Last Updated on: 5th July 2024, 01:43 pm
Consignment Sales Accounts
Consignment
Normally goods are sold by seller to customer directly. To increase sale and market area, goods are often sold through a third party, called Consignee or Agent.
Consignment is a type of transaction where one person (Consignor or Principal) sends goods to another person (Consignee or Agent). The goods are held by Consignee and sold to Buyer on behalf of and at the risk of the Consignor.
The consignor continues to own the goods until they are sold, so the goods appear as inventory in the accounting records of the consignor, not the consignee.
Characteristics of Consignment Transactions
- The relation between the consignor and consignee is principal and agent.
- At the time of sending goods, the principal issues only a pro-forma invoice (instead of invoice).
- The principal issues Invoice only after sale effected by the agent.
- The Agent receives a commission, calculated on the basis of gross sale.
Accounting entries In the Books of Consignor
Despatch of goods on Consignment
Consignment A/c Dr.
To Goods sent on Consignment A/c
If the above entry is made at a price above cost, adjustment will be made with the difference between Cost and Invoice price with the following:
Goods sent on Consignment A/c Dr.
To Consignment A/c
If goods are returned by consignee, same journal entry will be passed. If it is returned at Invoice price, to eliminate the profit Entry, first entry will be passed.
Expenses incurred on consignment
Consignment A/c Dr.
To Cash / Bank A/c
Advance received from the consignee
Bill Receivables / Bank A/c Dr.
To Consignee’s A/c
(Bill, Draft or Cheque received)
Expenses incurred by consignee:
Consignment A/c Dr.
To Consignee A/c
Goods sold by the consignee:
(a)In case of Cash sale-
Consignee A/c
To Consignment A/c
(b) In case of Credit sale-
Consignment Debtors A/c Dr.
To Consignment A/c
Goods taken by the consignee
Consignee A/c Dr.
To Consignment A/c
(The same entry would be passed for goods lost through consignee’s negligence)
Commission on sales:
Consignment A/c Dr.
To Consignee A/c
Unsold stock in the hands of consignee:
Consignment Stock A/c Dr.
To Consignment A/c
Invoice Price adjustment of unsold Consignment stock
Consignment A/c Dr.
To Stock Reserve A/c
(Adjustment of excess of Invoice price over Cost price of unsold stock)
Abnormal Loss from Consignment
Abnormal Loss A/c Dr.
To Consignment A/c
Profit / Loss from consignment
(a) For Profit:
Consignment A/c Dr.
To Profit and Loss A/c
(b) For Loss:
Profit and Loss A/c Dr.
To Consignment A/c
Closure of consignment account
Goods sent on consignment A/c Dr.
To Trading or Purchases A/c
(For Balance of good sent on consignment account transferred to trading or purchases account)
Accounting entries In the Books of Consignee
Advance Payment
Consignor A/c Dr.
To Bank or Bill Payable A/c
Expenses incurred
Consignor’s A/c Dr.
To Cash / Bank A/c
For consignment goods sold
(a) Cash Sales:
Cash or Bank A/c Dr.
To Consignor A/c
(b) Credit Sales:
Consignment Debtors A/c Dr.
To Consignor A/c
Collection from Debtors
Cash / Bank A/c Dr.
To Consignment Debtors A/c
Discount allowed
Consignor A/c Dr.
To Discount Allowed A/c
Bad Debts
Consignor / Bad Debts A/c Dr.
To Consignment Debtors A/c
(when Del-credere commission is not allowed)
Commission (Bad Debts) A/c Dr.
To Consignment Debtors A/c
(If Del-credere commission is allowed)
Commission receivable
Consignor A/c Dr.
To Commission A/c
Balance remitted to the consignor
Consignor A/c Dr.
To Bank A/c
Discount on Bills : When a Bill Receivable is received by the Consignor from the Consignee and Consignor discounts it, the discount of the Bill, is charged to Profit and Loss Account and not to Consignment Account because it is not an expenditure of Consignment.
