Consignment Account

1. Account sale
Account sale is a statement sent by consignee to consignor periodically. It gives details of transactions
entered by consignee on behalf of consignor during that period and the final balance due.

It also contains the quantitative details, apart from the financial transactions like Sales, Expenses incurred,
Commission due & advances paid. On the basis of account sale the consignor records entries in his books
periodically.

2. Del-Credere commission
In normal course the bad debts loss due to credit sales is the loss of consignor (because he is the owner) and
not of consignee. But sometimes the consignee agrees to take the risk of bad debt losses and in return he gets
extra commission, known as Del Credere commission.

Therefore, whenever Del Credere commission is payable, the bad debts loss will be borne by consignee and
not the consignor.

The Del Credere commission to be calculated on total sales and not only on credit sales unless otherwise
specified.

3. Treatment of Normal Loss

We don’t have to value it or to exclude it from the consignment a/c because it is a normal loss.

But while valuing the closing stock the cost or the expenses, which are incurred for the total quantity and
which have to be considered for stock valuation will be divided by the normal quantity and not by the total
quantity.

Thus to that extent cost of good unit’s gets increased or in other words the amount of normal loss gets spread
over the normal quantity.

Normal Qty. = Total Qty. (-) Normal loss

Scrap value of normal lost quantity should be credited to

consignment A/c.

Total cost (—) Scrap value of normal loss

Cost per unit =
Normal quantity
4. Treatment of Abnormal Loss
The valuation of abnormal loss should be made like the valuation of closing stock.

Because it is an abnormal loss, it should not affect the normal profit shown by the Consignment A/c

Therefore we should exclude such abnormal loss from the consignment A/c by passing following entry.

Abnormal loss A/c Dr. …

To Consignment A/c …

The scrap value or insurance claim etc. of such abnormal lost quantity should be credited to Abnormal loss
a/c & the balance left in that a/c will be transferred to P&L A/c.

5. Overriding Commission
Overriding commission is the extra/additional commission given over and above the normal commission.
Like for taking the risk of bad and doubtful debts the del credere commission is given. For selling at higher
prices, some % of extra price realized (may be selling price – invoice price) is given.

Similarly for developing market for new product or selling in new areas extra commission can be given.
Even higher commission may be offered in lieu of reimbursement of certain selling and administrative
expenses.

6. Advance Vs Security Deposit from Consignee

Sometimes consignee may pay advance at the start or during the period.

No special treatment is required it will be credited to consignee and will get adjusted from the amount due
on account of sale.

But when it is kept as security deposit for goods, then the amount proportionate to closing stock should
remain as security deposit at the end i.e. full amount should not get adjusted.

It can be treated as security deposit when it is given as some percentage of the value of goods sent to
consignee.
Q.1 Mr. R consigned 10,000 litres of oil @` 3 per litre and paid ` 2,000 as forwarding expenses. Mr. S,
agent of Mr. R received the stock and sold 6,000 litres @ ` 6 per litre, and paid ` 1,000 as selling
expenses. He was entitled for 10% commission on sales. There was a normal loss of 2%. Prepare
Consignment account in the books of Mr. R.

Solution:

Consignment Account

Particulars Amount Particulars Amount

To Goods sent on consignment By Agent (6000 litres @ ` 6) 36,000

(10000 Litre @ ` 3) 30,000 By Stock on consignment(1) 12,408

To Cash (forwarding exp.) 2,000

To Agent:

Selling exp. 1,000

Commission 3,600 4,600

To Profit & Loss A/c 11,808

48,408 48,408

Working Note:

Calculation of Closing Stock

Quantity (in Litres) Amount (in ` )

10,000 32,000 (30,000 + 2,000)

Less: Normal Loss of 2% 200 —

 9,800 32,000

∴3,800 12,408

Q.2 Mr. A consigned 200 cycles @ ` 500 each and paid ` 3,000 on freight. During the transit 20 cycles
were lost by theft. Mr. B received the remaining stock and paid ` 3,600 on its clearing. He sold 150
cycles @ ` 800 per cycle. He was entitled for 10% commission on sales. He paid ` 5,000 as
miscellaneous expenses. Prepare Consignment Account in books of Mr. A.

