settlement by consignee Rs. 1,39,950/-

Problem 6: Goods returned, consignment stock and ledger accounts in the books of
consignor.

Mr. Sumit of Bangalore, consigned 400 Wrist watches costing Rs. 500/- each to Girish of
Raichur. He spent the following amounts: packing Rs. 4,000/-, transportation Rs. 7,000/-
and insurance Rs. 2,000/-.

Girish already had 50 such wrist watches as the closing stock of the previous period. He
received the fresh consignment by spending Rs. 9,000/- towards various expenses.
Girish was entitled to 10% selling commission and 3% del-credere commission. He,
immediately after receiving the goods sent Rs. 50,000/- as an advance.
43

Girish sent an account sales stating that he was able to sell 390 wrist watches @ Rs. 800/-
each. He returned 30 wrist watches. He also enclosed a cheque for the balance due to
Sumit. It was the policy of Sumit to value any closing stock on returns at cost price itself.
Girish had also spent Rs. 350/- on returning the goods.

Prepare the consignment, consignee’s and the goods sent on consignment account in the
books of Sumit.

Answer: Consignment profit Rs. 64,230/-

Problem 7: Valuation of closing stock, discount to debtors.

Kesava of Bangalore consigned 150 cricket bats to his consignee – Madhava of


Mangalore. The cost per cricket bat was Rs. 1,500/-. Kesava spent the following amounts
for the consignment – packing and forwarding Rs. 3,000/-,transportation Rs. 1,500/- and
miscellaneous Rs. 1,500/-

Madhava received the cricket bats at Mangalore by spending the following: clearing
expenses Rs. 900/- and cartage Rs. 600/-. Madhava immediately sent a cheque for Rs.
90,000/- to Kesava as advance.

Madhava sent an account sales to Kesava mentioning the following information:


- 100 cricket bats sold @ Rs. 1900/- each for cash and 30 bats sold @ Rs. 2,100/- each on
credit.
- Expenses incurred – warehousing Rs. 3,000/-, salesmanship and advertising Rs.
6,000/-
- Discount allowed to debtors Rs. 300/-
- Consignee’s commission @ 2% on gross sales.

Madhava enclosed a cheque for the balance amount.

Prepare the following accounts in the books of the consignor – consignment account,
consignee’s account and goods sent on consignment account and consignor’s account in
the books of the consignee.

Answer: Consignment profit Rs. 37,140/- and final balance settled by consignee Rs. 1,47,140/-

Problem 8: Normal loss

Mr. Anil of Bangalore consigned 700 units of a chemical to his consignee – Sunil of
Raichur. The cost per unit of chemical was Rs. 220/-. Anil paid the following expenses:
packing Rs. 5,000/-, transportation Rs. 1,000/-, insurance Rs. 2,000/-.
44

Sunil received the chemicals by paying Rs. 6,300/- towards various expenses. He
immediately sent a cheque of Rs. 35,000/- as his advance.

Sunil, later sent an account sales which reported sales of 650 units of chemical @Rs. 400/-
per unit. He was entitled to a commission of 5%. He also enclosed a demand draft for
the balance due from him.

30 units of chemical were still in stock with Sunil.

The chemical is prone to loss by evaporation, which is inevitable.

Prepare ledger accounts in the books of Anil and Sunil.

Answer: Consignment profit Rs. 86,125/-, final balance settled by the consignee Rs. 2,05,700/- and
consignment stock Rs. 7,425/-.

Problem 9: Abnormal loss

Nagaraj of Bangalore sent a consignment to Jayaraj of Chamarajanagara 20 washing


machines each costing Rs. 15,000/- and the consignor spent the following: freight Rs.
20,000/-, insurance Rs. 5,000/-.

One washing machine was completely damaged in transit and the insurance company
paid Rs. 10,000/- towards the loss.

Jayaraj sold 15 washing machines @ Rs. 19,000/- each and paid Rs. 8,000/- towards
insurance and warehousing. He sent Rs. 1,00,000/- by a cheque. He was entitled to 4%
commission.

Prepare ledger accounts in the books of both the parties.

Answer: Consignment profit Rs. 21,850/-, final balance settled by the consignee Rs. 1,65,600/-,
abnormal loss transferred to profit and loss a/c Rs. 6,250/-.

Problem 10: Normal and abnormal loss occurring simultaneously.

