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Assignment - Accounting for Consignment

Concept 1 - Meaning of Consignment
Consignment is dispatched of goods by one person (or firm) to other person (or firm) on the basis that goods
will be sold by the latter on behalf of and at the risk of the former in consideration of commission. The
person sending the goods is called the Consignor and the person to whom the goods are sent is called the
Consignee. The legal relation between the consignor and the consignee is that of principal and agent.
Consignor remains the owner of the goods until the goods are sold by the consignee to the final customer.
The consignee receives sale proceeds and pays expenses on be of the consignor.

Concept 2 - Parties of Consignment
Consignor: The person who is sending the goods (principal)
Consignee: The person who receives the goods and sends them on commission
basis.

Concept 3 - Difference between Consignment and Sale
Basis Consignment Sale
1. Definition


2. Parties
3. Ownership

4. Possession

5. Relationship

6. Risk


7. Return

8. Expenses
9. Remuneration
The process whereby one person
(consignee) sell goods on be of other
person (consignee) on commission basis.
Consignor and Consignee.
Ownership is not transferred.

The transfer of possession is Imp. in case
of consignment.
Principal and Agent.

Risk is not transferred. It is of consignor
since risk follows Ownership.

Goods can be retuned by the consignee if
remained unsold.
All expenses are borne by consignor.
Consignee receives commission on sale
of goods.
Transfer of goods or property by seller to
buyer for a price.

Buyer and Seller.
Ownership is immediately transferred.

In sale, goods may be delivered at a later
date.
Seller & Buyer and Debtor & Creditor.

Risk is transferred. Risk is now of buyer.


Goods can be returned except in case of
breach of condition of sale.
Buyer meets his own expenses.
Buyer does not receive any commission.

Concept 4 - Types of Commission

1. Ordinary Commission It is remuneration of the consignee relating to services performed in
connection with the selling of goods on be of consignor. It is usually calculated as an agreed
percentage on gross proceeds of sale. Besides the normal commission, Consignee may be allowed
following commission also.
2. Del-Credere Commission It is additional commission paid by the consignor to the consignee for
bearing the loss on A/c of bad debts in case of credit sale of consignment stock. Thus where the
consignee gets del -credere commission, he guarantees the payment from consignment debtors. Del -
Credere commission is also paid, generally, at fixed percentage of the gross sale proceeds. Sometimes it
is agreed that del-credere commission will be paid only on credit sales. In the absence of such an
agreement, it is calculated on the gross sales proceeds.
a) If D.C.C. paid: Loss of bad debts is of consignee.
b) If D.C.C. not paid: Loss of bad debts is of consignor.

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1. Over- Riding Commission It is extra commission allowed to the consignee in addition to the normal
commission usually for making extra efforts to sell a new product in the market. It is also calculated at a
predetermined percentage of gross sales proceeds.

Concept 5 - Expenses of Consignee
The expenses of consignee can be categorized into two ways:
Direct: Expenses incurred for reaching goods up to godown.
Indirect: Expenses incurred after godown.
Direct or Non-Recurring: e.g. Custom Duty, Clearing charges, Landing charges, Import duty, Carriage
inward, Octroi, Dock charges, Freight.
Indirect or Recurring: e.g. Carriage outward, Export duty, Advertisement, Salaries, Printing & Stationary,
Godown rent, Warehouse charges, etc.

Concept 6 Types of Prices
a) Cost price
b) Invoice price
c) Sale price
d) Surplus price

Concept 7 Calculation of Commission
E.g. A sends 1000 cycles to B costing Rs. 500 at an invoice price of Rs. 600. B sold 700 cycles for Rs.
7,00,000. Commission is allowed to be 1% of sale price, 5% of invoice price and 10% of surplus price.
Calculate commission.
[Ans. Total = Rs. 56,000]

Concept 8 Treatment of Discount on Bills Receivable
Two alternatives:
a) If discount is treated as consignment expenses, it is debited to consignment A/c
b) If discount is treated as financial charges, it is debited to P/L A/c