Solution:

Consignment Account

Particulars Amount Particulars Amount

To Goods sent on consignment A/c By Profit & Loss A/c (Abnormal Loss)(1) 10,300

(200 @ ` 500) 1,00,000 By Agent (150 @ ` 800) 1,20,000

To Cash (Freight) 3,000 By Stock on consignment A/c(2) 16,050

To Agent :

Clearing charges 3,600

Commission 12,000

Miscellaneous exp. 5,000

To Profit & Loss A/c 22,750

1,46,350 1,46,350

Working Notes:-

1. Calculation of Abnormal Loss `

20 Cycles @ ` 500 each = 10,000

Direct expenses = + 300

10,300

2. Stock valuation (at invoice price)

30 cycles @ ` 500 each = 15,000

Direct expenses = + 450

(before loss)

Direct expenses = + 600

(After loss) 16,050

Q.3 A consigned 10,000 kg. of oil @` 20 per kg. and paid ` 4,000 as forwarding expenses. B received
the Consignment and sold 6,000 kg @ 50 per kg. He paid ` 10,000 as selling expenses. He was entitled
for 5% Commission on Sales. He informed that 1,000 kg. of oil was destroyed by fire. There was a
normal loss of 2%. Prepare Consignment A/c in the books of A.

Solution:

Consignment Account

Particulars Amount Particulars Amount

To Goods sent on Consignment A/c By B (6000 × ` 50) 3,00,000

(10,000 × ` 20) 2,00,000 By Profit & Loss(1) (Abnormal Loss) 20,816

To Cash/Bank A/c By Stock on Consignment A/c(2) 58,286

(Forwarding exp.) 4,000

To B:
Selling expenses 10,000

Commission 15,000

To Profit & Loss A/c 1,50,102

3,79,102 3,79,102

Working Note:

1.
1. Calculation of Abnormal Loss

Quantity (in Kg.) Amount (in ` )

10,000 2,04,000 (2,00,000+4,000)

Less: Normal Loss of 2% 200 —

9,800 2,04,000

∴ 1,000 20,816

1.
2. Calculation of Stock on Consignment (at invoice price)

Quantity (in Kg.) Amount (in ` )

10,000 2,04,000 (2,00,000+4,000)

Less: Normal Loss of 2% 200 —

9,800 2,04,000

∴ 2,800 58,286
Q.4 A Company consigned 200 boxes of ` 100 each at an invoice price of ` 120 per box. The Company
paid ` 1200 as forwarding expenses. Agent received the consignment and paid ` 800 on carriage, ` 1000
on godown rent & charged 10% commission on sales. He sold 150 boxes @ ` 200 per box. He informed
that 20 boxes were lost by theft in godown. Prepare Consignment Account in the books of the
Company.

Solution:

Consignment Account

Particulars Amount Particulars Amount

To Goods sent on Consignment By Goods Sent on Consignment 4,000

(200 × ` 120) 24,000 Or Loading (200 ` 20)

To Cash/Bank (Forwarding exp.) 1,200 By Agent (150 × ` 200) 30,000

To Agent : By P& L A/c(1) (Abnormal Loss) 2,200

Carriage : 800 By Stock on consignment(2) 3,900

Godown rent : 1000

Commission : 3,000 4,800

To Stock Reserve or Stock Suspense

A/c

(30 × 20) 600

To Profit & Loss A/c 9,500

40,100 40,100

Working Note:

1. Calculation of Abnormal Loss

20 boxes @ ` 100 each = 2000

Direct expenses = + 200

2,200

2. Stock valuation (at invoice price)

30 boxes @ ` 120 each = 3600

Direct expenses = + 300

3,900

Q.5 Somesh of Calcutta consigned 100 cases of candles to Sailesh of Bankura. Which cost him ` 30 per case.
He incurred the following costs packing ` 40 carriage ` 20 and Railway Freight (paid in advance) ` 40. Some
of the cases were damaged in transit and Sailesh took delivery of 90 cases only. He (Sailesh) spent ` 10 for
carriage and ` 40 for godown rent and sold consignment at ` 35 per case. He sent the net amount to Somesh
after deducting his expenses and commission at the rate of 5 per cent on the sale proceeds together with his
Account sales. Somesh also received ` 180 from the Railway as damages. Show how the transactions would
appear in the books of Somesh.

