CONSIGNMENT AND JOINT VENTURES

Unit 1
MEANING
 When goods sent by the owner or principal to his agent or any other representative on the
condition of selling goods on his behalf for which later will be given commission at a
specified rate as remuneration, it is called consignment.
 Ownership?
 outward consignment
 inward consignment
 Consignor: The party who sends the goods to agents for sale, e.g., a manufacturer or whole
seller.
 Consignee: The party to whom the goods are sent for sale
TYPES OF COMMISSION
 Ordinary Commission or Consignee’s Remuneration
 Del Credere Commission
 Over-riding commission
FEATURES OF CONSIGNMENT
 Objects: Goods are forwarded by the consignor to the consignee with an objective of sale at a
profit.
 Ownership: the consignee does not buy the goods. He merely undertakes to sell them on
behalf of the consignor. Hence, the ownership in the goods remains with consignor till it is
sold by the consignee.
 Relationship: The relationship between the consignor and the consignee is that of a principal
and an agent, and not of a debtor and creditor. An agent becomes in debited for amounts
realized on behalf of the principal.
 Risk: The consignor should bear all the risks connected with the goods until it is sold.
IMPORTANT TERMS
 Expenses: As consignment is not a sale, whatever the consignee does is on behalf of the
consignor. Thus, the consignor should reimburse all legitimate expenses incurred by the
consignee for selling and receiving the goods.
 Stock of goods: Any stock remaining unsold with the consignee belongs to the consignor.
 Commission: The consignee agrees to sell the goods for an agreed rate of commission. He is
therefore, allowed to deduct his commission due from the sale proceeds.
 Possession: The goods will be in the possession of the consignee until it is sold on behalf of
the consignor.
 Repossession: The consignor can repossess the goods from the consignee at any time.
 Profit or loss: Since the consignee acts on behalf of the consignor, the profit or loss on sale of
goods belongs to the consignor
IMPORTANT TERMS
 Proforma Invoice: Its sent by the consignor along with goods. It contains particulars as regards to
name of goods, number/quantity/weight, marking, packing etc and necessary instructions to sell the
goods at invoice price or higher along with rate and type of commission.
 Advance on consignment: If the consignee sends some amount by cheque or bills receivable in
advance prior to sale of the consignor, it is called as advance on consignment.
 Account sale: After selling the goods, documents containing details regarding quantity of goods sold,
selling price, expenses incurred by him, his commission, details of advance given, balance due by
him to the consignor etc are mentioned. Such document is called account sale
 Direct Expenses: All expenses till the goods reach the godown of the consignee. Ex: carriage,
insurance, loading and unloading etc
 Indirect expenses: Expenses incurred after the goods reach the consignee’s godown. Ex: godown rent,
storage charges, salaries of salesmen etc
DIFFERENCE BETWEEN SALE AND CONSIGNMENT
VALUATION OF UNSOLD
STOCKS
 Proportionate cost price
 Proportionate direct expenses ( incurred by both consignee and consignor till the goods reach
the godown of the consignee)
 Stocks should be valued at cost or market value, whichever is less
CONSIGNEE’S RECURRING &
NON RECURRING EXPENSES
 While valuing the closing stock, consignee’s non recurring expenses needs to be considered.
As they are similar to direct expenses of the consignee.
 Recurring expenses needs to be ignored while valuing closing stock
 LOSS OF STOCK
 In the course of consignment transactions some loss of stock may occur. It may be in the
course of transit before or after taking delivery of the goods by the consignee or it may occur
at the godown of the consignee.
 Normal Loss:

It is due to inherent characteristics of goods example loss due to evaporation, drying of goods
etc
Value of closing stock =Total value of goods sent*units of closing stock/units actually received
by the consignee
 Abnormal Loss:

If the loss occurs on account of reasons which are only accidental or which rarely happen the
loss is termed as abnormal. Example theft of goods or destruction of goods by fire
Total cost*units of abnormal loss/total units to be received by the consignee
 cost price of 2000 tonnes of coal @Rs50 per tonne 100000
 Freight paid by consignor 20000
 Unloading and cartage charges paid by consignee 5000
 Cost of 1950 tonnes 125000
Value of closing stock =Total value of goods sent*units of closing stock/units actually received
by the consignee
= 125000*650/1950
= Rs41667
Value of Abnormal Loss
Cost of 100 cases @Rs100 per case 10000
Direct expense of consignor 1000
Total cost of 100 cases 11000
Value of abnormal loss= Total cost*units of abnormal loss/total units to be received by the consignee
= 11000*10/100 =Rs 1100
Value of Closing Stock
Total cost of 100 cases calculated as above: Rs11000
Cost of 10 cases (units of closing stock) (11000*10/100) 1100
Add: Proportionate expenses incurred by consignee 222
(2000*10/90)
Value of closing stock 1322
A CONSIGNED TO B 100 CASES OF TEA COSTING 100 PER CASE. HE PAID RS1000 AS FREIGHT AND
CARTAGE. B TOOK DELIVERY OF 100 CASES AND PAID RS2000 AS UNLOADING AND CARRIAGE CHARGES.
B LOST 10 CASES OF TEA DUE TO ABNORMAL LOSS IN THE GODOWN. AT THE END OF THE YEAR HE
REPORTED THAT HE SOLD AWAY 80 CASES AT RS150 PER CASE. CALCULATE THE VALUE OF ABNORMAL
LOSS AND THE VALUE OF CLOSING STOCK.

Value of abnormal loss

Cost of 100 cases @100 per case 10000
Direct exp of consignor 1000
Direct exp of consignee 2000
(loss of goods after it reached godown)
Total cost of 100 cases 13000
Value of abnormal loss= Total cost*units of abnormal loss/total units to be received by the consignee
Value of abnormal loss = 13000*10/100= 1300
Value of closing stock
Total cost of 100 cases as calculated above 13000
Value of closing stock (10units) (13000*10/100) 1300
JOINT VENTURE
 A joint venture is an association of two or more persons who have combined for the execution
of a specific transaction and divide the profit or loss thereof on the agreed ratio.
FEATURES
JOINT VENTURE &
PARTNERSHIP
JOINT VENTURE &
CONSIGNMENT
 Suresh and Co. of Bombay sent on consignment to Mahesh & Co. of Delhi 60 cases cutlery
goods costing Rs. 175 per case. Expenses incurred by the consignor at Bombay were : Freight
Rs. 275, insurance Rs. 55 and loading charges Rs. 20.Suresh & Co. draw on Mahesh & Co. 2
months bills at sight for Rs.7,000 which the latter accepts. The charges paid by Mahesh & Co.
at Delhi were unloading Rs. 30, Storage Rs. 85, insurance Rs. 15, Commission is payable to
Mahesh & Co. at 2% on all sales in addition to 1½% del credere commission. The consignee
sells for prompt cash 30 cases @ Rs. 225 per case; 25cases @ Rs. 250 per case and the
balance @ Rs. 280 per case. The account was settled immediately by means of a bank draft.
Write up the ledger accounts in the books of consignor
 X of Calcutta sent on 15th January, 2006, a consignment of 500 toys bicycles costing Rs. 100
each. Expenses of Rs. 700 met by the consignor. Y of Bombay spent Rs. 1,500 for clearance
and the selling expenses were Rs. 10 per bicycle. Y sold, on 4th April 2006, 300 pieces @ Rs.
160 per piece and again on 20th June 2006, 150 pieces @ Rs. 172.Y was entitled to a
commission of Rs. 25 per piece sold plus one fourth of the amount by which the gross
proceeds less total commission there on exceeded a sum calculated at the rate of Rs. 125 per
piece sold. Y sent the amount due to X on 30th June 2006.You are required to show the
Consignment Account and Y’s Account in the books of X