Accounting Treatment Of Consignment

Valuation Of Unsold Stock In Accounting For Consignment Of Goods 

Introduction

The stock lying in the hands of consignee at the end of accounting year is valued at cost or market price whichever is less. The cost of unsold stock or closing stock should be valued at cost to the consignor plus proportionate non-recurring expenses incurred by the consignor and consignee.

The following method should be carefully considered while valuing unsold stock:

Cost Price Of Goods Consigned.................................XXX

Add: Expenses incurred by consignor:

Freight.........................................................................XXX

Carriage.......................................................................XXX

Insurance on goods dispatch......................................XXX

Docks dues....................................................................XXX

Export/Import duties....................................................XXX

Loading and unloading charges...................................XXX

Add: Consignee's expenses:

Unloading charges.....................................................XXX

Landing charges........................................................XXX

Import duty................................................................XXX

Octroi.........................................................................XXX

Godown rent etc........................................................XXX

Total Cost..................................................................XXX

Cost of unsold stock = (Total Cost/Total Quantity) X Unsold Quantity

Alternative Method,

Cost Of Unsold Stock

= (Cost of goods sold+Proportionate of all expenses/Total Quantity) X unsold stock

 

 

Accounting Treatment Of Consignment As Maintained By The Consignor

A consignment account is a combined form of trading and profit and loss account solely to the concerned consignment. It can be treated as nominal account. An independent consignment account for each and consignment to the name of place or consignee is to be prepared in order to ascertain the profit or loss from that consignment.

In order to keep complete record of consignment transactions, the consignor maintains the following accounts:

* Consignment Account

* Consignee's Account

* Goods sent on consignment Account

The following entries are made in the books of the consignor for goods sent at proforma invoice price or cost price:

1. For the goods sent on consignment

"Consignment to" A/C......................Dr.

To Goods sent on consignment A/c

2. For the expenses incurred by consignor

"Consignment to" A/C..............Dr.

To Bank A/C

3. For the advance received from consignee

Bank/Cash/Bills receivable A/C............Dr.

To Consignee's A/C

4. For the bills discounted

Bank A/C...................Dr.

To Bills receivable

5. For discount on bills transferred to profit and loss account

Profit and loss A/C...................Dr.

To Discount A/c

6. For expenses paid by consignee

Consignment to..............A/c.................Dr.

To Consignee's A/c

7. For the goods sold by consignee

Consignee's A/c.................Dr.

To consignment to.................A/c

8. For the commission due to consignee

Consignment to .................A/C

To consignee's A/C

9. For closing stock with consignee

Consignment stock A/C...........Dr.

To consignment to.......A/c

10. For profit or loss on consignment

For profit earned on consignment

Consignment to........A/C..................Dr.

To Profit and loss A/C

For loss on consignment

Profit and loss A/C.....................Dr.

To consignment to.............A/C

11. For final settlement of account with consignee

Bank A/c...............Dr.

To Consignee's A/c

12.For goods sent on consignment transferred to trading account(by a manufacturing company) or purchase account(by a trader)

Goods sent to consignment A/C..............Dr.

To trading/ purchase A/C

Journal Entries In The Books Of Consignee

Consignment is not a sale. Hence, the consignee does not treat the consignor as his creditor. The consignee does not make any entry for the goods consigned by the consignor and received by consignee, because the goods do not belong him. Following is the procedure for recording transactions in the books of consignee.

1. For remitting advance

Consignor's A/c...................Dr.

To cash/bank/bills payable A/c

2. For bills met on due date

Bills payable A/C ................Dr.

To Bank A/c

3. For incurring expenses

Consignor's A/C.....................Dr.

To Cash/bank A/c

4. For making cash sale

Bank/Cash A/C................Dr.

To consignor's A/c

5. For credit sale

Consignment debtor's A/C............Dr.

To consignor's A/c

6. For charging commission

Consignor's A/c ...........Dr.

To commission A/c

7. For collection of debt

Bank A/C ..................Dr.

To consignment debtor's A/c

8. For final settlement of account with consignor

Consignor's A/C.............Dr.

To cash or bank A/c