Isc Accounts Consignment
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Rohit Agarwal 9883248954
Chapter 3: Consignment
Consignment: Consignment means the transaction of sending goods by one person to another, who is to sell those goods, on behalf of the first person. Consignor: The person who sends the goods is known as Consignor. Consignee: The person to whom the goods are sent is known as Consignee. Relationship: The legal relationship between these two persons is that of principal and agent. Outward/ Inward Consignment: The consignment is Outward Consignment for the person who sends the goods for sale and Inward Consignment for the person who receives the goods for sale
Basis Ownership goods.
Consignment in Ownership of the goods remains with consignor until the goods are actually sold. Consignee acts only as a custodian of goods. The relationship of consignor and Relationship consignee is that of principal and agent. Statue Commission
Sale Both ownership and possession are transferred to the buyer immediately after sale.
In case of credit sales, the relationship of seller and buyer is that of creditor and debtor. Law of agency applies. Sale of Goods Act applies. Consignee is entitled to get commission Seller earns profit at the time of sale. No based on agreement entered with commission is given to the buyer. consignor.
Accounts Sales Proforma Invoice It is prepared and forwarded by consignee to It is prepared and forwarded by consignor to consignor. consignee. It is sent only once, when goods are sent on It is sent at periodic intervals. consignment. It contains information about goods sold. It contains information about goods consigned. Account Sales It is just a statement. It is prepared by consignee. It reflects the balance due to Consignor. Proforma Invoice It cannot charge the consignee for value of the goods. It may be prepared at Cost Price or at Invoice Price.
Consignment Account It is a nominal A/c. It is prepared by consignor. It reflects the profit or loss on consignment. Sales Invoice It charges the buyer with the value of the goods. It is always prepared at selling price.
Recurring expenses
Non-recurring expenses These expenses are not incurred again and again, These expenses are incurred again and again. but once. These expenses are incurred by the consignee after These expenses are incurred in transferring goods the goods reach his godown. from consignor’s godown to consignee’s godown. These expenses are not considered in Valuation of These expenses are considered in Valuation of Unsold Stock. Unsold Stock. Stock on Consignment Account Consignment Stock Reserve Account It is basically the closing stock in consignment It is amount of loading on Consignment Stock at business. the end. It is always shown as debit balance. It is always shown as credit balance.
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Rohit Agarwal 9883248954 Normal Loss An unavoidable loss, due to inherent features of the goods. For e.g. evaporation, etc. It is treated as a part of cost by inflating the cost per unit. No Journal entry is passed for such loss.
Basis of Distinction
Ordinary Commission
Abnormal Loss An avoidable loss, which occurs due to abnormal factors, like fire, theft, etc. Its value is credited to consignment account, in order to calculate the normal profit/loss. The following entry is passed: (Refer Entry 12)
Special Commission Del Credere Commission Overriding Commission It is allowed to the consignee to effect sales at a price higher than price fixed by the consignor.
1. When allowed?
It is allowed to all the consignees for all the consignments for selling goods.
It is allowed to the consignee only when he undertakes the risk of bad debts arising out of credit sales.
2. Guarantee
In return of this commission, consignee guarantees only the proceeds of cash sales.
In return of this commission, In return of this commission, consignee guarantees the consignee does not give any proceeds of cash sales and guarantee. credit sales.
3. How to calculate?
It is calculated at an agreed rate It is calculated at an either on the total sales (if no agreed rate on the total agreement) or credit sales (if sales. agreement provides).
It is calculated on the difference between actual total sales and sales at specified selling price (surplus).
Statement showing Valuation of Unsold Stock Add:
Particulars Goods Sent on Consignment All expenses incurred by Consignor
Less: Less:
Goods lost in transit Goods still in transit
Add:
Consignee’s Non-recurring expenses
Less:
Abnormal Loss
Less:
Normal Loss Cost of Goods Available for sale Value of Unsold Stock
Units ** ---** ** ** ** ---** ** ** ** ** **
Cost Loading ** ** ** ---** ** ** ** ** ** ** ** ** ---** ** ** ** ** ** ------** ** ** **
Basis of Valuation of Unsold Stock: Unsold Stock is to be valued at cost price or net realizable value, whichever is lower. Cost means purchase price plus relevant expenses. Net Realizable value means market price of the goods. (Note: Commission to be deducted in calculation of Net realizable value.)
