MODULE 2

Consignment Accounts
Introduction:
Business enterprises, apart from marketing their goods directly, also market them through agents. When
organizations do not have a reach for all markets or do not have sufficient knowledge about certain markets,
they appoint agents who have better knowledge of the local markets, for marketing their products. Such
arrangement of sending goods to agents for further sale by them in the pre-defined market is called
Consignment. The agent will be compensated with commission for marketing the goods on behalf of his
principal, i.e., the business enterprise (manufacturer or wholesaler or dealer).

Meaning of Consignment
Consignment is an agreement under which a manufacturer or a wholesaler sends goods to his agent for the
purpose of sale on his behalf and at his own risk on commission basis. The person sending the goods on
consignment to another person is called consignor (Principal). The person to whom the goods are sent on
consignment is called the consignee (Agent). The relationship between the consignor and consignee is that
of principal and agent. The consignee sells the goods on behalf Of the consignor and may be allowed to incur
expenses for this purpose. The expenses and losses incurred by the consignee for selling the consigned goods
will be reimbursed by the consignor unless otherwise agree.
Thus, Consignment refers to sending of goods by a principal to his agent, who on behalf of the principal in
return for a commission.

Features of Consignment
1. Goods are forwarded by the consignor to the consignee with an objective of sale at a profit.
2. The person sending the goods on consignment is called the consignor and the person to whom the goods
are sent on consignment is called the consignee.
3. Under the consignment, goods are to be treated as the property of the consignor and to be sold at his risk
entirely. The consignee does not buy the goods, he merely undertakes to sell them on behalf of the
consignor. He is not responsible for any loss or even for any destructions or damages to the goods. But the
consignee should not show any negligence.
4. The consignor does not sell the goods to the consignee. Therefore, he cannot ask the consignee to pay the
price of the goods unless they are sold and the sale proceeds are actually realized.
5. The consignee agrees to sell the goods for an agreed rate of commission and is allowed to deduct his
commission due from the sale proceeds.
6. The relationship between the consignor and the consignee is that of principal and agent.
7. The consignee is generally allowed to incur expenses to sell the goods consigned which will be reimbursed
by the consignor.
8. Any stock remaining unsold with the consignee belongs to the consignor.
9. As the consignee acts on behalf of the consignor, the profit or loss on sale of goods sent on consignment
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belongs to the consignor.

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10. When the good are sent by the consignor he prepares a Proforma Invoice and sends it to the consignee.
11. Sometimes before sending the goods, the consignor may require the consignee to remit some money as
advance.
12. The consignee sends periodically to the consignor a statement called Accounts Sales giving details of
goods sold, Expenses incurred by him etc.

Advantages of Consignment
a. It enables a business enterprise to reach its goods to every place in the country and even outside,
without the organisation having its presence there.
b. It is most economical form of business expansion since without opening branches, the market for
goods can be increased and maximized.
c. It enables the business enterprise to capture better market share and be a dominant player in the
industry.

Important terms used in consignment

1. Proforma Invoice:
A Proforma Invoice is a statement prepared and sent by the consignor to the consignee giving the details of
the goods sent. It looks like a regular invoice. But it does not make the consignee, responsible to pay the
amount mentioned therein, I.e., it does not make the consignee a debtor for the amount mentioned therein.
A specimen of proforma Invoice is given below
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2. Commission:
Commission is the remuneration paid to the consignee by the consignor for the services rendered by the
consignee in selling the consigned goods. Generally, commission is calculated on the total sates effected by
the consignee. The commission, a consignee received may be of three types which may be paid
simultaneously or isolation.
(i) Ordinary Commission:
The commission paid to the consignee when he is not responsible for any bad debt is called ordinary
commission. It is calculated as a fixed percentage on total sales made by the consignee. The term commission
simply denotes ordinary commission.
The ordinary commission can be calculated in the following ways.
a) Commission Per Unit x Units Sold
b) Commission % x Total Sales
(ii) Del Credere Commission:
The commission paid to the consignee when he is responsible for the bad debts incurred out of credit sales
effected by him is called del-credere commission. In other words, it is the additional commission paid to the
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consignee to bear the loss of bad debts incurred by him. When del-credere commission is paid to the
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consignee, the consignor need not bear the loss of bad debts arising due to the credit sales made by the
consignee.
If consignor does not pay Del-credre commissions then, entire responsibility of credit sales and collection
from debtors belongs to consignor. Bad debts is also forne by consignor and Bad debt is debited to
Consignment Account. Normally, commission is calculated in the following manner:
DCC = Del-credre Commission % x Total Sales
(iii) Over-riding Commission:
It is an extra commission allowed by the consignor to the consignee to promote sales at higher price than
specified or to encourage the consignee to put hard work in introducing new product in the market.
Depending on the agreement between consignor and consignee, it is calculated on total sales or on the
difference between actual sales and sales at invoiced price or any specified price.
The overriding commission (ORC) is calculated in the following manner
ORC = ORC% x surplus Price Realised (SPR)
Where: SPR = (a) Gross Sales – Cost Price of Goods Sold or
(b) Gross sales – Invoice Price of goods sold or
(c) Gross sales – Specified selling Price of goods