Solution:

In the book of Somesh (consignor)

Consignment Account

Particulars Amount Particulars Amount

To Goods Sent On Consignm
3,000
ent A/c By Sailesh (Sales) A/c 3,150

By Abnormal Loss A/c 310

To Cash A/c

Packing 40

Carriage 20

Freight 40 100

To Sailesh A/c

Carriage 10

Rent 40 50

To Sailesh A/c (Commission) 158

To Profit Transferred to P&L

152
A/c

3,460 3,460

With the freight, words ‘paid in advance’ is written it should not be mis-understood as ‘prepaid’ which
means for the next financial year. Here it is paid before the journey starts hence advance is written, but it is
for this consignment only and hence treated as expense.

Sailesh Account (Consignee)

Particulars Amount Particulars Amount

To Consignment A/c (sales) 3,150 By Consignment A/c (exp. paid) 50

By Consignment A/c (comm. due) 158

By Cash/Bank A/c (bal. recovered) 2,942

3,150 3,150

Goods sent on consignment A/c

To Trading A/c 3,000 By Consignment A/c 3,000

 3,000 3,000

Abnormal loss A/c

To Consignment A/c 310 By Cash (claim from Railway) 180

By Net abnormal Loss trf. to P&L A/

130
c

310 310

Calculations

Abnormal Loss (10 Cases)

Basic cost @ 300

Freight, packing @ 10

Total cost 310

In the books of Sailesh (Consignee)

Somesh (Consignors) a/c

Particulars ` Particulars `

To Cash bank (exp. paid) 50 By Cash/bank/debtors (sales made) 3,150

To Commission a/c (due) 158

To Cash/Bank (net balance paid) 2,942

3,150 3,150

Commission a/c
Particulars ` Particulars `

To P&L a/c (income transferred) 158 By Somesh a/c 158

158 158

Q.6 The Swastik Oil Mills, Bombay, consigned 10,000 Kg. of Castor Oil to Dass of Calcutta on 1st April
2016. The cost of the oil was ` 2 per Kg. The Swastik Oil Mills paid ` 5,000 as freight and insurance. During
transit 250 Kg. were accidentally destroyed for which the insurers paid, directly to the consignors, ` 450 in
full settlement of the claim.

Dass took delivery of the consignment on the 10th April. On 30th June, 2016, Dass reported that 7,500 Kg.
were sold at ` 300 the expenses being on godown rent ` 200/- on advertisement ` 1,000 and on salesman’s
` 2,000. Dass is entitled to a commission of 3 per cent plus 1.5 per cent del credere. A party which had
bought 1,000 was able to pay only 80% of the amount due from it.

Dass reported a loss of 100 kg. as handling loss. Assuming that Dass paid the amount due by bank draft,
show the account in the books of both the parties. The Swastik Oil Mills Ltd. close books on 30th June.

Solution:

In the Books of Consignor

Consignment account

Particulars ` Particulars `

To Goods Sent On Consig

20,000 By Dass A/c (Sales) 22,500
nment A/c

To Cash A/c (Freight & In

5,000 By Abnormal Loss A/c 631
surance)

To Consignee (Dass) A/c By Normal Loss (Scrap Value) –

Rent 200 By Consignment Stock 5,429

Advertisement 1,000 By Net Loss Trf. to P&L 653

Particulars ` Particulars `

Sales Man 2,000 3,200

To Dass A/c (Commission

1,013
)

29,213 29,213

Dass (consignee) account

To Consignment A/c (sale) 22,500 By Consignment A/c (Rent etc.) 3,200

By Consignment A/c (commission) 1,013

By Bank A/c (Final dues received) 18,287

22,500 22,500

Goods sent on consignment account

To Trading A/c 20,000 By Consignment A/c 20,000

20,000 20,000

Consignment stock account

To Consignment A/c 5,429 By balance c/d 5,429

5,429 5,429

Abnormal loss account

To consignment A/c 631 By Cash A/c (insurance claim) 450

By Net abnormal loss trf. to P&L A/c 181

 631 631

Calculation : Normal quantity = Total qty. – Normal loss = 10000 – 100 = 9900

Closing stock = Total qty.- sold – lost = 10,000 – 7,500 – 250 – 100 = 2,150

Valuation Closing stock (2150 kg.) Abnormal loss (250 kg.)