Concept 9 Calculation of Closing Stock
a) If no normal loss and abnormal loss
Cost or invoice price of goods unsold
Add: proportionate expenses of consignor
Add: proportionate direct expenses of consignee
b) In case of normal loss but no abnormal loss
Closing stock= Total cost of GSC + Expenses of Consignor + Direct Expenses of
Consignee + X Closing stock unit
Total units of GSC Normal Loss units
GSC means Goods Sent on Consignment
c) In case of Normal Loss & Abnormal Loss
Closing stock = Total cost of GSC + Expenses of consignor +Direct Expenses of
consignee gross abnormal loss + X Closing stock units
Total units of GSC normal loss units abnormal loss units

Concept 10 Normal Loss and Abnormal Loss
Abnormal loss of stock: Any abnormal loss E.g. loss due to fire, accident, theft, negligence etc will be
treated in the books of consignor in such a manner that consignment profit is not recorded. While
calculating the value of loss, proportionate expenses up to the time of occurrence of loss are included.

Normal Loss of stock: Any loss which occurs doe to natural causes e.g. normal leakage, loss in weight
due to nature of goods, etc is termed as normal loss. Such loss inflates the value of closing stock.

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Practice Questions

Question 1: A consigned to B goods at Ajmer. B was entitled to the commission of 3% on invoice price and
20% of any surplus price. Goods costing Rs. 24,000 were consigned. This was invoiced at a price to show a
profit of 25% on invoice price. A paid thereon Rs. 1,500 for freight and Rs.500 for insurance. On arrival, B
incurs Rs. 800 as landing charges and Rs. 2,000 for selling expenses. B sold 4/5 goods for Rs. 30,000. Show
the ledger in the books of A. [Ans. Profit = Rs. 4,912, CS = Rs. 6,960]

Question 2: A Ltd. consigned 100 bicycles costing Rs. 250 each at invoice price of Rs. 300 each. A Ltd.
incurs Rs. 1,000 in freight and Rs. 10,000 as advance. B paid Rs. 500 on Octroi, Rs. 400 as Rent and Rs. 300
as Insurance. B sold 80 bicycles for Rs. 25,000. B is entitled to a commission of 5% on invoice price and
25% on any surplus . B paid through bank for the balances.
[Ans. Profit = Rs. 1,650, CS = Rs. 6,300, Consignee Balance = Rs. 12,350]

Question 3:
A consigned to B goods costing Rs. 20,000
Consignor expenses: Carriage Rs. 1,500, Transit Insurance Rs. 500
Consignee expenses: Cartage Rs. 800, Carriage on sale Rs. 1,100,
Advertisements Rs. 400, Consignee sold 80% of the goods for Rs. 35,000. He is allowed to a commission of
5% on sales. [Ans. Profit = Rs. 13,510, Stock = Rs. 4,560]

Question 4: A consigned to B 100 cases at an invoice price of Rs. 10,000. Invoice price is 25% on sales.
Consignor paid Rs. 600 as freight. Consignee paid Rs. 1,000 as import duty and dock dues as Rs. 200 B
sold 80 cases for Rs. 10,500. He was allowed to a commission of 5% on sales.
[Ans. Profit = Rs. 2,535, CS = Rs. 2,360]

Question 5: A consigned to B 1,000 tonnes of coal at a cost of Rs. 100 per tonne. Consignor paid 10,000
towards freight. B accepts a bill for Rs. 50,000 for 2 months. Consignee reported that
a) There was shortage of 50 tonnes due to loading and unloading (N.L.)
b) 800 tonnes were sold at Rs. 130 per tone
c) Expenses: Godown rent Rs. 500, Selling expenses Rs. 1,000, Insurance Rs. 500,
d) Commission 4% on sale proceeds.
[Ans. Profit = Rs. 5,208, CS = Rs. 17,368]

Question 6: A consigned to B 1,000 tonnes of Wheat invoiced @ Rs. 400 per tonne. The cost price was Rs.
370 per tonne. Consignor paid Rs. 15,000 as Loading charges. Consignee sold 900 tones @ Rs. 500 each,
with selling expenses Rs. 27,200. Commission 1% of gross sales. There is a normal loss of 10 tonnes.
[Ans. Profit = Rs. 68,300, CS = Rs. 35,000]