Illustration - 1 (Problem on Calculation of Commission)

Mr. Ajith sent 2,500 units costing 1,000 each to Mr. Kumar. Mr. Kumar sold 1,500 units at 1,420 per unit on
credit and 750 units at 1,400 each for cash.
Calculate commission payable to consignee in the following cases:
a) If Mr. Kumar was entitled to a commission of 50 per unit sold.
b) If Mr. Kumar was entitled to an ordinary commission at 5% and Del-Credre commission at 2% on sales.
Solution:

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Illustration – 4 (Problem on Calculation of Commission)
Mr. Amar sent 2,500 units costing 1,OOO each to Mr. Ramesh. The goods were to be sold so as to yield a
gross profit of 20%, on sales. Mr. Ramesh sold 1,500 units at 1,420 per unit on credit, and 750 units at 1,400
each for cash.
Calculate the over-riding commission at 2% on any surplus price realized by Mr. Ramesh.
Solution:
1. Calculation of Total Sales or Gross Sales:

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3. Advance:
Sometimes consignor may ask the consignee to pay an advance for the part of the Value of goods consigned.
Consignee may send the advance in the form of a draft or cheque. If the consignee is not in a position to pay
advance money, a Bill may be drawn on consignee. Consignor may discounts the Bill and gets the money.
The amount of discount on the Bill may be debited to discount account. This Advance will be deducted from
the sales proceeds. While making the final payment by the consignee.

4. Account Sales
Periodically the consignee sends to the consignor a statement giving the details of goods sold, expenses
incurred by him on the goods consigned, commission earned by him, amount of advance adjusted, balance
outstanding etc. This statement is called Account Sales. The ‘Account Sales’ contains the following details:
a) Sales effected by the Consignee,
b) Expenses incurred by the Consignee.
c) Commission earned by Consignee,
d) Advance paid by the consignee, if any, and
e) Net amount due from the consignee to the consignor.
Consignor makes record of consignment transactions in his books based on the Account Sales received by
him from the Consignee.

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Recurring and Non-recurring Expenses
Consignor and consignee have to incur some expenses for dispatching and selling the goods. These expenses
of consignment are of two types: Non-Recurring Expenses and Recurring Expenses.

Non-recurring Expenses
All the expenses incurred till the goods reach the premises of the consignee and the expenses incurred to
bring the goods in a saleable condition are treated as direct expenses or non-recurring expenses. These
expenses may be incurred either by the consignor or by the consignee depending upon the terms of the
agreement between them.
As these direct expenses are incurred only once, that is, at the time of sending the consignment, these are
called non-recurring expenses. These expenses increase the value of the goods and hence are added to the
cost while determining the value of closing stock. These expenses are paid by the consignor or by the
consignee on behalf of the consignor.
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Recurring Expenses:
All the expenses incurred by the consignor and the consignee which do not increase the value of goods are
called recurring expenses or indirect expenses. They include
(i) The expenses incurred by the consignee after the goods reach the premises of the consignee such as office
and administration expenses, storage expenses, selling and distribution expenses.
(ii) Discount on bills (accepted by the consignee) discounted, expenses on goods returned, etc.

ACCOUNTING FOR CONSIGNMENT TRANSACTION

When goods are sent by consignment and further sold by consignee, it is essential for the consignor to know
the profit or loss made from consignment transactions and the net amount receivable from the consignee.
The consignee would also be interested to know the amount due from his end to the consignor and how
much commission he earned after recovering the expenses incurred by him. For enabling this, accounts have
to be prepared in the books of both Consignor and Consignee. The accounting treatment for consignment
transactions is hence discussed under the following headings:
1. Accounting in the books of Consignor.
2. Accounting in the books of Consignee.

ACCOUNTING TREATMENT IN THE BOOKS OF CONSIGNOR

The recording of consignment transactions in the books of consignor, the accounting treatment in the books
of Consignor and eliciting of results and required details, depends on whether the goods are sent by
Consignor to Consignee at ‘Cost Price’ or ‘Invoice Price’ (i.e., at a price above cost price). Hence, the
accounting treatment in the books of Consignor is discussed under the following situations:
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A) When the goods are sent by consignor to consignee at Cost Price.

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B) When the goods are sent by Consignor to Consignee at Invoice Price.