Basic cost @ 4,343 505

Freight & insurance @ 1,086 126

5,429 631

In the book of Dass (consignee)

Consignor (Swastik oil mill) account

Particulars ` Particulars `

To Cash/Bank (Rent etc.) 3,200 By Cash/Bank/Debtor A/c (Sales) 22,500

(200 + 1000 + 2000)

To Commission A/c (22500 × 4.5%) 1,013

To Cash/Bank A/c (Balance paid) 18,287

22,500 22,500

Bad debt account

To Debtor A/c (80% was paid) 600 By P&L A/c 600

\
 600 600

Commission account

Commission account

To P&L A/c 1,013 By Consignor A/c 1,013

1,013 1,013

Q.7 A cotton Mill at Ahmedabad sends regular consignments of cloth to M/s. Lall & Sons of Lucknow who
are agents for selling the cloth at the risk of the Mill and are entitled to a commission of 10 paise per Kg.
cloth sold. This includes del credere commission.

Stock of cloth with agents at the beginning 20,000 kg. costing 50,000

Total quantity of cloth consigned 1,60,000 kg. at ` 3.00 per Kg.

Total Quantity of cloth sold 1,50,000 kg. at ` 3.75 per kg.

Total remittances by the agents ` 5,10,000.

Railway Freight paid by the agents ` 40,000 of sales. M/s Lall & Sons could not collect ` 11,000 due to
insolvency of a customer.

5,000 kg of cloth was damaged by the railway for which the agents recovered ` 6,000. The damaged goods
were sold at the rate of ` 1.50 per kg. Record the transactions in the books of the Mill.

Solution:

In the books of cotton mill, Ahmedabad (consignor) account

Consignment Account

Particulars ` Particulars `

To Opening stock a/c 50,000 By Consignee a/c (sale) 5,62,500

To Goods Sent on Consignment a/c 4,80,000 By Abnormal loss a/c 16,250

To Consignee a/c 40,000 By Consignment stock a/c 81,250

To Consignee a/c

(Commission 1,50,000 × .10) 15,000

To P&L a/c 75,000

6,60,000 6,60,000

M/s. Lall & Sons, Lucknow (Consignee) Account

To Consignment a/c (sale proceeds) 5,62,500 By Bank a/c 5,10,000

To Abnormal loss a/c (claim received

6,000 By Consignment a/c 40,000
)

To Abnormal loss a/c (sale proceeds) 7,500 By Consignment a/c (commission) 15,000

By Abnormal loss a/c (commission) 500

By Balance c/f 10,500

5,76,000 5,76,000

Goods Sent on Consignment A/c

Particular ` Particular `

4,80,000 4,80,000
To Trading a/c By Consignment a/c

Abnormal loss Account

Particulars ` Particulars `

By M/s. Lall & Sons a/c (Claim recei

To Consignment a/c 16,250 6,000
ved)
To Consignee a/c (commission on sal By M/s. Lall & Sons a/c (sale procee
500 7,500
e) ds)

By P&L a/c (Net abnormal loss transf

3,250
erred)

16,750 16,750

Consignment stock Account

To Consignment a/c 81,250 By Balance c/f 81,250

Valuation (FIFO method)

Abnormal loss Stock

Quantity 5000 25000

Basic cost @3 15000 75000

Expenses freight (40000/160000) 1250 6250

Total 16,250 81,250

Q.8 On 1st January, 2016 Lila & Co. of Calcutta consigned 100 cases of Milk Powder to Shila & Co. of
Bombay. The goods were charged at a proforma invoice value of ` 10,000 including a profit of 25% on
invoice price. On the same date the consignor paid ` 600 for freight and insurance. On 1st July, the
consignees paid import duty ` 1,000, dock dues ` 200. On 1st August, they sold 80 cases for ` 10,500 and
sent a remittance for the balance due to the consignor after deducting commission at the rate of 5% on gross
sale proceeds. Show the Consignment Account and Shila & Co’s Account in Lila & Co’s Book.

