Accounts

Consignnent
16.2

without really opening a branch in a

expansion new
Introduction of business goods to an agent who has a potential
despatches
is a kind or wholesaler goods is called the better market, In
Consignment sending the consignor and knowledge of
a manufacturer The person
the the
sale. markets product within the
consignment,
for the purpose The consignee He is also his

of
agent
local market, the consignee. sales. entitled to recover
own who
rate on the
called total
the goods is such periphery and
receives a stipulated does not only market the
commission
at The consignee expenses
receives
with the
consignment. this function, he may well productbut which
to perform be
heincurs in also. If he
connection fails discharges
promotion is not remunerative enough for)replacedby
the function
of sales that the business him,he another,
if the
consignee finds contract for
consignment. may as
the other hand,
to renew the Consignment well
On
may not be interested on consignment. accounts are the
give it up
and
relating to the goods
the transactions
accounts recording

Economics of Consignment it is cost saving. It

economies. First, dispenses with
because of its inherent
tlourishes theneed
Consignment with all its cost inplications. Secondly, the
place or places manufacturer may not
distant markets.
of branch opening to tap distant Consignnent fulfils
at
while he intends both the
to open branches initial and on-going costs. In a word, it is the
have the capacity without much needs,.

facilitates
expansion of simplest and
Consignment mode growth of
expansion and, as such,
a
of territorial
manufacturing companies.
more economical way

Distinction Between Sale and Consignment

Consignment
Sale

buyer (a) In case of a consignment, goods remain the the

is transferred to the property
in goods

of
In case of a sale, property
a consignor until the time they are sold by the consignee.
of goods.
along with the transler

the seller except when (b)Unsold goods of consignment are the property of the consignor
(b) Goods once sold cannot be returmed to

back. and can be returmed to him.

agrees to take those
they are delective or the seller

buyer becomes the debtor of (c) When goods are sold on credit, the buyer becomes the debtor of
on credit, the
(c)When goods are sold

between the buyer and seller is that of the consignor. The relationship between the consignor and the
the seller. The relationship

debtor and creditor. consignee is that of a principal and an agent.

io When gpods are lost ater delvery to the buyer, t is the buyer who () When goods are lost on consignment, tis the consignor who wil

will bear the lass. bear the loss.

Procedure for Consignment Transactions

The consignor sends goods to the consignee along with a Proforma Invoice. An invoice is a document sent

by a seller to a buyer giving detaiis of goods or services sold, their price and terms of payment. A profoma
invoice is a document to show what the invoice woud be. It is not demand
a for payment. It is a memorandum
invoice and serves as a
guide to the consignee in respect of (a) description of the goodsand (b) minimum
selling price to be realised. In the case of foreign consignments, the "ProformaInvoice" serves as a prime
document for customs clearance.
When goods are sent to the consignee the consignor makes a record the consignment
of the
of giving tull detalS
goods, their cost prices and the expenses incurred.
After receivinggoods, the consignee tries to sell them at the best
possible price. It should be noted mu
mere receipt thegoods does not make the
of
consignee adebtor of theconsignor. This is
consgnment are part ofthe inventory because, goou
ofthe consignor.not the consienee. He
when he sells
the goods and becomes indebted to the consiyu
realizes the money. The
the consignment
such as
consignee may haveto spend some money in respect of
the duty of the unloading charges, godownrent
etc., for which he is entitled to be reimbursed.
is
It
consignee to remit the
proceeds the
consignment and his own of sales after deducting his expenses in respect of
commission, to the consignor.
are contaned in an The details of sale
accompanying statement proceeds, expenses anu
known as ccount Sales.""
 The students
shouldl note Fundamcntalsof Accounting
Account but, it is that a 16.5
n0t
nccounting year. To possible to wait
transfer to the
overcome tlhis wntilthe Profit & Loss
account called Profit Aceount would close
Profit und the Consignment
fcomhining tlhe profits Iardshin,
L.oss on theprofit and LOSS Account is
and or loss prepared at the end of tlhe
on
is transferred
the Profit losses ofConsignment consignnent is transferred to a
it
all Account." This account special
Atthe end of the und L.oss consignments in the will also serve
the purpose
6.
Account. accounting
the following entry: financial year, the year. A1the
cnd of the year
If the ()
consignor is a
Goods Sent
on
manufacturer Consignment Account is
Goods Sent on closed by passing
To Trading Consignment
Account
A'c

(Being theadjustment for Dr.