(A) WHEN THE GOODS ARÉ SENT BY CONSIGNOR TO CONSIGNEE AT COST PRICE
When goods are sent by consignor to consignee at cost price, for ascertaining the results from consignment;
and other details, the following accounts must be prepared:
In the books of consignor
1. Consignment Account
2. Goods Sent on Consignment Account.
3. Consignee’s Account.
Journal Entries
The following are the various transactions under consignment and the respective entries to be passed in the
books of consignor:

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Based on the above entries, the relevant accounts are prepared.
1. Consignment Account: It is prepared by the consignor showing all transactions relating to a particular
consignment. The objective of this account is to ascertain net profit/loss arising from each consignment.
Once goods are consigned by the consignor, its cost is debited to the Consignment Account along with
various expenses incurred by the consignor and the consignee in dealing with that particular consignment.
The commission due to the consignee is also debited to the consignment Account. When Del Credre
commission is not paid the bad debts if any are also debited this account. Once the goods reach the consignee
some of these will be unsold and the rest sold either in cash or credit.

Irrespective of the type of sale, the entire sales proceeds will be shown on the credit side of the Consignment
Account. The unsold goods are treated as consignment stock and credited to this Account. If some goods are
found unsuitable for sale, the consignee will send the back to the consignor and the same will appear on the
its credit side. After all these item recorded, the Consignment Account is balanced. The difference between
the debit and credit totals of Consignment Account is regarded as profit or loss which is transferred to the
Profit and Loss Account and the Consignment Account stands closed. It is infact a nominal account and is just
like Trading and Profit and Loss Account about which you have studied earlier in final accounts. Therefore,
the principles applied to Trading and Profit & Loss Account hold good for this account also. Like Trading and
Profit and Loss Account all expenses and purchases are debited to this account and all sales and incomes are
credited.
The proforma of the consignment account is given below.
IN THE BOOKS OF CONSIGNOR
CONSIGNMENT ACCOUNT

2. Goods Sent on Consignment Account: This is a real account. It deals with the good transferred from the
consignor to the consignee and goods sent by the consignee to the consignor. All the goods consigned by
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the consignor will be credited to account and goods returned by the consignee are debited to this account.
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The balance represents the cost of goods with consignee for sale, and is transferred to the Trading Account.
The Performa of the Goods Sent on Consignment Account is depicted below.

3. Consignee's Account: It is a personal account of the consignee. It is prepared for ascertaining the amount
due from the consignee. The consignee's account is debited with cash, the credit sales affected by the
consignee. The various expenses incurred by the consignee, the commission charged by him as well as the
advance remitted by him is credited to this account. This account usually shows a debit balance indicating
the amount due from the consignee. At times it may show credit balance, if the advance given by the
consignee is more than the sales affected by him The balance revealed by this account is shown in the
balance sheet of the consignor, debit balance on the assets side, and credit balance on the liabilities side,
Unless the account is settled by the required remittance.
The Proforma of consignees account is given below.

Note: Treatment of Bad Debts: When there are any bad debts on credit sales effected by consignee, it must
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be debited to Consignment Account and credited to Consignee Account. However when the risk of bad debt
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is borne by the Consignee, bad debts should not be recorded in the books of Consignor.
(B) WHEN THE GOODS ARE SENT BY CONSIGNOR TO CONSIGNEE AT INVOICE PRICE (I.E.,
AT A PRICE ABOVE COST PRICE)
Quite often, for the purpose of maintaining confidentiality about the profit margin, consignor sends goods
to the consignee at a price above the cost price. Such price is called the loaded price or the invoice price or
value or Proforma Invoice. However, while ascertaining the results of the consignor at the end of the year,
such load (i.e., the difference between the invoice or inflated price and the cost price) must be adjusted.
Load is also known as Margin or unrealized profit.
In otherwards, if entries are first made on invoice price, the effect of the loading must be Removed by
“additional entries” (i.e., in addition to usual entries of cost price)
The additional entries (before ascertaining profit) to remove the effect of loading are:
1. When excess price included in Net goods send on consignment
(Goods Supplied - Returns)
Goods sent on Consignment Account Dr.
To Consignment Account
2. When Excess price included in closing stock
Consignment Account Dr.
To Stock Reserve Account
Proforma of consignment Account when goods sent at invoice price is as follows:

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B. ACCOUNTING TREATMENT IN THE BOOKS OF CONSIGNEE
In the books of the Consignee, usually only one account is prepared viz., The Consignor Account. Any other
accounts felt relevant can be prepared. However, they would be memorandum in nature and would not
form a part of double entry system.
The Consignor’s Account prepared in the books of the Consignee is personal account.

Journal Entries
The following are the various transactions under consignment and the respective entries to be passed in the
books of consignee:
IN THE BOOKS OF CONSIGNEE

Based on the above entries, the Consignor’s Account appears in the following format:
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TREATMENT OF LOSSES IN THE BOOKS OF CONSIGNOR OR ACCOUNTING FOR LOSSES
When the consignor sends the goods, losses may arise during consignment transactions. Such losses affect
consignor account and not consignee account. So consignor makes some entries to adjust the loss. The
adjustment depends upon the type of losses. These losses are of two types:
(1) Normal Losses and (2) Abnormal Losses.