Solution :

Lila & Co’s Ledger

Consignment to Bombay Account

Particulars Date Particulars

Dat Amoun Amou
e t nt

` `

201
2016
6

Jan. To Goods sent on Consign

10,000 Jan. By Goods Sent on
1 ment

To Bank: (Freight & Insura

600 Consignment (Loading) 2,500
nce)

Jul. Aug.
To Shila & Co. By Shila & Co. (Sales) 10,500
1 1

1,00 By Stock out on Consig

Import Duty
0 nment

2,00
Dock Duty 200 Invoice price
0

Commission 525 1725 Exp. (1/5 of 1800) 360 2,360

To Stock Reserve (25% of

500
2,000)

To Profit transf. to Profit &

2,535
Loss a/c

15,360 15,360

Shila & Co’s Account

Date Particulars Amount Date Particulars Amount

` `
2016 2016

To Consignment to Bo By Consignment to Bo
Aug. 1 10,500 July 1
mbay a/c mbay a/c

(Exp. & Commission) 1,725

By Bank a/c (Final Pay

Aug.1 8,775
ment)

10,500 10,500

Goods sent on Consignment Account

Particulars ` Particulars `

To Consignment a/c 2,500 By Consignment a/c 10,000

To Trading a/c 7,500

10,000 10,000

Consignment Stock Account

Particulars ` Particulars `

To Consignment a/c 2,360 By Balance c/f 2,360

2,360 2,360

Stock Reserve Account

Particulars ` Particulars `

To Balance c/f 500 By Consignment a/c 500

 500 500

Working Notes:

(i) Loading on goods sent on consignment 25% on ` 10,000 2,500

(ii) Loading on Closing Stock 25% on ` 2,000 500

Direct expenses included in valuation of closing stock 1/5 of ` 1,800 (600+1000+20

(iii) 360
0)

Q.9 On 1st January, 2016, Pawan sent on consignment to Raman, 10 cases of tea costing ` 5,000 each
invoiced proforma at ` 6,000 each. Freight and other charges on the consignment amounted to ` 3,100.

On 31st March, 2016, Raman sent an account sales showing that 4 cases had been sold at ` 6,000 each and 3
cases at ` 7,000 each while 3 cases remained unsold. Raman also informed Pawan that of the three cases
remaining in stock, two cases were badly damaged due to bad packing and that they would be sold at ` 3,000
per case (take as NRV).

Raman was entitled to a commission of 5% on gross sales which included del credere commission. Raman
could recover ` 4,000 only from a customer to whom one case had been sold on credit for ` 6,000. Amount
of all other sales were duly received.

On 31st March, 2016, Raman paid the amount due to Pawan by means of a cheque.

Prepare the ledger accounts in the books of Pawan & Raman.

Solution:

In the books of Pawan (consignor)

Consignment Account

Particulars ` Particulars `

By Raman a/c Sales 4 × 6000 = 2400

To Goods sent on Consignment a/c 60,000 45,000
0 + 3 × 7000=21000
Particulars ` Particulars `

To Cash a/c (Freight & other charges By Abnormal loss a/c (2 cases) (5000
3,100 10,620
) × 2+3100 ÷ 10 × 2)

By Consignment stock a/c (1 case) (6

To Raman a/c (Commission 5%) 2,250 6,310
000+3100 ÷ 10)

By G.S. on consignment a/c (loading

To Stock reserve a/c 1,000 10,000
reversed)

To Net profit transferred to P&L a/c 5,580

71,930 71,930

Raman (Consignee) Account

Particulars ` Particulars `

To Consignment a/c 45,000 By Consignment a/c. 2,250

By Bank a/c 42,750

45,000 45,000

Goods sent on Consignment Account

Particulars ` Particulars `

To Consignment a/c (1000×10) 10,000 By Consignment a/c 60,000

To Trading a/c 50,000

60,000 60,000

Abnormal Loss Account

Particulars ` Particulars `

To Consignment a/c 10,620 By P&L a/c (Net loss transferred) 4,620

By Balance stock (3000 × 2) 6,000

10,620 10,620

Note: Expected sale value of damaged goods ` 3,000 is assumed as net realizable value.

Consignment Stock Account

Particulars ` Particulars `

To Consignment a/c 6,310 By Balance c/f 6,310

6,310 6,310

Stock Reserve Account

Particulars ` Particulars `

To Balance c/f 1,000 By Consignment a/c 1,000

1,000 1,000