Consignment Expenses & Commission
Consignment Expenses : Consignment expenses may include Expenses related to specific Consignment, either by Consignor (for Despatching the goods) and Expenses incurred by Consignee for bringing goods to its godown (like Clearing, Cartage, Loading and Unloading, Railway / Transport freight, Dock duties, Carriage Inwards, Handling Charges. etc)
Consignment expenses may also include a proportionate amount of common expenses incurred by consignor / comsignee.
Commission : Consignee usually receives commission from the consignor for the services rendered for selling the consigned goods. In consignment business there are three types of commission:
- Ordinary Commission : Ordinary Commission is the commission calculated as a fixed percentage on the gross sales proceeds (whether or not money against sales is received). This type of commission does not give any protection to the consignor from bad debts.
- Del- Credere Commission : To avoid the risk of Bad Debts sometimes, the consignor provides an additional commission known as “Del-Credere” commission and it is paid at a fixed percentage of Gross Sales. The consignor will bear the bad debts loss if no del-credere commission is given to the consignee. The consignee will bear the bad debts loss if del-credere commission is given to him.
- Over-riding Commission : It is an extra commission allowed by the consignor to the consignee over the normal commission for executing sales on consignment on a price higher than the price fixed by the consignor. It is calculated on total sales or on the difference between actual sales and sales at standard price.
Accounting entries for Bad Debts
In case of credit sales of consignment goods, some bad debs may occur.
When Del Credere Commission is paid
If Del Credere commission is paid, the entire Bad Debt is borne by Consignee and no entry is passed by Consignor. In the books of consignee, the following entry would be passed
Consignment Bad Debts A/c Dr
To Consignment Debtors A/c
When Del- Credere Commission is not paid
- In the Books of Consignor
Consignment Bad Debts A/c Dr
To Consignment Debtors A/c
- In the Books of Consignee
Consignor A/c Dr
To Consignment Debtors A/c
Loss of Goods on Consignment
During transaction and handling of goods some loss may occur. Losses affect Closing Stock value. Such loss may be classified as follows:
- Normal Loss: Normal Loss occurs due to factors such as evaporation, moisture, shrinkage and leakage which are normal depending on nature of business etc.
- Abnormal Loss: Abnormal loss is unusual (like theft, fire, accident etc).
Treatment of Consignment Normal Loss
For normal loss, value of closing stock is proportionately increased. For the purpose of valuations of closing stock, such loss should be deducted from total goods sent to consignee:
Treatment of Consignment Abnormal Loss
Abnormal loss is not treated as a part of cost. The cost of abnormal loss is to be separated from the cost of goods and charged to profit & Loss directly as a separate item.
Abnormal loss
Abnormal Loss A/c Dr.
To Consignment A/c
(Abnormal Loss)
Adjustment for goods sent on Invoice price
Consignment A/cDr.
To Abnormal Loss A/c
(Adjustment for difference between Cost and Invoice price)
Insurance claim
Bank / Insurance Co. A/c Dr.
To Abnormal Loss A/c
(Insurance Claim)
Transfer of Loss
Profit & Loss A/c Dr.
To Abnormal Loss A/c
(Transfer of Abnormal Loss to P L A/c)
The balance in Abnormal Loss A/c is finally charged to Profit & Loss A/c after considering the amount of insurance claim received.
Valuation of Consignment Stock
Closing Stock or Unsold Stock is the stock lying with the consignee. Such stock is to be valued at Cost Price or Market Price, which ever is lower, on the principle of prudence or conservatism (ignore the anticipated profit, but to provide for all anticipated loss).
Cost Price = Purchase Price + Direct Expenses to bring the goods.