Accounting Entries: In the books of Consignor 1. When goods are sent on consignment: Consignment to ______ A/c Dr. To Goods Sent on Consignment A/c 2. Consignor’s Expenses: Consignment to ______ A/c Dr. To Bank A/c 3. For receiving advance from consignee: Cash/Bank/Bills Receivable A/c Dr. To Consignee A/c
14
In the books of Consignee No Entry
No Entry Consignor A/c Dr To Cash/Bank/Bills Payable A/c
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Rohit Agarwal 9883248954
4. On getting the bills receivable discounted Bank A/c Dr. Discount A/c Dr No Entry To Bills Receivable A/c 5. On receiving the goods returned by consignee Goods Sent on Consignment A/c Dr. No Entry To Consignment to ______ A/c 6. Consignee’s Expenses: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Bank A/c 7. (a) On Sales being made by consignee: Consignee A/c Dr. Cash/Consignment Debtors A/c Dr. To Consignment to ______ A/c To Consignor A/c 8. On Making Commission due to consignee: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Commission A/c 9. (a) For Bad debts if DCC is not given to consignee: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Consignment Debtors A/c 9. (b) For Bad debts if DCC is given to consignee: Bad Debts A/c Dr. No Entry To Consignment Debtors A/c 10. On receiving remittance from the consignee: Cash/Bank/Bills Receivable A/c Dr. Consignor A/c Dr To Consignee A/c To Cash/Bank/Bills Payable A/c 11. For unsold stock with consignee: Consignment Stock A/c Dr. No Entry To Consignment to ______ A/c 12. For Abnormal Loss of Goods: Abnormal Loss A/c Dr. To Consignment to ______ A/c No Entry Profit & Loss A/c Dr. Insurance Co./Bank A/c Dr. To Abnormal Loss A/c 13. For Closing Consignment A/c by recording Profit or Loss: (a) In case of Profit: Consignment to ______ A/c Dr. To Profit on Consignment A/c No Entry (b) In case of Loss: Loss on Consignment A/c Dr. To Consignment to ______ A/c 14. For closing Goods Sent on Consignment A/c by transferring the balance to Trading A/c: Goods Sent on Consignment A/c Dr. No Entry To Trading A/c
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Rohit Agarwal 9883248954 Invoice Price & Loading ¾Sometimes, the consignor does not want to reveal the cost of goods to the consignee and therefore invoices goods at a price which is higher than the cost price. Such price is known as Invoice Price and the difference between Invoice Price & Cost Price is called Loading. ¾When Goods are sent cost plus loading, then some additional entries are required to be passed in the books of consignor, to eliminate loading. Situation 1. To Eliminate loading from goods are sent on consignment: (Refer Entry 1 of previous list) 2. To Eliminate loading from goods returned by consignee: (Refer Entry 5 of previous list) 3. To Eliminate loading from unsold stock with consignee: (Refer Entry 11 of previous list)
Entry Goods Sent on Consignment A/c Dr. To Consignment to ______ A/c Consignment to ______ A/c Dr. To Goods Sent on Consignment A/c Consignment to ______ A/c Dr To Consignment Stock reserve A/c
Write answer of these questions in your copy: 1. 2. 3. 4. 5. 6. 7. 8. 9.
10. 11. 12. 13.
What is Proforma Invoice? Why is it drawn and by whom? [ISC 1993] Why is consignee not treated as a Consignor’s debtor? [ISC 1994] Differentiate between Normal Loss and Abnormal Loss. [ISC 1996] What is abnormal loss in consignment Accounts? [ISC 1997] What is Over-riding Commission and how it is accounted for? [ISC 2000, 07] What is meant by Recurring and Non-recurring Expenses? Give four examples of each. [ISC 1995, 02] What is Del Credere commission? [ISC 1998, 03] Give two differences between Account Sales and Proforma Invoice? [ISC 2004] What entry will you pass for credit sales made by consignee, when: (a) He gets Del Credere commission. (b) He does not get Del Credere commission. [ISC 2004] Give two differences between Sales Invoice and Proforma Invoice? [ISC 2005] What is account Sales? State two ways in which it differs from a consignment account. [ISC 2005] What is Normal Loss? How is it treated in Consignment Accounts? [ISC 2007] How will Discounting Charges in a consignment account be dealt with when a bill of exchange is drawn by the consignor on the consignee as an advance? [ISC 2008]
Student’s Notes
16
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Chapter 3: Consignment
Consignment: Consignment means the transaction of sending goods by one person to another, who is to sell those goods, on behalf of the first person. Consignor: The person who sends the goods is known as Consignor. Consignee: The person to whom the goods are sent is known as Consignee. Relationship: The legal relationship between these two persons is that of principal and agent. Outward/ Inward Consignment: The consignment is Outward Consignment for the person who sends the goods for sale and Inward Consignment for the person who receives the goods for sale
Basis Ownership goods.