Rahul of Bangalore consigned 7,500 kgs of chemical to his consignee – Vijay of Kodagu.
The cost of the chemical was Rs. 25/- per kg. Rahul also paid the following expenses –
Rs. 500/- carriage, Rs. 2,000/- freight and Rs. 4,000/- as insurance in transit. 300 kgs of
chemical were accidentally destroyed while in transit for which Rahul received Rs.
4,000/- as insurance compensation. Vijay immediately sent Rs. 15,000/- as advance.

Vijay sent an account sales stating the following:


a) 5,000 kgs of chemical sold at Rs. 35/- per kg.
b) Expenses incurred Rs. 4,000/- godown rent, Rs. 5,000/- salesman’s salary.
45

c) Commission @ 3% on sales.
d) Loss of 40 kgs of chemical (unavoidable).
e) Vijay had enclosed a cheque for the balance due.

Prepare ledger accounts in the books of both the parties.


Answer: Consignment profit Rs. 34,923/-, final balance settlement by the consignee Rs. 1,45,750/-
and abnormal loss Rs. 3,760/-

Problem 11: Goods consigned at invoice price.

Sanjeev of Bangalore consigned on January 01, 2012 500 T-Shirts to Venkatesh of Bidar,
to be sold on behalf and at the risk of Sanjeev. The cost of each T-Shirt was Rs. 200/- but
the invoice price was Rs. 300/- each. Venkatesh was instructed to sell the T-Shirt @
Rs.300/- each or at a higher price if possible.

Sanjeev incurred Rs. 3,000/- on freight and insurance of the goods and immediately
received Rs. 17,000/- through a cheque as advance.

Venkatesh received the goods and incurred the following expenses – taxes Rs. 2,000/-,
rent Rs. 1,000/- and insurance Rs. 500/-. Venkatesh could sell 450 T-Shirts by July 31,
2012 at Rs. 1.40,000/-. He was entitled for a commission of 4% on the proforma invoice
price and 20% of any surplus price realized. Venkatesh also sent a cheque for the
balance due from him.

In the books of Sanjeev:

1. Pass journal entries


2. Prepare ledger accounts
3. Show how the consignment stock would appear in the balance sheet, if prepared on
July 01, 2012.

Answer: Consignment profit Rs. 37,600/-, final settlement by the consignee Rs. 1,13,100/- and
Consignment stock Rs. 15,500/-

Problem 12: Memorandum columns for invoice price.

Rajendra of Bangalore consigned 250 wallets costing Rs. 700/- each to his consignee –
Jitendra of Sakleshpura at an invoice price of Rs. 900/- to be sold at the risk and behalf of
the former. Rajendra also paid the following expenses – packing Rs. 2,000/-,
transportation Rs. 500/- and insurance Rs. 500/-.

Jitendra received the goods and paid Rs.500/- as clearing charges. He also sent Rs.
50,000/- to Rajendra as advance. Jitendra sent an account sales to Rajendra reporting the
sales of 220 wallets at a total amount of Rs. 2,10,000/-. He had further spent Rs. 2,000/-
46

towards warehousing, salesmanship and advertising. He was entitled for a selling


commission of 7%. He had also enclosed an acceptance for the balance due to Rajendra.

Prepare the consignment account and goods sent on consignment account with
memorandum in the books of Rajendra.

Answer: Consignment profit Rs. 36,220/-

Problem 13: Loss of stock borne by the consignor.

Sanath of Bangalore consigned 400 leather belts costing Rs. 500/- each to Sharath of
Chikmagalur, to be sold on behalf of and at the risk of Sanath. Sanath spent Rs. 2,000/-
to send the goods to Sharath.

Sharath received the goods and immediately sent Rs. 40,000/- as his advance. He, later
sent an account sales to Sanath stating that 350 belts had been sold @ Rs. 800/- each and
that his commission was 15% of the sales. He also mentioned that there was a shortage of
5 belts, when a stock taking was done. Sharath had enclosed an acceptance for the
balance due. According to the agreement, any loss arising because of loss of goods, had
to be borne by the consignor himself.

Prepare the following ledger accounts in the books of the consignor, consignment
account and consignee’s account. Pass journal entries relating to the loss of stock.