Computation of cost of unsold stock.
| Sl.No. | Particulars | Units | Amounts(Rs.) |
| 1. | Cost of goods sent by consignor | *** | *** |
| 2. | Add: All expenses incurred by consignor to bring the purchased goods | *** | *** |
| 3. | Total cost of goods sent (1 + 2) | *** | *** |
| 4. | Less: Goods lost in transit or still in transit | *** | *** |
| 5. | Goods reached to the consignee (3 – 4) | *** | *** |
| 6. | Add: expenses by the consignee | *** | *** |
| 7. | Cost of goods received by the consignee (5 + 6) | *** | *** |
| 8. | Less: Normal Loss (Units Only) | *** | *** |
| 9. | Cost of goods available for sale (7 – 8) | *** | *** |
| 10. | Cost of Unsold Stock [{(Cost of goods available for sale) / (Qty. of goods available for sale.)} x (Qty. of unsold goods)] | *** | *** |
Net Realizable Value = Total Realizable Value of unsold units – Realization Expenses
Value of unsold stock = Lower of Cost of Unsold Stock or Net Realizable Value
Adjustment for Consignment Stock at Invoice Price
Profit Margin on Invoice Price : Consignor adds some profit in the cost price of the goods consigned in the Invoice (called Invoice price). Invoicing in this method (at Invoice Price) is known as Invoice Price Method.
Example – Cost Price of the goods is Rs.30,000, he adds 10% profit in it, hence Invoice Price is (Rs.30,000 + 30,000 x 10/100 )= Rs.33,000 and will consign goods at Rs.33,000 (at Cost + 10%).
In such case, the Consignment Account will not indicate real profit. For finding out real profit on Consignment, adjustment entries are made in the books of Consignor. The consignor will adjust the difference between invoice price and cost price of the goods sent on consignment through passing the entry.
Goods sent on Consignment A/c. Dr. 3,000
To Consignment A/c. Cr 3,000
Following adjustment entries are made in the books of Consignor.
Adjustment Entries
For Adjusting the value of goods sent :-
Goods sent on Consignment A/c Dr.
To Consignment A/c
(Amount of difference between invoice price and cost price of the goods sent on consignment)
For adjusting the value of closing stock:-
Consignment A/c Dr.
To Consignment Stock Suspense A/c
Or
To Consignment Stock Reserve A/c
(Amount of difference between the price of closing stock of consignment and cost price of closing stock of consignment)
Consignment Account – Practical Problems
Commission and Del Credere Commission
A of Kolkata sent goods costing Rs.80,000 to M of Mumbai on consignment basis. A paid Rs.3,000 as freight expenses for sending the goods. M paid Rs.1,800 as railways charges and Rs.1,000 as godown rent. The consignee sent a bank draft for Rs.45,000 as advance against the consignment. 4/5th of the goods were sold at Rs.90,000. A customer who purchased goods for Rs.500 failed to pay and treated as bad debt. The account sales sent by the consignee showed that he charged 10 per sent as ordinary commission and 2.5 per sent as Del Credere commission.
Show the following account in the books of A:
- Consignment Account;
- M’s Account;
Solution:
Working Notes:
- Calculation of Commission payable to M (Consignee)
| Ordinary Commission: @ 10% on Rs.90,000 = | 9,000 |
| Del Credere commission : @ 2.5% on Rs.90,000= | 2,250 |
| Total | 11,250 |
The consignee will bear the bad debts loss as del-credere commission is given to him.