Question 7: Mohan consigned 400 packets of lipsticks, each packet containing 100 lipsticks. Cost of each
packet was Rs. 300. Mohan spent Rs. 50 per packet as cartage & freight. One packet was lost on the way
and Mohan lodged a claim of Rs. 270, claim was admitted. Consignee paid Rs. 19,950 on non-recurring
expenses and Rs. 11,250 as recurring expenses. He sold 370 packets @ Rs. 5.50 per lipstick. Commission
2% on sale plus 1% del-credere commission.
[Ans. Profit = Rs. 38,145, CS = Rs. 11,600, AL = Rs. 80]

Question 8: 1,000 bicycles were consigned by A to B for Rs. 150 each. A paid Rs. 10,000 as Freight and
Rs. 1,500 Insurance in transit. During transit 100 bicycles were totally damaged by fire. B took delivery and
spent Rs. 1,530. B sent a draft of Rs. 50,000 for advance payment. B sold 800 cycles for Rs. 220 each. Bs
expenses is Rs. 2,000. Bs commission @ 5%. Insurance claim is Rs. 14,000.
[Ans. Profit = Rs. 34,640; AL = Rs. 2,150; CS = Rs. 16,320; Balance =Rs.1,13,670]

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Question 9: A consigned to B 100 scooters, cost of each scooter was Rs. 6,000 but was invoiced at cost +
25%. Following expenses are incurred by A: Freight Rs. 3,500 and Insurance Rs. 1,500. During transit one
scooter was damaged and insurance of claim Rs. 4,500 was received. B sold 7 scooters for Rs. 7,500 each
and paid Rs. 1,700 as storage expenses. He accepted a bill of Rs. 45,000 for 3 months. A discounted the bill
@ 6% p.a. Commission was allowed at 5%.
[Ans. Profit = Rs. 5,825, AL = Rs. 1,550, CS = Rs. 5,56,600 ]
Question 10: A consigned goods of the value of Rs. 2,64,000 at a invoice price of 20% profit on cost. A
paid Rs. 10,000 as carriage and other expenses. B incurred Rs. 2000 as selling expenses. Commission
allowed being 5% and 3% on credit sales (Del-credere). B spent Rs. 2,040 as landing charges 3/4 of goods
were sold at 33.33% profit on cost, of which were credit sales. of the remaining was destroyed by fire
and insurance claim of Rs. 28,000 was lodged which was settled at a discount of 10%.
[Ans. Profit = Rs. 37,810, CS [I.P.] = Rs. 41,105]

Question 11: A consigned 10,000 kg of oil to B for Rs. 2 per kg. A incur Rs. 5,000 as freight. During transit
250 kg were accidentally destroyed by fire for which insurance company paid Rs. 450. B took delivery and
sold 7,500 kg at Rs. 3 per kg. Expenses of B Godown rent Rs. 200, Advertisement Rs. 1,000; Salesman
salary Rs. 2,000. B is entitled to commission of 3% plus 1.5% del-credere commission. A party who has
bought 1,000 kg was able to pay only 80% of the amount due from him. B reported a loss of 100 kg due to
leakage in godown (normal). [Ans. Stock = Rs. 5,431, Balance = Rs. 18,287]

Question 12: A consigned 1000 cases of goods costing Rs. 100 each to B. A pays Carriage Rs. 1,000;
Freight Rs. 3,000; Loading charges Rs. 1,000. B sold 700 cases at Rs. 140 per case and incur Clearing
charges Rs. 850; Warehouse and Storage Rs. 1,700; Packing Rs. 600. If found that 50 cases have been lost in
transit and 100 cases are still in transit. Commission to be allowed 10% on sales.
[Ans. Closing stock = Rs. 15,900, AL = Rs. 5,250]

Question 13: A sent cotton goods to B invoices at Rs. 1,000 The invoice price was worked out by adding
25% to cost. Expenses of A: Packing Rs. 24; Carriage Rs. 16; Insurance Rs. 12; other expenses Rs. 26. B
sold the goods for Rs. 600. Expenses by B: Freight Rs. 30; Insurance Rs. 28; Commission 7.5% on sales.
No sale could be made of remainder and they were brought back after 9 months of a further cost of Rs. 60
The goods were damaged and valued at 20% below cost.
[Ans. Loss = Rs. 121, GSC = Rs. 320]