Consignment in Ownership of the goods remains with consignor until the goods are actually sold. Consignee acts only as a custodian of goods. The relationship of consignor and Relationship consignee is that of principal and agent. Statue Commission
Sale Both ownership and possession are transferred to the buyer immediately after sale.
In case of credit sales, the relationship of seller and buyer is that of creditor and debtor. Law of agency applies. Sale of Goods Act applies. Consignee is entitled to get commission Seller earns profit at the time of sale. No based on agreement entered with commission is given to the buyer. consignor.
Accounts Sales Proforma Invoice It is prepared and forwarded by consignee to It is prepared and forwarded by consignor to consignor. consignee. It is sent only once, when goods are sent on It is sent at periodic intervals. consignment. It contains information about goods sold. It contains information about goods consigned. Account Sales It is just a statement. It is prepared by consignee. It reflects the balance due to Consignor. Proforma Invoice It cannot charge the consignee for value of the goods. It may be prepared at Cost Price or at Invoice Price.
Consignment Account It is a nominal A/c. It is prepared by consignor. It reflects the profit or loss on consignment. Sales Invoice It charges the buyer with the value of the goods. It is always prepared at selling price.
Recurring expenses
Non-recurring expenses These expenses are not incurred again and again, These expenses are incurred again and again. but once. These expenses are incurred by the consignee after These expenses are incurred in transferring goods the goods reach his godown. from consignor’s godown to consignee’s godown. These expenses are not considered in Valuation of These expenses are considered in Valuation of Unsold Stock. Unsold Stock. Stock on Consignment Account Consignment Stock Reserve Account It is basically the closing stock in consignment It is amount of loading on Consignment Stock at business. the end. It is always shown as debit balance. It is always shown as credit balance.
[email protected]
13
Rohit Agarwal 9883248954 Normal Loss An unavoidable loss, due to inherent features of the goods. For e.g. evaporation, etc. It is treated as a part of cost by inflating the cost per unit. No Journal entry is passed for such loss.
Basis of Distinction
Ordinary Commission
Abnormal Loss An avoidable loss, which occurs due to abnormal factors, like fire, theft, etc. Its value is credited to consignment account, in order to calculate the normal profit/loss. The following entry is passed: (Refer Entry 12)
Special Commission Del Credere Commission Overriding Commission It is allowed to the consignee to effect sales at a price higher than price fixed by the consignor.
1. When allowed?
It is allowed to all the consignees for all the consignments for selling goods.
It is allowed to the consignee only when he undertakes the risk of bad debts arising out of credit sales.
2. Guarantee
In return of this commission, consignee guarantees only the proceeds of cash sales.
In return of this commission, In return of this commission, consignee guarantees the consignee does not give any proceeds of cash sales and guarantee. credit sales.
3. How to calculate?
It is calculated at an agreed rate It is calculated at an either on the total sales (if no agreed rate on the total agreement) or credit sales (if sales. agreement provides).
It is calculated on the difference between actual total sales and sales at specified selling price (surplus).
Statement showing Valuation of Unsold Stock Add:
Particulars Goods Sent on Consignment All expenses incurred by Consignor
Less: Less:
Goods lost in transit Goods still in transit
Add:
Consignee’s Non-recurring expenses
Less:
Abnormal Loss
Less:
Normal Loss Cost of Goods Available for sale Value of Unsold Stock
Units ** ---** ** ** ** ---** ** ** ** ** **
Cost Loading ** ** ** ---** ** ** ** ** ** ** ** ** ---** ** ** ** ** ** ------** ** ** **
Basis of Valuation of Unsold Stock: Unsold Stock is to be valued at cost price or net realizable value, whichever is lower. Cost means purchase price plus relevant expenses. Net Realizable value means market price of the goods. (Note: Commission to be deducted in calculation of Net realizable value.)