- Calculation of Unsold Stock
| Cost of 1/5th of Rs.80,000 | 16,000 |
| Add: Proportionate Freight 1/5th(Rs.3,000 + 1,800) | 960 |
| Total | 16,960 |
In the Books of A
Consignment to Mumbai Account
| Particulars | Dr | Particulars | Cr | |
| To Goods sent on Consignment A/c | 80,000 | By M A/c (sale proceeds) By Stock on Consignment A/c | 90,000 | |
| To Bank A/c (Exp.) Freight To M A/c (Exp.) | 3,000 | (W.N.2) | 16,960 | |
| – Railway charges | 1,800 | |||
| – Godown rent | 1,000 | 2,800 | ||
| To M A/c – commission (W.N.1) | 11,250 | |||
| To Profit and Loss on Consignment A/c | 9,910 | |||
| 1,06,960 | 1,06,960 |
M’s Account
| Particulars | Rs. | Particulars | Rs. |
| To Consignment to Mumbai A/c | 90,000 | By Consignment to Mumbai A/c (expenses) | 2,800 |
| By Consignment to Mumbai A/c (Commission) (W.N.1) | 11,250 | ||
| By Bank A/c (Advance) | 45,000 | ||
| By Balance c/d (Amount due) [Balancing Fig.] | 30,950 | ||
| 90,000 | 90,000 |
Consignment Account – Practical Problems
Commission and over riding Commission
‘X’ of Delhi purchased 10,000 pieces of Sarees @ Rs.100 per Saree. Out of these Sarees, 6,000 were sent on consignment to ‘Y’ of Agra at a selling price of Rs.120 per Saree. The consignor paid Rs.3,000 for packing and freight.
‘Y’ sold 5,000 Sarees at Rs.125 per Sarees and incurred Rs.1,000 for selling expenses and remitted Rs.5,00,000 to Delhi on account. They are entitled to a commission of 5% on total sales plus a further 20% overriding commission on any surplus price realized over Rs.120 per Saree.
3,000 Sarees were sold in Delhi at Rs.110 per Saree. Owing to fall in market price, the value of stock of Sarees in hand is to be reduced by 10%.
Prepare the Consignment Account in the books of ‘X’ and their account in the books of the agent ‘Y’ of Agra.
Solution:
Books of X
Consignment Account
Note: Consignment Stock= Sent on Consignment 6000 – Sold 5000 = 1000
Books of Y
X’s Account
Commission = Rs.6,25,000 x 5% = Rs.31,250. Overriding Commission = 20% x [5,000 x (125 – 120)] = Rs.5,000.
Consignment Account – Practical Problems
Normal Loss
50 pcs. of Computer Mouse, whose consignment cost is Rs.10,000, have been sent on consignment, Consignor’s expenses in consignment are Rs.600. 10 pcs. of Mouse were destroyed in transit due to natural causes. Consignee sold 35 pcs. of Mouse. Find out the value of remaining 5 pcs. of Mouse.
Solution:
Effective consignment quantity after Normal Loss = 50 pcs. – 10 pcs. = 40 pcs.
Closing stock = 40 pcs. – 35 pcs = 5 pcs.
Valuation of Closing Stock: = [(10,000 + 600) x 5)] / 40 = 1325
Consignment Account – Practical Problems
Abnormal Loss
On 1.11.2009 XYZ Ltd. consigned 1000 pcs. of Law Books @ Rs.300 per pcs. from Bombay to a party Mr. A in Delhi. XYZ Ltd., paid Rs.5,000 by way of freight, insurance. During transit 20 pcs. of books were accidentally destroyed. Mr. A takes delivery on 15.11.2009 and accepts a bill drawn by XYZ Ltd., for 3 months maturity. On 31.12.2009 Mr. A sold 900 pcs. book @ Rs.350 per pcs. and reported a theft of 30 pcs. to XYZ Ltd., Mr. A also paid Rs.2,000 as store room rent and Rs.2,500 by way of insurance. The Insurance company admitted claim for Rs.10,000. Mr. A is entitled to a commission @2%.
Show Ledger Accounts up to 31.12.2009 in both parties’ (Consignor and Consignee) books assuming that Mr. A pays dues to XYZ Ltd., through Bank Draft.