1. Normal Loss
When goods are lost or damaged due to normally expected but unavoidable causes such as losses due to
evaporation, leakage, breakage, dusting, weightment, drying, sublimination of goods etc. These losses are
called Normal Losses. These types of losses cannot be avoided. Such inherent and un-avoidable losses form
part of the cost of goods. That is the loss on account of normal loss is borne by good units. When
calculating the cost of unsold stock, this normal loss is to be considered. The cost of unsold stock increases
proportionately due to normal loss. The normal loss is not shown in the consignment account. There is no
need to pass and entry in the books of account.

Features of Normal Loss:

Following are the features of Normal Loss:
1. It is an unavoidable loss.
2. Such loss take place because of inherent nature of the product.
3. Such loss occur due to leakage, evaporation, pilferage etc.
4. Normal loss is ‘not’ valued and it cannot be insured.
5. Normal loss is not accounted for.
6. Cost of normal loss is observed by good units.
7. Normal loss increases or inflates cost per unit of an article.
For example, 10,000 tons of coal is sent on consignment costing ₹ 100 each. The normal wastage is 2% 1.e.,
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2000 units. Let us see how normal loss leads to an inflated cost price per unit.
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Illustration 6
Ram consigned 100 kg of apples to Laxman. The cost being ₹ 60 per kg. Ram incurred freight charges of
8,000. The loss of 20% is unavoidable.
Calculate the cost per kg of apple.

2. Abnormal Losses:
When loss or damage of goods is caused by unnatural and unexpected reasons, then such loss is treated as
abnormal loss. It is unexpected loss and beyond the control of the human beings. Loss of goods due to fire,
flood, earthquake, war, theft, accidents in transit etc. are abnormal losses. Such losses occur because of
bad luck, due to accident, mischief by someone or human carelessness.
Abnormal loss is calculated just like the unsold stock on consignment account and debited to Abnormal or
Accidental Loss Account and credited to consignment Account and then the balance is transferred to
General Profit and Loss Account, so as to arrive at the correct profit or loss of consignment. This is because
abnormal loss has nothing to do with the particular consignment. Some businessmen take insurance policy
in respect of the goods sent or received on consignment by the consignor or the consignee. Such a policy is
obtained only in respect of abnormal loss which may be caused to the goods. If the insurer is liable for the
loss, then the amount of claim admitted by the insurer should be debited to the insurer and balance of the
loss should be debited to Profit and Loss Account.
The journal entries are:
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Valuation of Abnormal Loss
The goods lost or destroyed or damaged must be valued at ‘Cost price of the goods plus expenses incurred
till the point of loss.’ For example, if goods were lost in transit, they must be valued at cost price of the
goods plus all expenses incurred by the Consignor. In case the goods were lost at consignee’s go-down,
they must be valued at cost price of the goods plus all expenses incurred by both Consignor and Consignee.

Features of Abnormal Loss:

Following are the features of Abnormal loss
1. Abnormal loss arises due to unavoidable circumstances live fire, flood, riot, theft etc.
2. Abnormal loss is accounted for.
3. Abnormal loss is valued at cost price.
4. Abnormal loss can be insured.
5. Actual Abnormal loss is to be transferred to profit & loss account.
Note: 1. Actual Abnormal Loss = Abnormal Loss at cost- Insurance Claim-Sale proceeds of abnormal Goods.
2. Net Abnormal Loss – Abnormal loss at cost+ Non-Recurring expenses- Insurance claim.
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 OR
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VALUATION OF CLOSING STOCK
Closing stock must be valued at Cost price or Net Realisable Value, whichever is less. In case of Consignment,
for the purpose of valuing closing stock, cost price’ includes the cost of the goods to the consignor Plus
expenses incurred till the goods reach the premises of the consignee (such as Packaging, freight, carriage,
cartage, insurance in transit, etc.). However, expenses incurred after the goods have reached the consignee's
premises like godown rent, insurance of go-down etc., should not be considered.
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The expenses incurred on the goods till they reach the premises of the consignee must be considered
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irrespective of whether the expenses are incurred by the consignor or consignee.