Question 14: A consigned to B Rs. 50,000 of goods. This was made by adding 25% on cost. A paid Rs.
4,000 as expenses. During transit 1/10 of goods were destroyed and insurance claim was Rs. 2,400. On
delivery B paid Rs. 1,800 as Carriage, Rs. 3,600 as Godown rent and Rs. 1,900 for Selling expenses. 1/9 of
remaining goods were destroyed by fire and no claim was received. B sold the original goods for Rs.
30,000. Commission 5% on sales.
[Ans. AL 1 = Rs. 4,400, AL 2 = Rs. 4,600, CS = Rs. 16,800]

Question 15: Meena & Co. of Calcutta who sent 100 sewing machines on consignment to Najma of Patna
spent Rs. 250 on packing. The cost of each machine was Rs. 112 but it was now invoiced at 25% above cost.
One case containing 5 machines was loss in transit. Najma was asked to pay Rs. 475 as freight on the
remaining machines. He had to spend Rs. 95 as cartage and Octroi duty, Rs. 90 as godown rent. He sold 75
machines @ Rs. 190. He found 10 machines defective and therefore returned to Calcutta at a cost of Rs. 50.
Najma is entitled to a commission of 5% on invoice price, 20% of any excess realized on the invoice price
and 1% del-credere commission. Najma could not realized sale proceeds of 5 machines. Prepare
Consignment A/c, Consignees A/c, Consignment Stock A/c and Consignment Stock Reserve A/c in the
books of Meena & Co.
[Ans. AL = Rs. 572.50, Stock = Rs. 1,485, Profit = Rs. 3,470]


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Question 16: A of Delhi sent 1,000 machines parts to B of Calcutta on Consignment Basis. The cost of each
machine part was Rs. 100, but was invoiced to B at cost + 25%. The expenses of A were: Freight Rs.
12,000; Insurance Rs. 13,000. During the transit 100 parts were destroyed and the Insurance company paid
Rs. 10,000 towards the claim. B sold 800 parts at Rs. 150 each and paid for Insurance and Storage Rs. 3,000
and Rs. 2,000 respectively. B also accepted a bill for Rs. 80,000 at 3 months drawn by A which A
discounted immediately with his bank at 6% p.a. It was agreed that B is to get 5% commission. Prepare
Consignment A/c, Abnormal Loss A/c and Bs A/c.
[Ans. Profit = Rs. 9,000, AL = Rs. 12,500, Stock = Rs. 15,000]

Question 17: 1,000 bicycles were consigned by Roy & Co. of Calcutta to T.Nu of Rangoon at an invoice
cost of Rs. 950 each. Roy & Co. paid Freight Rs. 65,000 and Insurance Rs. 11,500. During the voyage 100
bicycles were totally damaged by fire had to be thrown overboard, T.Nu took delivery of the remaining
bicycles and paid Rs. 86,400 for custom duty. T.Nu sent a bank draft to Roy & Co. for Rs. 3,20,000 in
advance payment and later sent an A/c sales showing that 800 cycles were sold at Rs. 1,400 each. Expenses
incurred by T.Nu on godown rent and advertisement etc Rs. 12,500. He is entitled to a commission of 5%.
Prepare the necessary A/cs, assuming that nothing has been recovered from insurers due to defect in the
policy.
[Ans. Profit = Rs. 1,53,500, AL = Rs. 1,02,650, Stock = Rs. 1,12,250]

Question 18: On 1
st
Jan, 1998 goods cost price of which was Rs. 66,000 were consigned by Ram of Delhi to
agent Haldi Ram of Dadri at a proforma invoice price of 20% above cost. Haldi Ram paid freight and other
forwarding expenses as Rs. 2000. He was allowed Rs. 1000 per month towards establishment cost; 5%
commission on gross sales and 3% del-credere commission. Haldi Ram paid Rs. 500 as rent of godown for 3
months ended 31
st
March,1998. of the goods were sold for Rs. 66,000 of which were credit sales. of
the balance of goods were stolen, but the stock being insured, a claim lodged for Rs. 7,000 was settled for
Rs. 6,900. Prepare necessary A/cs in the books Ram.
[Ans. Profit = Rs. 6,220, AL = Rs. 8,500, Stock = Rs. 10,150]