SLtd. of Surat consigned 5,000 litres of liquor costing 732 each toM Ltd. of Mumbai on Feb. 1, 2015.S Ltd.
naid 5,000as freight and insurance charges. During transit 200 litres were destroyed for which the insurance
company agreed to pay 5,000 in full settlement.
MLtd. paid clearing charges 76,100; godown rent 300 and Salesman's salary 900. It was entitled to 6%
ordinary commission and 4% del-credere commission on sales.
On Jun.30, 2015 MLtd. reported that 4,000 litres were sold at 1,65,000 and 100 litres were lost due to
evaporation. Acustomer who bought liquor for 1,500 could pay only 40% of his amount. MLtd. paid its
balance due by a cheque.
Show the Consignment Account in the books of S. Ltd. |BU B Com (Hons), -Adapted]
Solution Books of S. Ltd.
Dr. Consignment to Mumbai A/c Cr.
Particulars Particulars
To Goods senton Consignment A/c [5,000x *32]| 1,60,000|By M. Ltd. A/c [Sale] 1.65,000
To Bank A/e[Expenses incurred] By Goods Destroyed-in-Transit A/c [WN: 1] 6,600
|-Freight and Insurance charges 5,000 By Consignment Stock Ac [WN:1] 24.500
To M. Ltd. Alc [Expenses incurred by consignee]
- Clearing Charges 6,100
-Godown Rent 300
Salesman's salaries 900 7,300
To M. Ltd. A/c [Commission due]
-Ordinary commission [1,65,000 x6%] 9,900
6,600
-Del-credere commission [1,65,000 x 4%] 6,600 16,500
|To P/L A/c [Profit on consignment-transferred] 7,300
1,96,100 1,96,100|
WORKINGS
1. Value of goods destroyed-in-transit & unsold stock
Litres
Cost of goods sent [5,000 x 32] 5,000 1,60,000
Add: Consignor's exxpenses (being, freight and insurance charges) 5,000
5,000 1,65,000
Less: Goods destroyed -in-transit [T 1,65,000 x 200/5,000] 200 6,600
Goods received by consignee 4,800 1,58,400
Add: Non-recurring expenses incurred by consignee (being, clearing charges) 6,100
4,800 1,64,500
Less: Normal loss 100
4,700 1,64,500
Unsold Stock = [5,000 - 200 -- 100 4,000] = 700 litres 1.64.500x00-24 500
=24,500
.:.Value of 700 litres 4.700
Problem Note Normal loss of 100 litres
" The loss of goods which occurs due to the inherent nature of the goods involved is referred to as
Normal Loss. In this case, 100 litres of liquor lost due to evaporation (being unavoidable) is a normal
loss.
" Since this loss is unavoidable i.e, it has to be suffered, it forms a part of the total cost', which is ultimately
absorbed by the good' units. Here, 5,000 litres were sent of which 200 litres were lost in transit. So, the consignee
received 4,800 litres out of which he managed to sell 4,000 litres and lost 100 litres due to evaporation (i.e. normal
loss).For valuation of unsold stock, 1,64,500 is considered to be the value of 4,700 litres (i.e.the 'good' units) and
NOT 4,800 litres (i.e. goods received).
Del-credere commission and Bad Debt
In thiscase, S Ltd.(the consignor) allows del-credere commission to MLtd. (the consignee). So, it is the responsibility
of M
Ltd. to maintain the debtors and bear any losson account of bad debt. Hence, no accounting is required in the
books of S Ltd.