Illustrations 12 (Calculation of Value of Closing Stock without Losses)
Mr. Ram Manohar of Mumbai sent 100 bicycles which cost ₹900 each to Gopal of Chennai on consignment
basis. Ram Manohar paid freight of *1,200, cartage 300 and Insurance *400.In Chennai, Gopal has spent 100
as cartage, loading and Unloading 50. The bicycles have been kept in a godown at a monthly rent of *100 at
the end of accounting period, 20 bicycles remained unsold. The selling price of the bicycle is ₹1, 000 at
Chennai. What should be the value of stock unsold?
Solution:

or

Illustrations 13 (Problem on Value of Unsold Stock without losses)

A sent goods worth 10,000 to B and paid 1,200 for packing and 800 for insurance. B took the delivery of
the goods and paid * 2,000 for freight, 400 for cartage and unloading, *600 for godown rent, 400 as selling
expenses and * 800 for insurance. B sold three fourth of the goods for 1,800. Calculate the value of closing
stock.
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Illustrations 14 (Valuation of unsold stock with normal loss in transit)
Goods consigned 500 Kg. at 20 per Kg. Freight and Carriage paid by the consignor ₹4,000. Consignee sold
300 Kg. at 35 per Kg. and incurred *1,000 as unloading expenses, *2,000 as godown rent and $1,000 as selling
expenses. Normal loss due to leakage is 50 Kg in transit.
Show how the loss and unsold stock will be treated in the books of the consignor.

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Illustrations 15 (Valuation of Closing Stock with Normal Loss in transit)
Ram consigned 2,000 tons of coal at 50 per ton to Shyam of Delhi. He paid 20,000 as freight. Due to normal
wastage 1,950 tons only were received by Shyam. He paid *5,000 as unloading charges. Goods sold were
1,300 tons. You are required to calculate the value of closing stock.

Solution:

Illustration 16 (Calculation of unsold stock with normal loss in godown)

Ramesh of Bangalore consigned 4,000 boxes to Raghu of Delhi costing 150 each. Consigner’s expenses *
5,000. 1/10th of the boxes were lost in consignee’s godown and treated as normal loss 2,400 boxes were sold
by consignee.
Calculate the value of unsold stock.
Solution:
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Illustration 17 (Calculation of closing stock with Abnormal loss in transit)
Mr. Raju consigned 50,000 units costing 5 each to Mr. Umesh. Mr. Raju incurred * 10,000 for sending the
goods. 2,500 units were abnormally destroyed in transit. Mr. Umesh took delivery and paid 1,500 for bringing
the goods to the godown. Consignee sold 30,000 units at 10 each. Consignee paid selling expenses of 10,000.
Calculate the value of closing stock.

Solution:

Illustrations 18 (Problem on Valuation of Closing Stock with Abnormal Loss in transit)

Goods sent on consignment 1,000 Kg at 10 per Kg. Expenses paid by the consignor. Freight *500 and
Insurance ₹300. 200 Kg were destroyed in transit due to an accident. Claim admitted by the Insurance
Company was for ₹1,500. The consignee sold 700 Kg at ₹20 per kg. and incurred the following expenses.
Unloading 200, Godown Rent 500 and Selling Expenses ₹300. Pass journal entries relating to loss in transit
and unsold consignment stock in the books of the consignor.
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Illustration 19 (Calculation of unsold stock with both normal loss in godown and abnormal loss in transit)
Mr. Surendar consigned 20,000 units at ₹ 10 per unit to Dharani and incurred delivery expenses of ₹7,000.
1,000 units were destroyed in transit due to theft. 13,000 units were sold. 2,000 units normally destroyed in
the godown. Dharani incurred non-recurring expenses of ₹ 900.
Calculate the value of unsold stock.
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Solution:

(A) PROBLEMS ON CONSIGNMENT WHEN GOODS ARE SENT AT COST PRICE

Illustrations 20 (When goods are sent at cost price without losses)
Williams of Chennai consigned 300 chests of tea at $2,000 per chest to Johnson of New Delhi paying freight ₹4,000
and other expenses $2,000. Johnson sold 250 chests at $2,500 per chest and 25 chest at $2,200 per chest for cash.
Johnson spent for freight 3,000 and other expenses ₹1,000. He remitted the amount due to Williams after deducting
his commission at 5% (normal) 22% (over-riding) and +2% (del credere commission to be given on total sales). Johnson
found that one customer to whom credit was allowed paid only *4,800 against *5,000 in full settlement. Other
customers paid the amount due.

Pass journal entries in the books of consignor and prepare ledger accounts.