(b) If the goodssent on
consignor is a
wholesaler consignment)
Goods Sent on
Consignment A/c
ToPurchase A/c
Dr.
(Being the adjustment
tor goods
The above sent on
adjustment entry consignment)
should be passed
Account". We know
that every to find out thc
correct profit of
roduced is
transferred
low ifany goods
to Trading
manufacturer prepares General Profit
Account by debiting Manufacturing Account and the total Loss &
have been sent on Trading Account and cost of goods
with the cost of consignment out of those crediting
goodssent on goods. the Irading Manufacturing Account.
when the consignor is a consignnent. Ifthisis not Account must be
wholesaler, whatever done, the general profit will be credited
bat have been sent he purchases he debits his understated.
on consignment purchasesaccount.Now
Similarly.
and the adjusted
out of these goods,
the Purchases if any goods
purchases should be Account musthe reduced
debited to General to that extent
general profit will be understated.
Trading Account. If this
adjustment is not done, the
1
t
Illustration

March. 1995 Kunal of

Caleutta scnds 1.000
boxcs oftea to Bimal of
oneino Rs 500. Kanal pays railway Bombay on consignment
reipht Rs 1.000and basis, cnch bos
for 3 months which was insurance Rs 2.000 and draws upon
duly accepted and returned. Bimal a bill for Rs
2.00,000
On 30th September. 1995 Binal
forvards an Account Sales to
S60 each while 300 boxes
ineured by Bimal
werc sold a
Rs 550 cach and the remainingKamal showing that 500 boxes have heen
boxeS were sold a sold
Rs 540 cach. Ihe expenscs
Rs a
consisted of carriage Rs 5(00: godown
rent Rs 3.500. Bimal is
sales proceeds. Ile encloses a chcque lor tlhe entitled to a commission a 5°o on
bal:ance due to Kanal. gross
Show bow these transactions would hc
secorded in the books of Kaumal,
its due dale. Also
aSSUMe that Kama!ioses the books om 31st assuming that the bill of
exchangc was met on
December.
Solution In the books of
Kamal
Journal
Date Dr. Cr.
Particulars
1995 Rs Rs.
Consignment to Binal A'c
Mar. Dr
To Goods sent on Consignmeri AC 5.00,000
1
O(Being yoods sent on consignmert to Bombay)
5,00,000

"Consignment to Bimal Alc

Dr 3,000
To Cash AlC
3000
(Being freight Rs 1,000 and insurance Rs 2.000 paid for sending goods)
Bills Receivab'e Aic
Dr. 2,00.000
To Bimal Ajc
2,00,000
(Being a billdrawn on Bimal for 3months)
June 4
'Bank Alc
Dr. 2,00.000
ToBils Receivable Alc 2,00,000
(Being the b:llmet at maturity)

305
 I6.6 Consignment Accounts Dr.
5,53,000

Sept 30 Bimal A/c 553000

Dr
To Consignment to Bimal Alc 4.000

(Being goods sold by Bimal)

Consignment to Bimal Ac
To Bimal Alc Dr
consignmen) 27,650
respect of
(Being expenses paid by Bimal in

Consignment to Bimal A/c 27650

To Bimal Ac Dr.
by Bimal 5% on Rs 5,53,000) 3,21,350
(Being commission charged
'Bank A/c 3,21350
To Bimal A/c
due) Dr.
for the balance
(Being a cheque received 18,350

Consignment to Bimal Alc 18,350

Alc
To Profit & Loss on Consignment and Loss on Consignment
Account)
translerred to Profit Dr.
(Delng profit on consignment 18,350
Dec 31 Profit & Loss on Consignment Alc
18,350
To Profit & Loss Ac
Loss Account)
(Being transferred to Profít and Dr. 5,00,000

sent on Consignment Alc

Goods 5,00,00
To Purchases Ac
adjustment for goods sent on consignment)
(Being the
"These entries should bereoorded in theCash Book.

Ledger
to Bimal Account
Dr. Consignment
Particulars
Rs Date Rs
Date Particulars
5,00,000 1995 By Bimal Ac (Sales) 5,53,0
1995 To Goods sent on Consignment Alc
Sept 30
Mar 1 3,000|
To Cash Ac (Expenses)
Sept 30 To Bimal Alc
500
Carriage
3,500
Godown Rent
27,650
Commission
18,350
To Profit & Loss on Consignment A/c transfer

5,53,00
5,53,000

Cr
Dr. Goods sent on Consignment Account
Particulars R
Rs Date

Dec 31
Date

To Purchases A/c
Particulars

5,00,000Mar 1By Consignment to Bimal Alc 5000

Cr

Dr. Bimal Account

Rs
Particulars
Date Particulars Rs Date
20
5,53,000 Mar 1 By Bills Receivable Alc
Sept 30 To Consignment to Bimal Alc
Sept 30 By Consignment to Bimal Ac
321,.390
By Bank AWc
55300