| Abnormal Loss | Rs. | Rs. |
| Loss in Transit:- (On 15.11.2009) | ||
| Cost of 20 pcs. @ Rs.300 per pcs. | 6,000 | |
| Add: Proportionate Freight (Rs.5,000 x 20 pcs.) / 1,000 pcs. | 100 | 6,100 |
| Loss by Theft:- (On 31.12.2009) | ||
| Cost of 30 pcs. @ Rs.300 per pcs. | 9,000 | |
| Add: Proportionate Freight (Rs.5,000 x 30 pcs.) / 1,000 pcs. | 150 | 9,150 |
| Amount to be transferred to Abnormal Loss Account = | 15,250 | |
| Value of Closing Stock:- | ||
| Cost of 50 pcs. @ Rs.300 per pcs. | 15,000 | |
| Add: Proportionate Freight (Rs.5,000 x 50 pcs.) / 1,000 pcs. | 250 | |
| 15,250 |
In the Books of XYZ Ltd. (Consignor)
Consignment Account
| Date | Particulars | Dr | Date | Particulars | Cr |
| 2009 | 2009 | ||||
| Nov. 1 | To Goods sent on Consignment A/c | Nov. 15 | By Abnormal Loss A/c (W.N.- 1) | 6,100 | |
| (1,000 pcs. x Rs.300) | 3,00,000 | Dec. 31 | By A A/c | ||
| To Cash A/c | Sales (900 pcs. x Rs.350) | 3,15,000 | |||
| (Freight and Insurance) | 5,000 | “ | By Abnormal Loss A/c (W.N.- 2) | 9,150 | |
| Dec. 31 | To A A/c:- | “ | By Consignment Stock A/c | ||
| Store Room Rent | 2,000 | (W.N.- 3) | 15,250 | ||
| Insurances Commission (2% of Rs.3,15,000) | 2,500 6,300 | ||||
| “ | To Profit and Loss A/c | 29,700 | |||
| 3,45,500 | 3,45,500 |
Goods sent on Consignment Account
| Date | Particulars | Dr | Date | Particulars | Cr |
| 2009 | 2009 | ||||
| Dec. 31 | To Trading A/c: | 3,00,000 | Nov. 1 | By Consignment A/c | 3,00,000 |
| (Rs.300 x 1,000 pcs.) | |||||
| 3,00,000 | 3,00,000 |
A’s Account
| Date | Particulars | Dr | Date | Particulars | Cr |
| 2009 | 2009 | ||||
| Dec. 31 | To Consignment A/c (Sales) (900pcs. x Rs.350) | 3,15,000 | Nov. 15 | By Bill Receivable A/c (Rs.300 x 1,000 pcs.) | 3,00,000 |
| Dec. 31 | By Consignment A/c:- | ||||
| Store Room Rent | 2,000 | ||||
| Insurance Commission (2% of Rs.3,15,000) | 2,500 6,300 | ||||
| By Bank A/c (Bal.Fig.) (balance due) | 4,200 | ||||
| 3,15,000 | 3,15,000 |
Abnormal Loss Account
| Date | Particulars | Dr | Date | Particulars | Cr |
| 2009 | 2009 | ||||
| Nov. 15 | To Consignment A/c (Working Note- 1) | 6,100 | Dec. 31 | By insurance co. A/c (Claim admitted) | 10,000 |
| Dec. 31 | To Consignment A/c (Working Note- 2) | 9,150 | By profit & Loss A/c: | 5,250 | |
| (Resultant loss) | |||||
| 15,250 | 15,250 |
In the Books of Mr. A (Agent)
XYZ Ltd., Account
| Date | Particulars | Dr | Date | Particulars | Cr |
| 2009 | 2009 | ||||
| Nov. 15 | To Bills Payable A/c | 3,00,000 | Dec. 31 | By Cash A/c | |
| Dec. 31 | To Cash A/c:- | Sales (900 pcs.x Rs.350) | 3,15,000 | ||
| Store Room Rent | 2,000 | ||||
| Insurance Commission (2% on Rs.3,15,000) | 2,500 6,300 | ||||
| To Bank A/c | 4,200 | ||||
| 3,15,000 | 3,15,000 |
Note: Since the amount of bill is not given, it has been assumed that bill has been drawn with the cost of goods consigned, i.e., Rs.3,00,000.