Answer: Consignment profit Rs. 61,250/-, final settlement from consignee Rs. 1,98,000/- and stock
deficiency Rs. 2,525/-

Problem 14: Loss of stock – borne by consignee.

Tejas of Bangalore consigned 400 lampshades to his consignee – Suhas of Madikere, to be


sold on behalf and at the risk of the consignor. The cost of each lampshade was Rs. 800/-.
Tejas incurred Rs. 10,000/- towards expenses of consignment.

Suhas received the consignment by spending Rs. 4,000/- towards handling charges. He
immediately sent to Tejas Rs. 1,00,000/- as advance.

Suhas sent an account sales to Tejas stating the following: 365 lampshades were sold @
Rs.1,400/- each and that he had deducted his selling commission @10% from the sale
proceeds. He had enclosed a cheque for the balance due.

A stock taking of the unsold lampshades revealed that there was a shortage of two
lampshades. According to the consignment agreement, any such loss had to be borne by
the consignee.

Prepare the following:


47

1. Consignment and consignee’s account in the books of consignor.


2. Consignor’s account in the books of the consignee.
3. Journal entries relating to the stock lost in the books of both.

Answer: Consignment profit Rs. 1,55,125/-, final settlement by consignee Rs. 3,57,570/- and value of
loss Rs. 1,670/-.

Problem 15: Fall in market value.

Dilip of Bangalore sent 500 automobile parts to his consignee – Philip of Bagalkot to be
sold on behalf and at the risk of the consignor. The automobile part cost Rs. 700/- each.
Dilip spent Rs. 2,500/- to send the goods.

Philip received the goods by spending Rs. 1,000/- on handling, clearing and other
charges. He immediately sent Rs. 50,000/- to Dilip as his advance. Philip was entitled to
a selling commission of 10%. Philip later sent an account sales to Dilip stating that he had
sold 400 automobile parts @ Rs. 1,200/- each piece.

Owing to a recession, the value of such automobile parts came down to Rs. 600/-, which
affected the closing stock.

Prepare ledger accounts in the books of both the parties.

Answer: Consignment profit Rs. 1,39,200/-, balance due from the consignee Rs. 3,81,000/- and closing
Stock Rs. 60,700/-

Previous years’ Question Papers

1. (With Unsold Stock & Commission)

Srinivas of Tirupathi consigned 100 T.V sets costing Rs.15,000, to Nagarjun of Guntur to be
sold on consignment basis. He incurred the following expenses: Freight Rs.1,000, Loading
and Unloading charges Rs.250 and Insurance Rs.500.
Nagarjun sold 85 T.V sets for Rs.14,45,000 and paid Rs.1,000 as shop rent which is to be
borne by Srinivas as per terms and conditions of consignment. Consignee is entitled to a
commission of Rs.100 per T.V set sold. Assume that Nagarjun settled the account by
sending bank draft to Srinivas.
Show the necessary Ledger accounts in the books of Srinivas of Tirupathi.
(B.Com April 2001)
(Ans: Consignment Stock: Rs. 2,25,263 and Profit Rs.1,59,013)

2. (Abnormal loss without unsold stock)


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Mehta of Mangalore sent goods to Jain of Jaipur at an invoice price of Rs. 29,675. He paid
freight Rs.762, Carriage Rs.231 and Insurance Rs.700. On the way one-fourth of the
consignment was lost by fire and a claim of Rs.5,000 was received.
Show how you will deal with the claim and loss due to fire in the books of Consignor.
Calculate the amount also. (B.Com April 1991)

(Ans: Abnormal loss: Rs.7,842 (31,368x1/4) (Loss charged to P&L a/c Rs.2,842)

3. (Abnormal loss with unsold stock)

Sudhakar of Shivamogga consigned goods valued at Rs.20,000 to Rosy of Warangal. The


consignor paid freight Rs.1,200 and Insurance Rs.400. One-fourth of the goods consigned
was destroyed in a fire accident during transit. Insurance company admitted the claim for
Rs.4,500. Rosy sold two-fourth of the total goods for Rs.16,000. She paid godown rent
Rs.200 and Rs.150 towards advertising and reported one-fourths of the unsold stock. She is
entitled to a commission of 5% on Sales.
Pass journal entries in the books of Sudhakar and Prepare Consignment and Consignee
accounts in the books of Sudhakar.
(B.Com.Oct.1993)
(Ans: Consignment Profit Rs.4,050, Total Abnormal Loss Rs.5,040 & Consignment Stock
Rs.5,400)

4. (Special Commission on Surplus Price)

Ramadas of Mumbai consigned 100 Cases of Medicine costing Rs.1,000 per case to Krishna
of Bangaluru on 1st January 2012. The goods were to be sold at 25% above the cost. Any
deficiency in selling price was to be borne by Krishna. Krishna was however entitled to a
special commission at 25% of any surplus price realised. Krishna was further entitled to an
ordinary commission of 5% and Del credere commission of 2.5% on all Sales.