5,53,000

Dr. Profit & Loss on ConsignmentAccount

Dec 31
Date

To Profit & Loss Alc

Particulars

Bills
Rs

18,350

Receivable
|
Sept
Date

30

Account
By Consignment
Particulars

to Bimal Alc

Dr.
Particulars
Rs Date 2000
Particulars
Date
2,00,000 June 4
By Bank Ac
Mar 1
To Bimal Alc
 Fundamentals of Accounting
16.7

Dr.
Purchases Account
Particulars (inclusive)
Dale Rs Cr.
Date
Paricutars
Dec 31
By Goods
Profit & Loss Accountfor the 3ent on Consignment A/c 500000
Dr. year ended
Particulars 31.12.95 [Extract) Cr.
Rs
Date Date
Particulars Rs
By Profit & Loss on consignment Alc 18,350

Consignment and Valuation of Closing

Incomplete Stock
is not necessary
thatt all consignments should be
completed during the
accounting ycar.
Therc may be certain .
It
which are incomplcte when the
consignments consignor's accounting to an end. Under such a
will be required to submit an year comes
situation,
the consignce Account Sales stating sales, cxpenses and commission
date ofthe accounting ycar. After receiving the Account Sales, the unsold stock with
upto the last the consignee
The stock so valued should be credited to the Consignment
valued.
should be Account. The entry is:
A/c Dr.
Stock on Consignnment
To Consignmentto ... A/c
(Being the value of stock of incomplete consignment)
he Balance Sheet. this stock is shown as an asset. In the next accounting year, this stock is transferred

entry is passed:
to Consipgnment Accoint. The following
Dr.
to .... A/c
Consignment
To Stock on ConsignmentA/c
brought into account)
on consignment
(Being the opening stock

Valuation of Unsold Stock

ofconsignment stock. We
know that stock should
and procedures for valuation stock as well.
Now,we discuss the principles applies to consignment
is lower. This
principle
market price, whichever expenditure
he valued at cost or price." "Cost"includes
all

are to ascertain cost price" and market sending goods upto the
The main problems and all expenses incurred for
the goods to a saleable condition insurance on goods sent, loading
incurred in bringing export or import duties, or by
These include freight,carriage, mnay he incurred by the consignor
consignee'splace. that the expenses
he noted cost are popularly
charges, etc. It should
in the
and unloading which are included con
the aboveexpenditures the goods have reached
is inmaterial. All after
the consignee-which incurred godown rent,
Expendituures.
The expenditure These include
known as Non-Recurring of stock on consignment.
for the valuation other selling expenses.
place should be
ignored or any
signec's insurance for godown
consignment stock :
expenses, for valuation
of
on sales, establishment be followed
carrizge format should
the following
In the examination,
Closing Stock
Valuation of Rs. Rs.

Particulars

sent
Cost price of goods
Consignor's Expenses
Add:

Freight

Carriage
charges
Loading & Unloading
sent
Insurance on goods
& Import duties
Export
dues etc.
Dock

Consignee's Expenses
Add:
Cartage

Landing charges

Unloading Expenses
Total Cost

307
 16.8 C'onsignment Accounts

Iotal Cost
The cost of unsold goods x Unsoldl quantiy:
Total qIntiy

Alternatively.
Rs.
RS
Valuation of Closing Stock
Particulars

Cost price of goods unsold

Add: Proportionate non recuring Expenses by.

Consignor

Consignee of the consignee

are still in transit, the expenses
of the goods
At the end of the accounting year,if some part
for the valuation of of conservatism, stock in transit. all

are generally not taken into consideration

Value (NRI). Applying
the concept will include
Here, "larket Pric"» 'neans Net Realizable which
those goods are to he provided for,
in sclling
possible other expenses to be incurred
should be
the amount of commission payable to the consignee. manner, the smaller one
Market Price" inthe above regarding
the Cos Price"and if there is no indication
A fter computing
Jntheexamination problem,
taken as the value
of stock on consienment,
more than the cost price and valuation should be done
narket price is
market price, weshould assume that
accordingl.