Solution: 24
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Illustrations 21 (When goods are sent at Cost Price with Abnormal Loss in transit)
On June 10, 2021, ABC & Co., Chennai consigned 500 cases of goods costing * 150 each Sethi & Co., Kolkata.
On the same date, the consignor paid * 2,500 for freight and carriage, * 1,000 as loading charges, and * 1,200
for insurance. On July 1, 2021 the consignee paid 1,800 for clearing charges, 1,750 for warehousing and
storage charges, and 900 for packing and selling expenses. He also remitted a bank draft for 15,000 as an
advance against the consignment; On July 5, 2021 they sold 275 cases at 200 each. Sethi & Co. are entitled
to 5% commission on the gross proceeds of sales. It found that 50 cases have been lost in transit. Sethi & Co
submitted an account sale on 10, 2021. Prepare the necessary ledger accounts in the books of the consignor.
Solution:

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Illustrations 22 (Problem on goods sent at cost with bill transaction and abnormal loss)
On 1.10.2021 ABC Ltd., consigned 1000 tins of groundnut oil from Bhavanagar to a party Mr. X in Mumbai.
Each tin costs 30. ABC Ltd. Paid 5,000 by way of freight, insurance, and other expenses. : During transit 25
tins were accidentally destroyed. Mr. X takes delivery on 15 10.2021 and accepts a bill drawn by ABC Ltd. For
3 months maturity. On 31.12.2021 Mr. X sold 800 tins at 50 per tin and reported a theft of 35 tins in godown
to ABC Ltd. Mr. X had also paid * 1000 as godown rent and ₹2,000 by way of labor charges and fire Insurance.
Mr. X is entitled to receive a commission of 5% plus 1% for Del Credere risk.
Show ledger accounts up to 31.12.2021 in both parties books assuming that Mr. X pays dues to ABC Ltd;,
through Bank Drafts.

Solution:

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Illustrations 23 (When goods are sent at cost price and Goods are sold for both Cash as well
as Credit)
On January 1st, 2021 Karnataka Sports, Bangalore consigned 180 cases of sports goods costing and 360 each
to Gemini Sports, Mumbai. They paid 360 for insurance and 1800 for freight. Gemini Sports are entitled to a
commission of 10% on gross sales.
Gemini Sports received the consignment on January 15 th 2021 and sent a 60 days bill for *10,000 to
Karnataka Sports. The bill was discounted for * 9,900. Oron
On opening the cases the consignee found 10 cases of wrong description and returned them, by paying
return freight of 400.
Gemini Sports sold 120 cases at 600 each for cash and 20 cases at 700 each on credit. Gemini Sports spent
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720 on clearing charges and 600 on carriage outwards. They incurred bad debts amounting to 400. The
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accounts were settled on June 30th, and the balance remitted by cheque. Show the necessary ledger accounts
in the books of both the parties.

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Note: (1) Advance: The advance is given through a bill of exchange, therefore it must be credited to
consignee account as “Bills Receivable” in the books of consignor and debited to consignor’s account in the
books of consignee as “Bills Payable”.
2. Goods Returned to the Consignor: The goods returned are to be valued at Cost only. They should not
include any other expenses. However, all the expenses incurred by the consignee to return the goods should
be considered as the expenses on that consignment. So the Consignment Account is debited and the
Consignee’s Account credited with the amount of expenses incurred on returns.
(3) Bad debts: When there is no del-credre commission to the consignee, then, bad debts must be debited
to consignment account.

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Illustrations 24 (When goods are sent at cost price with normal loss)
In 1st June 2021 M. Coal Co. consigned to M. Sales Ltd. 2,000 tons of coal. The cost of coal and railway freight
were *7.50 and 2 per ton respectively. On 25th June, 2021, an Account sale was received from M. Sales Ltd.
Showing that 1,000 tons sold at 16 a ton; Sales expenses * 880, Insurance 120, Brokerage 1 ¼% and
commission 2 ½ %. The consignee enclosed a bill for the proceeds less expenses and reported a shortage of
40 tons on the whole consignment. Show Consignment Account in the books of M Coal Company.

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Prepare consignment accounts and consingee’s account in the books of consignor.

Illustrations 26 (When goods are sent at cost price without closing stock)
M/s. Chandan & Company of Kolkata consignd goods costing 25,000 to their agent Ramlal, on which they
pay freight, insurance and other charges of 1,500, drawing on him at 90 days Bill for 20,000. They discount
the Bill with a bank at a discount of 150. After 3 months they received from their agent an Account Sales
informing that the entire consignment had been sold for 35,000, that expenses amounting 700 have been
incurred and showing as a deduction they agreed commission of 2% on the amount realized. A draft on the
Bank was enclosed for the balance due.
Show the journal entries and important ledger accounts in the books of both the parties.

Illustrations 27 (When the goods are sent at cost price without losses and closing stock)
Gururaj & Co. of Delhi consigned on January 1, 2021, 50 cases of glassware costing * 40,000 to Singh & Co.
of Kolkata for sale on commission at 5% on gross sale proceeds Gururaj & Co. paid 500 for freight and carriage
and 600 for packing.
Singh & Co. took the delivery of goods on January 5th, 2021 and paid 300 for clearing charges, 200 for
carriage, 50 for miscellaneous expenses, and 100 for godown rent.
They sold 15 cases at 1,000 each, 25 cases at 1,200 each and 10 cases at 1,100 each. On April 5th, 2021 Singh
& Co. sent a bank draft for 15,000 to Gururaj & Co. on account. On April 10 th, 2021 Singh & Co. forwarded
an Account Sales together with a bill exchange for the balance due.
Prepare the necessary ledger accounts in the books of both the parties.