Ramadas incurred the following expenses: Packing charges Rs.6,000, Loading charges
Rs.1,000, Lorry hire Rs.12,000, Railway freight Rs.21,000. The account sales received from
Krishna revealed the following: 40 Cases were sold at Rs.1,500 per case, 30 cases were sold
at Rs.1,200 per case, 10 cases were sold at Rs.1,300 per case, 5 cases of medicine were stolen
by a dishonest employee and a compensation of Rs.2,000 was realised from him. Krishna
incurred unloading charges of Rs.2,000 and warehouse rent of Rs.3,000. Krishna enclosed a
bank draft for the balance amount due.
Write up the Consignment a/c, Krishna’s a/c and Abnormal Loss a/c in the books of
Ramadas. Entries are to be made at Cost Price.
(B.Com MU April.1992)
( Ans: Unsold Stock 15 Cases @ Rs.1,420 each of Rs.21,300, Abnormal loss 5 cases @
Rs.1,420 of Rs.7,100 , Special Commission Rs.2,625 – deficiency to be borne Rs.1,500= Net
amount Rs.1,125) and Consignment Loss Rs.16,900)

5. ( Commission and Stock calculation)


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On 15th January 2012 X of Bangaluru sent to Y of Mumbai a consignment of 250 TV sets


costing Rs. 10,000 each. Expenses of Rs.7,000 were met by the Consignor. Y of Mumbai
spent Rs.4,500 for clearance on 30th January 2012 and selling expenses were Rs.500 per set
as and when the sale made by Y. Y sold 150 TV sets on 4 th March 2012 at Rs.14,000 per set
and again on 10th April 2012, 75 sets at Rs.14,400 each. Y was entitled to a commission of
Rs.500 per set plus one fourth of the amount by which the gross sale proceeds less total
commission there on exceeded a sum calculated at the rate of Rs.12,500 per TV set sold. Y
sent the account sales and the amount due to X on 30th April 2012 by a Bank draft.

You are required to show the consignment account and Y’s account in the books of X.
(B.Com April 2000)
(Ans: Commission Rs.1,63,500, Consignment Stock 25 sets @ Rs.2,51,150 and Profit
Rs.6,43,650)

6. (With Abnormal loss and unsold stock)

On September 1992 goods of the value of Rs.2,64,000 was consigned by YES of Bangaluru
to his agent JAY of Mysore at proforma invoice price of 20% profit on cost price. YES of
Bangaluru paid insurance and other forwarding charges on consignment amounting to
Rs.10,000. JAY of Mysore allowed Rs.2,000 being establishment cost. He was entitled to
5% commission on gross sales and an additional 3% del credere commission on credit sales
only. He made an expense of Rs.2,040 as landing charges.

Three – fourths of the goods were sold at 33.33% profit on cost, half of which were credit
sales. One half of the balance of goods were destroyed by fire and a claim lodged for
Rs.28,000 was settled at a discount of 10%. The balances of goods were in stock.

Show the Consignment a/c and the Loss of Stock on Consignment a/c as on 31.12.1992 in
the books of YES of Bangaluru.
(B.Com April 1993)

Ans.: (Consignment Stock Rs.41,105, Loss of Stock Rs.34,505 and Consignment Profit
Rs.37,810)

7. (Consignment at Cost Price with Loss)

Jagan of Ahmadabad consigned 100 cases of Candles to Mohan of Baroda, which cost him
Rs.30 per case. He incurred the following costs: packing Rs.40, carriage Rs.20 and railway
freight Rs.40. Some of the cases were damaged in transit and Mohan took delivery of 90
cases only. Mohan spent Rs.10 for cartage, Rs.40 for godown rent and sold the consignment
at Rs.35 per case. He sent the net amount to Jagan after deducting expenses and his
commission at 5% on sale proceeds. Jagan received Rs.80 from railway as damages.