Accounting Entries: In the books of Consignor 1. When goods are sent on consignment: Consignment to ______ A/c Dr. To Goods Sent on Consignment A/c 2. Consignor’s Expenses: Consignment to ______ A/c Dr. To Bank A/c 3. For receiving advance from consignee: Cash/Bank/Bills Receivable A/c Dr. To Consignee A/c
14
In the books of Consignee No Entry
No Entry Consignor A/c Dr To Cash/Bank/Bills Payable A/c
[email protected] Normal & Crash Courses for ISC, CBSE, BCom, BBA, CA & CS
Rohit Agarwal 9883248954
4. On getting the bills receivable discounted Bank A/c Dr. Discount A/c Dr No Entry To Bills Receivable A/c 5. On receiving the goods returned by consignee Goods Sent on Consignment A/c Dr. No Entry To Consignment to ______ A/c 6. Consignee’s Expenses: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Bank A/c 7. (a) On Sales being made by consignee: Consignee A/c Dr. Cash/Consignment Debtors A/c Dr. To Consignment to ______ A/c To Consignor A/c 8. On Making Commission due to consignee: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Commission A/c 9. (a) For Bad debts if DCC is not given to consignee: Consignment to ______ A/c Dr. Consignor A/c Dr. To Consignee A/c To Consignment Debtors A/c 9. (b) For Bad debts if DCC is given to consignee: Bad Debts A/c Dr. No Entry To Consignment Debtors A/c 10. On receiving remittance from the consignee: Cash/Bank/Bills Receivable A/c Dr. Consignor A/c Dr To Consignee A/c To Cash/Bank/Bills Payable A/c 11. For unsold stock with consignee: Consignment Stock A/c Dr. No Entry To Consignment to ______ A/c 12. For Abnormal Loss of Goods: Abnormal Loss A/c Dr. To Consignment to ______ A/c No Entry Profit & Loss A/c Dr. Insurance Co./Bank A/c Dr. To Abnormal Loss A/c 13. For Closing Consignment A/c by recording Profit or Loss: (a) In case of Profit: Consignment to ______ A/c Dr. To Profit on Consignment A/c No Entry (b) In case of Loss: Loss on Consignment A/c Dr. To Consignment to ______ A/c 14. For closing Goods Sent on Consignment A/c by transferring the balance to Trading A/c: Goods Sent on Consignment A/c Dr. No Entry To Trading A/c
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15
Rohit Agarwal 9883248954 Invoice Price & Loading ¾Sometimes, the consignor does not want to reveal the cost of goods to the consignee and therefore invoices goods at a price which is higher than the cost price. Such price is known as Invoice Price and the difference between Invoice Price & Cost Price is called Loading. ¾When Goods are sent cost plus loading, then some additional entries are required to be passed in the books of consignor, to eliminate loading. Situation 1. To Eliminate loading from goods are sent on consignment: (Refer Entry 1 of previous list) 2. To Eliminate loading from goods returned by consignee: (Refer Entry 5 of previous list) 3. To Eliminate loading from unsold stock with consignee: (Refer Entry 11 of previous list)
Entry Goods Sent on Consignment A/c Dr. To Consignment to ______ A/c Consignment to ______ A/c Dr. To Goods Sent on Consignment A/c Consignment to ______ A/c Dr To Consignment Stock reserve A/c
Write answer of these questions in your copy: 1. 2. 3. 4. 5. 6. 7. 8. 9.
10. 11. 12. 13.
What is Proforma Invoice? Why is it drawn and by whom? [ISC 1993] Why is consignee not treated as a Consignor’s debtor? [ISC 1994] Differentiate between Normal Loss and Abnormal Loss. [ISC 1996] What is abnormal loss in consignment Accounts? [ISC 1997] What is Over-riding Commission and how it is accounted for? [ISC 2000, 07] What is meant by Recurring and Non-recurring Expenses? Give four examples of each. [ISC 1995, 02] What is Del Credere commission? [ISC 1998, 03] Give two differences between Account Sales and Proforma Invoice? [ISC 2004] What entry will you pass for credit sales made by consignee, when: (a) He gets Del Credere commission. (b) He does not get Del Credere commission. [ISC 2004] Give two differences between Sales Invoice and Proforma Invoice? [ISC 2005] What is account Sales? State two ways in which it differs from a consignment account. [ISC 2005] What is Normal Loss? How is it treated in Consignment Accounts? [ISC 2007] How will Discounting Charges in a consignment account be dealt with when a bill of exchange is drawn by the consignor on the consignee as an advance? [ISC 2008]
Student’s Notes
16
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