Illustration 2 Rs 1,000 per case to Medicine

sends 500 cases of medicine costing
On 30th September,1995. Dey's
Medical of Calcutta
the following expenses: packing expense @
Rs 20 per case
Delhi on consignment basis. Dey's Medical incurred expenses
in cash); forward
Corner of agent's
Rs 10.000 (paid
premium Rs 2.000 (paid by cheque):
freight
(paid in cash): insurancc

Rs that 200 cases have

1.000 (due). to Dey's Medical showing
Corner forwards an Account Sales
On 31st Deccmber, 1995. Mediçinc 50cases reimaincd unsold. Medicine
were sold Rs 1.200 per case and the
@
Rs 1.250 per case while 250 cases
been sold
Corner paid the following eNpenses
pavce
cartage :
Rs 2,000; unloading
chcque for Rs 4,00,000.
Rs I.000 and Rs 2.000 as godown rent. Account Sales

accompanying an account
was to receive 5% commission on sales.
Under the agreement Medicine Corner
to Delhi Account: (ii) Mcdicinc
(orner Account: (iii) Stock on Consignment
to show: ()) Consignnent
You are required
Consignment.Account in the Ledger of Dey's Medical Balancc Sheet. &
Account: and (iv)Goods sent on
In the books of Dey's Medical
Solution Cr.
Consignment to DeihiAcCoUnt
Dr.
Particulars Rs
Rs Date
Particulars
Date
5,00,000 1995 By Medicine Corner Alc
1995 To Goods Sent on Consignment Alc
Dec 31 200 @Rs 1,250 2,50.000
To Cash Alc
Sept 30
10,000 250 @ Rs 1,200 3,00.000
Packing
52,600
10,000 By Stock on Consignment Alc {Note 1)
Freight

To Bank AC
2,000
Insurance premium

To Creditors for Expenses Alc

Forwarding Agent's expenses 1,000

Dec 31 Medicine Corner A/c

2,000
Cartage
1,000
Unloading
Godown Rent 2,000

Commission 27,500

& Loss on Consignment A/c 47,100

To Profit

6.02 600 6,02 600

 Fundamentals of Accounting 16,9
Dr.

Date
Medicine Corner
To Consignment
Particulas Account Cr.
Dec 31 to Delhi A/c Date
Particulars
5,50,000 Dec31 By Bank Ac 4.00,090
By Consignment to Delhi Alc 32.500
By Balance cid
1.17500
5,50,000
Dr.
550000
Stockon
Date Particulars Consignment Account Cr.
To Consignment Rs
Dec. 31 to Delhi A/c Date
Pariculars Rs
52,600 Dec 31 By Balance cdd
Dr. 52 600
Goods sent on
Date Consignment Account
Particulars Cr.
Rs
To Trading Date
Dec 31 Alc Particulars Rs
5,00,000 Sept 30
By Consignment to Delhi Alc 5.00,000
Balance Sheetof Dey's
Medical asat December31, 1995
Liabilities (Extract]
Rs
Assets Rs
Medicine Comer
1,17,500
Stock on consignment
52,600
Working Note :
(1) Valuation uf Closing Stock

Cost price:500 cases@ Rs 1,000 per case Rs

Consignor's Expenses 5.00,000

Packing
10.000
Freight
Insurance 10,000
2,000
Forwarding Agent's Expenses
1,000 23,000
Consignee's Expenses
Cartage
2,000
Unloading
1,000 3.000
Total cost : 526.000

Value of unsold stnclt Rs5.26.000 x 5)= Rs S2.600.

500

Illustration 3
On Ist January. 1995 Chatterjec Bros ofCalcutta shipped to Shanton Bros of Tokyo 400 musical instruments of the value
of Rs 350cach. Chatteriee Bros incurred the following expenses on the consignmcnt:cartagc Rs I50, freight Rs I.950 and
Insurance Rs 2,500.
The charges incurred by Shanton Bros were landing charges Rs 450: storage Rs 1.500 and Rs 1250 as fire insurance
premium on stock.
On 31st December 199S. an Account Sales was reccived fron Slhanton Bros disclosing that 350 instruments were sol
out at Rs 950 per instrument. Towards the closc of the vear, suddenly a ncw type of instrument appcared in the market and
there was no possiblity of selling the balance ot the goods at a lhigh price. Ihemarket price fell down to Rs 250 ner

instrunent. In theAccount Sales. besides their expenses. Shanton Bros. charged commission at Is,on the gross sale
procecds. The unsold eoods were held by them. A bank dralt for the amount due was sent along with the AcountSales
You are reauired to prepare: (i) Consignment to Tokyo Ac: Slianton Bros () Personal Ac. and (i1)Goods Sent on
Consignment A/c in the l edger of Chatterjec Bros.

In the books of Chatterjee Bros

Solution
Dr. Consignmentto Tokyo Account Cr.
Rs Date ParticularS
Particulars Rs
Date
Ac 140,000 1995 By Shanton Bros Alc
1995 To Goods sent on Consignment
Dec 31 350 @Rs 950 each 3.32 500
Jan 1
To Cash Ac