Prepare necessary Ledger accounts in the books of Jagan


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(April 1990 BU)

(Ans : Candles damaged – 10 Cases of Rs.310 – Rs.80 railway claims= Rs.230 Net claims,
Commission Rs.158 and Consignment Profit Rs.152)

8. (Preparation of Account Sales)

‘B’Lal’ of Bombay sent on consignment to C’Sen’ of Calcutta 300 Boxes of goods at Rs.1250
each on 1st July 1989 to be sold on his account at his risk for 10% commission. ‘B’Lal’
incurred Rs.3000 expenses on dispatching the goods to ‘C’Sen’. ‘B’Lal’ incurred a bill for
Rs.2,00,000 at 2 months from ‘C’Sen. On 30th Sept. 1989 ‘C’Sen sent an Account Sales
disclosing that 200 boxes were sold for Rs.1,600 each and selling expenses Rs.9,000.He sent
a draft for the net amount due.

Prepare an account Sales.


(Nov.1990 BU)
(Ans: Net amount due Rs.2,79,000)

9. (Preparation of Account Sales)

On April 2012 Philips Ltd. of Chennai consigned to R.Shankar a radio dealer at Bengaluru,
200 radio sets invoiced at Rs.300 per set. The cost of each set was Rs.250 and railway freight
of Rs.600 was paid by the Consignor, other expenses being paid by consignee. On 1 st July
2012 R.Shankar remitted an A/C Sales showing that 160 sets have been sold at the price of
Rs.300 per set. They deducted unloading charges and cortege of Rs.30, establishment
expenses Rs.120 and commission at 5% on Sales, remitting the draft for the balance.

Make out an Account Sales.


(April 1991 BU)
(Ans: Net amount due Rs.45,450)

10. (Goods sent at Invoice Price and del credere commission)

Ravi of Calcutta sends 100 Sewing Machines on consignment to Meera of Patna. The cost of
each machine is Rs.1,300, but the invoice price is at the rate of Rs.1,600 each. Ravi spends
Rs.40 on packing of each machine. Meera received the consignment and immediately
accept Ravi’s bill of exchange for Rs.8000. Subsequently Meera informs Ravi that 80
machines have been sold at Rs.1,750 each. Expenses paid by Meera are; freight Rs.700
(Calcutta to Patna) godown rent Rs.50. Meera is entitled to a commission of 6% on Sales
and 2% del credere commission.

Write up Consignment a/c & Goods sent on Consignment a/c in the Consignor books.
(April 1991& Nov.1996/ BU)
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(Ans: Consignment Stock Rs.32,940, Total Commission Rs.11,200 (Rs.8400+2,800) and


Consignment Profit-Rs.20,240)

11. ( Goods sent at Cost price)

Mitra sent goods of Rs.20,000 on consignment to Sakar & Co.,. He spent Rs.1,800 for freight
and insurance on it. Consignee sold some of the goods for Rs.25,000, spent Rs.500 as
godown rent and Rs.600 as wages. Closing stock with consignee was Rs.5,000. Commission
on Sales is 5%.

Prepare Consignment a/c in the books of Consignor and Consignor a/c in the books of
Consignee.
(Nov.1991/BU)

(Ans: Consignment Profit Rs.5,850 and Consignor a/c balance Rs.27,650).

12. ( Goods sent at Cost Price)

Aloknath of Bombay consigned 100 cases of goods to Ramnath of Madras to be sold on his
risk. The cost of one case of goods was Rs.150. Aloknath paid freight Rs.600 and insurance
Rs.200. Ramnath sent a Bank draft to Aloknath for Rs. 10,000 towards advance and sent an
Account Sales showing that 80 cases were sold at Rs.220 each. Expenses incurred by
Ramnath were, Carriage Rs.100, godown rent Rs.500 and advertisement Rs.300. He is
entitled to a commission of 5% on Sales.

Pass necessary journal entries in the books of Mr.Aloknath.