Illustrations 28 (When the goods are sent at cost price and Abnormal Loss in transit)
Murphy Radio Company consigned 100 transistors to their agent Paul Radios, Delhi. The cost price of each
transistor is 75. The consignors paid 200 for freight, 50 for cartage and 400 for insurance. Five transistors
were totally destroyed in transit. The insurance claim of 300 was admitted by the insurance company. The
consignee took the delivery of 95 radios and spent, 285 for the cartage outwords, *250 on godown rent and
150 as selling expenses. They sold all the units at 100 each. Paul Radios are entitled to 5% commission on
total sales. The balance due was remitted by way of a bank draft. Calculate the abnormal loss and prepare
necessary ledger accounts in the books of both the parties.
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Illustrations 29 (When the goods are sent at cost and Abnormal Loss)
Nandini Ltd. Consigned 5,000 kg. of Nandini ghee to Ashoka Dealers, Bengaluru. Each kg. of ghee costs 8.
Nandini Ltd. Paid 50 for carriage, 250 for packing 200 for insurance in transit.
After three months from the date of the consignment of goods Ashoka Dealers reported 3,500 kg. of ghee
was sold at 9.50 per kg, and expenses were 500 on godown and * 750 on salesmen salary. Ashoka Dealers
are entitled to a commission of 5% on sales. 500 kg. of ghee was accidentally destroyed in the godown.
Insurance claim of 3,500 was admitted. Prepare the necessary ledger accounts in the books of both the
parties.

Illustrations 30 (When goods are sent at cost price with normal and Abnormal Loss)
Amith Oil mills, Cochin consigned 2,500 kg. of castor oil to Madhu & Co., Varanasi in April 1, 2021. The cost
of oil was 18 per kg. The consignor paid 900 towards carriage, freight and insurance in transit. During transit
250 kg. oil was accidentally destroyed in transit for which the insurance company paid * 2,200 in full
settlement of the claim directly to the consignor.
Madhu & Co. took delivery of the consignment on April 10, 2021 and accepted a bill drawn on by Deepak oil
Mills of * 5,000 for 2 months. On June 30, 2021, Madhu & Co. reports 1,750 kg. were sold at 25 per kg. The
expenses of the consignee were ₹ 1,850 towards godown rent, advertisement and salaries of salesmen.
Madhu & Co. charged a commission of 3% plus 2% del credre commission. Madhu, & Co. further reported a
loss of 20 kg. leakage in the consignee godown. Prepare the necessary ledger accounts in the books of the
consignor.

Illustrations 31 (When the goods are sent at cost price and with Abnormal Goods)
Babar of Mumbai consigned 100 bags of sugar, each bag Costing 300 to Raghav of Kolkatta on 1 st April
2021.He paid *500 towards freight and insurance. 15 bags were damaged in transit on 31st May 2021.The
consignor received 1000 as claimed from insurance company. Raghav took delivery of the goods on April
10th 2021 and immediately accepted a bill drawn on him for 20, 000 for 60 days. On 30 th June 2021.Consignee
reported that: (i) 70 Bags were sold 350 per bag (ii) The damaged bags were sold at 110 per bag. (iii) He had
incurred following expenses: Godown Rent 700; Clearing charges 1000; Carriage Outwards 300
Agent is entitled to a commission at 10% on, the sale proceeds of all goods excepting damaged goods. Mr.
Raghav remits the balance by bank draft on 30 th June 2021. No portion of expenses incurred by Agent is
attributable to the damaged bags. Prepare Consignment Account and Consignee’s Account in the books of
Babar.

Illustrations 32 (When goods are sent at cost price and with Abnormal goods)
Swastik oil mills of Mumbai consigned 10,000 Kgs. Of coconut oil to Dass of Kolkatta on 1 st April 2021. The
cost of oil was 2 per Kg. The Swastik Oil Mills paid 5000 as freight and insurance. During transit 250 Kgs. Were
destroyed for which insurance Co. paid *450.
Dass took a delivery of the consignment on the 10th April 2021. Dass reported that 7500 Kgs were sold at 3
per Kg. The expense being godown rent *200, on advertisement 1,000 and on salesmen salary 2000. Dass is
entitled a commission of 3% plus 11/2% del crede.
Dass reported a loss of 100 Kgs due to leakage in godown (normal). Assuming that Dass paid to the amount
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due by bank draft, show the accounts in the books of both the parties.
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(A) PROBLEMS ON CONSIGNMENT WHEN GOODS ARE SENT AT INVOICE PRICE

Illustrations 34 (When goods are sent at invoice price without Loss)
Arun consigned 100 mini toy cars to Sanjoy to be sold at his risk. Cost of 1 mini toy car is 150. But, invoice
Price was ₹200. Arun paid freight 600 and insurance in transit ₹200.
Sanjoy sent a bank draft to Arun for 10,000 as advance payment and later sent an Account Sales showing
that 80 toy were sold at ₹220 each. Expenses incurred by Sanjoy were: Carriage inward ₹25, Octroi ₹75,
Godown rent ₹500 and Advertisement 300 Sanjoy is entitled to a commission of 5% on sales.
Journalise the above transactions in the books of Arun and Sanjoy and prepare ledger account.