Consignment Account – Practical Problems
Valuation of Consignment Stock
On 1st January, 2009 M of Mumbai consigned 500 show pieces @ Rs.350 to A of Agra and incurred expenses on consignment- : Freight – Rs.2,500, Insurance – Rs.2,500.
The expenses incurred by A were : Freight – Rs.1,500, Unloading Rs.1,000. Godown Rent Rs.2,500.
By 31st December, 2009, 450 show pieces were sold by A @ Rs.1,000 and 50 show pieces remained unsold. As per agreement, 5% commission on sales will be payable to A. Prepare Consignment A/c showing valuation of closing stock.
Solution:
In the books of M
Consignment to A Account.
| Particulars | Dr | Particulars | Cr |
| To Goods sent on Consignment A/c (500 pcs. X Rs.350) | 1,75,000 | By A (sales) (450 pcs. X Rs.1,000) | 4,50,000 |
| To Bank A/c: | By Consignment Stock A/c (Wn.1) | 18,250 | |
| Freight | 2,500 | ||
| Insurance | 2,500 | ||
| To A | |||
| Freight | 1,500 | ||
| Unloading | 1,000 | ||
| Godown Rent | 2,500 | ||
| Commission (5% on Rs.4,50,000) | 22,500 | ||
| To Profit and Loss A/c | 2,60,750 | ||
| 4,68,250 | 4,68,250 |
Working Note:
Valuation of Closing Stock:
Consignment Account – Practical Problems
Discount on Consignment Sale
X consigned goods to Y at an invoice price of Rs.12,000 which was 20% above cost price. X incurred Rs.240 on freight and Rs.160 on insurance. He received an acceptance from his agent of Rs.4,000 which was discounted with his Bank at Rs.3,950. The agent sold 3/4th goods at Rs.10,400 and his sales expenses were Rs.200 and commission Rs.1,000. The agent paid the due amount through bank draft. Show necessary accounts in the books of both parties.
Solution:
Working Note:
- Consignment Stock value in the hands of consignee = (Goods sent on Consignment + Consignor’s Expenses) x 20% above cost price.
3/4th of goods were sold. Therefore, remaining stock in hand of consignee = 1 – ¾ = 1/4th
= Rs.(12,000 + 240+160) x ¼ = Rs.12,400 x ¼ = Rs.3,100
- Loading on goods sent = Amount of Goods sent on Consignment x (20/120)
20% of cost i.e. 1/5th of cost = 20/120 i.e. 1/6th of invoice price.
= Rs. 12,000 x 20/120 = Rs.2,000
- Value of Stock Reserve = Amount of Unsold Stock x (20/120)
= Rs.(12,000 x ¼ ) x(20/120) = = Rs.3,000 x (20/120) = = Rs.500
Only this amount of goods are enhanced price of 20% and expenses are not at enhance price.
In the Books of X
Consignment Account
Goods sent on Consignment Account
| Particulars | Dr | Particulars | Cr |
| To Consignment A/c (W.N. – 2) | 2,000 | By Consignment A/c | 12,000 |
| To Trading A/c (Balancing Fig.) | 10,000 | ||
| 12,000 | 12,000 |
Y (Consignee) Account
Note:- Discount of the bill should preferably be debited to Profit & Loss Account as an item of purely financial nature.
Consignment Stock Account
| Particulars | Dr | Particulars | Cr |
| To Consignment A/c (W.N.– 1) | 3,100 | By Balance c/d | 3,100 |
Stock Reserve Account
| Particulars | Dr | Particulars | Cr |
| To Balance c/d | 500 | By Consignment A/c (W.N.- 3) | 500 |
Stock will be shown in the Balance Sheet as:-
In the Books of Y (Consignee)
X (Consignor) Account
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
| To B/P A/c | 4,000 | By Cash A/c (Sale) | 10,400 |
| To Sales expenses | 200 | ||
| To Commission A/c | 1,000 | ||
| To Bank A/c | 5,200 | ||
| 10,400 | 10,400 |
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