(April 1992& 1999/BU)

13. (Goods sent at Invoice Price with del credere commission)

Mr.Banu of Bangaluru consigned to Mr.Pradeep of Poona goods worth of Rs.60,000 (cost


Rs.40000) paying freight & insurance Rs.5,000 and draws a bill on Mr.Pradeep for Rs.40,000
at 60 days. 9/10th of Consignment sold by Pradeep for Rs.701,000 and incurred the
following expenses on consignment. Rent of Shop-Rs.1000, Advertisement – Rs.500,
Carriage inwards Rs.500, establishment Rs.2,000. Pradeep is entitled to an ordinary
commission of 8% and del credere commission of 2% on total sales. Pradeep remitted the
balance amount by D.D after deducting the packing & freight charges incurred on the
unsold stock returned it to Bombay as per the direction of Mr.Banu. Rs.300.
(April 1990/BU)

14. (goods sent at Cost price with Delcredere commission)

On 1st Sept.1990 S.Gupta of Bombay sent 500 cases of goods at Rs.150 each to Sriram of
Bangaluru to be sold on his account and at his risk for 7.5% commission and 2.5% del
credere commission and incurred Rs. 5,500 towards expenses. S.Gupta received an advance
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of Rs.20,000. On1st Dec.1990 he received an account sales stating that 300 cases have been
sold at Rs.230 each and another 100 cases at Rs.220 each. Sriram has incurred unloading
expenses Rs.750 and selling expenses Rs.1,000 and he sent a Bank draft for the net amount
due.

Prepare necessary ledger accounts in the books of S.Gupta of Bombay.


(Nov.1992/BU)

15. (Special Commission on Surplus Price)

Mr.Joseph of Bangalore consigned 500 Toys to Mr.Pinto of Mysore to be sold on his account
and at his risk. The cost of the Toy was Rs.200. Mr. Joseph paid Rs. 5,500 as freight and
insurance and received Rs.40,000 as advance from Mr.Pinto. Pinto paid Rs.1,000 as Octroi
and carriage and Rs.1,500 as rent and Rs.1,200 as insurance. 410 Toys were sold by Pinto for
Rs.1,10,000. He is entitled to a commission of 5% on Sales at Rs.250 per Toy and 25% of any
surplus price realised.

Pass journal entries in the books of Mr.Joseph.


(April 1993 & Oct.1995/BU)

16. (Goods at Invoice Price)

Krishna Murthy of Bangalore sent a consignment of 2,000 articles to his agent Sri Raghvan
of Tumkur at an invoice price of Rs.20 per article. Railway charges, cartage and insurance
amounted to 10% of the total invoice price. Raghvan sold 1,500 articles at Rs.30 each and
sent an account sales enclosing a Bank draft for the balance after deducting i) his advance
or Rs.5,000, ii) his expenses Rs.500 and iii) his commission at 10% on gross sales. 100 articles
were lost in transit and the insurance company admitted the claim for Rs.1,100.
.
Show the Consignment account and Consignee account in the books of the Consignor.
((Nov. 1993/BU)

17. (Goods destroyed in transit and del credere commission)

Atlas cycles Ltd. Madras forwarded 100 cycles to Pai Traders of Mysore to be sold on
consignment basis. The cost of each cycle was Rs.800. Atlas Cycles Ltd incurred Rs.2,000
towards freight and insurance. 10 Cycles were destroyed due to accident in transit. Pai
Traders received the rest of the consignment and gave an acceptance for Rs.20,000 in
favour of Atlas Cycles Ltd. Paid Traders sold 80 cycles for Rs.1,150 each. They incurred
Rs.1,800 for octroi and carriage and Rs.1,200 towards godown rent. They remitted the
balance due after deducting 5% ordinary commission and 2.5% del-credere commission.

Show the consignment account and Consignee account in the books of the Consignor.
(Nov.1994/BU)
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18. (Goods at Invoice price with del credere commission)

On 1.1.1995 Balu of Bangalore consigned 100 cases (cost price Rs.7,500) at a proforma
invoice of 25% profit on Sale, to his agent Khan of Kolar. On the same date, Balu paid non-
recurring expenses of Rs.600. On 10.01.1995, Khan took delivery and paid Rs.1,200 for
Octroi and other duties and remitted Rs.4,000 as advance. On 31.01.1995 he sold 80 cases
for Rs.10,500. Khan is entitled to 5% commission on gross sales and 10% on sale price in
excess of the invoice price.

Prepare Consignment a/c and Khan a/c in the books of Consignor.


(April 1996/BU)