Illustrations 35 (When goods are sent at invoice price without losses)

Atlas Cycle Co., Delhi sent 100 bicycles on January 1, 2021 to Murugan Enterprises, Chennai. The cost of each
bicycle was 500 and it was invoiced at 600. Atlas Cycle Co., incurred ₹2,000 on freight and insurance and
received ₹30,000 as advance from Murgan Enterprises. Murgan Enterprises paid ₹ 1,000 as octroi and
carriage, ₹800 as rent and 600 as insurance. By June 30, 2012 he sold 100 bicycles for ₹62,500. Murugan
Enterprises are entitled to a commission at 10% on the proforma invoice price and 20% of any surplus
realised over and above the invoice price. Murugan Enterprises remitted the amount due from them by a
bank draft.
You are required to prepare ledger accounts in the books of both parties.

Illustrations 36 (When goods are sent at invoice price without losses)

Ram Traders of Ludhiana consigned 100 computer costing 20,000 each to Bahadur of Gauhati at 10% above
cost Ram Traders incurred 500 for packing and other charges on each computer. The consignee received the
consignment by paying 1,500 for railway charges, 1,300 for insurance till it reaches the godown and ₹ 200
for carriage. He submitted an Account Sales as follows:
20 Computers sold at ₹ 25,000 each for cash
50 Computers sold on credit at ₹ 30,000 each
10 taken for his own stock at ₹25,000 each
Consignee remitted the balance after deducting his commission at 10% on sales. Assuming that original
entries are made at invoice price and consignment stock is valued at invoice price, write necessary accounts
in the books of Ram Traders.

Illustration 37 [When goods are sent at invoice price with Abnormal loss]
Nishanth of Mumbai consigned 100 Radio sets costing ₹500 each to Ramesh of Bangalore. The invoice was
made proforma at ₹600 per set. Ramesh was entitled to a commission of 7.5% on sales plus 2.5% del-credere
commission and 10% of surplus sale proceeds over the invoice price. Ramesh was to bear all expenses
incurred after the goods reached his godwon.
While sending the goods, Nishanth paid ₹1,500 as forwarding charges and insurance in transit. 10 radio sets
were damaged and Nishanth received ₹4,000 from insurance company. Ramesh took delivery of the
remaining radio sets by paying ₹4,500 as freight, cartage etc. Ramesh sold 70 radio sets at ₹800 each. 30 of
them on credit, out of which the proceeds of 3 radio sets could not be recovered because of the
disappearance of the customers. He had spent 500 as storage and selling expenses. Ramesh sent a bank draft
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for the amount due to Nishanth.

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Prepare the important ledger accounts in the books of both the parties.
Illustrations 38 (When goods are sent at invoice price with Abnormal Loss)
Prakash of Mumbai sent 100 machines on consignment to Narayan of Bengaluru. He spent ₹ 250 on packing,
and freight ₹500 on freight to pay basis. The cost of each machine was ₹112 but it was invoiced at 25% above
cost.
One case containing 5 machines was last in transit. Narayan was asked to pay only ₹475 as freight. He found
10 machines defective and therefore returned them to the consignor at a cost of ₹ 50. Narayan is entitled to
an ordinary commission of 5% on invoice price, special commission of 20% of any excess realised on invoice
price and 1% del-credere commission. A customer of Narayan in Bangalore purchased 5 of these machines
but failed to pay and the price was realised from narayan by the consignor.
Prepare the necessary ledger accounts in the books of the consignor and the consignee.

SOLVING CONSIGNMENT ACCOUNTS USING SPREAD SHEET

Illustration 39
Williams of Chennai consigned 300 chests of tea at 2,000 per chest to Johnson of New Delhi paying freight
4,000 and other expenses ₹2,000. Johnson sold 250 chests at ₹2,500 per chest and 25 chest at ₹2,200 per
chest for cash. Johnson spent for freight 3,000 and other expenses ₹1,000. He remitted the amount due to
Williams after deducting his commission at 5% (normal) 22% (over-riding) and + 2% (del credere commission
to be given on total sales). Johnson found that one customer to whom credit was allowed paid only 4,800
against 5,000 in full settlement. Other customers paid the amount due.
Pass journal entries in the books of consignor and prepare ledger accounts.

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