{"id":5827,"date":"2022-07-19T17:59:30","date_gmt":"2022-07-19T17:59:30","guid":{"rendered":"https:\/\/commerceiets.com\/?p=5827"},"modified":"2022-07-19T17:59:30","modified_gmt":"2022-07-19T17:59:30","slug":"consignment-accounts-notes-for-b-com-1st-year","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/consignment-accounts-notes-for-b-com-1st-year\/","title":{"rendered":"CONSIGNMENT ACCOUNTS NOTES FOR B.COM 1ST YEAR"},"content":{"rendered":"\n<h4 class=\"wp-block-heading\">Consignment Accounts notes on meaning and features of consignment accounts, treatment of normal and abnormal loss and valuation of stock on consignment?<\/h4>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>QUESTION: What do you mean by Consignment? What are its salient features?<\/strong><\/h3>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONSIGNMENT: <\/strong>Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor and Consignee. In this the consignor dispatches the goods to the consignee and consignee is required to sell those goods. For this, the consignee gets a commission. Consignment is a nature of transaction that leads to the expansion of business. The legal relationship between the consignor and consignee is of the agent and the principal.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"features-of-consignment\">FEATURES OF CONSIGNMENT<\/h2>\n\n\n\n<p class=\"has-medium-font-size\">The following are the features of the consignment:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"legal-relationship\">LEGAL RELATIONSHIP<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Consignment transaction is a result of the legal\nrelationship between the two parties. Both the parties enter into an agreement\nto carry out the transactions of sale and purchase.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"terminology\">&nbsp;TERMINOLOGY<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The terminology under the consignment is as follows:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONSIGNOR: <\/strong>The consignor is the person who dispatches the goods to the another party for sale.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONSIGNEE:<\/strong> The consignee is the person to whom the goods are dispatched by the consignor for the sales.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>PROFORMA INVOICE:<\/strong> The consignor sends the goods to the consignee along with a statement known as Proforma Invoice. It is a memorandum record for the reference of the consignor and the consignee. It contains the details regarding the:<\/p>\n\n\n\n<ul><li>Quantity of goods consigned<\/li><li>Quality of goods consigned<\/li><li>Price of the goods, etc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The main purpose of this document is to serve as a proof of the transaction. It also serves as prime document for customs clearance. The format of Proforma invoice is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-4.jpg\" alt=\"CONSIGNMENT ACCOUNTS NOTES\" class=\"wp-image-2494\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-4.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-4-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide4-4-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ACCOUNT SALES: <\/strong>An account sales is a statement which is sent by the consignee to the consignor. It shows all the details regarding:<\/p>\n\n\n\n<ul><li>Quantity of goods sold.<\/li><li>Price charged from customers<\/li><li>Expenses of consignee.<\/li><li>Amount of commission due from consignor<\/li><li>Advance received from consignor, etc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">On the basis of account sales, the transactions are recorded\nby the consignor in his books.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The format of account sales is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide5-3.jpg\" alt=\"CONSIGNMENT ACCOUNTS NOTES\" class=\"wp-image-2496\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide5-3.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide5-3-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide5-3-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONSIGNMENT OUTWARD: <\/strong>To the consignor, the consignment of goods is known as Consignment Outward.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CONSIGNMENT INWARD:<\/strong> To the consignee, the consignment of goods is known as Consignment Inward.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"risk\"><strong>RISK <\/strong><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The risk of the goods consigned remains with the consignor\nonly till the goods is sold by the consignee. As the sales are made by the\nconsignee, the risk associated with goods transfer to the buyer as he is then\nthe owner of the goods.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"consideration\">CONSIDERATION <\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The consignee sells the goods on behalf of the consignor for\nthe consideration known as Commission. The commission is of three types:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ORDINARY OR NORMAL COMMISSION: <\/strong>This commission is paid for the ordinary sale services provided by the consignee to the consignor. It is calculated as fixed percentage of the total sales made.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>DEL-CREDRE COMMISSION:<\/strong> This is a special type of commission paid by the consignor to the consignee when the consignee agrees to bear loss on account of bad debts resulting from credit sales. This is the additional commission and is provided other than ordinary commission. Thus, where the consignee gets del-credre commission, he guarantees the payment from the debtors. This commission is calculated as a percentage of the gross sales or credit sales, whatever is agreed between the parties.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>OVER-RIDING COMMISSION:<\/strong> It is an extra commission allowed to the consignee in addition to the normal commission. This commission is provided to the consignee to fulfill two kinds of objectives:<\/p>\n\n\n\n<ul><li>To motivate the consignee to boost the sales of\nsome new product<\/li><li>To ensure that the goods are sold by the\nconsignee at the highest possible price.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Generally, this commission is calculated on the surplus sale proceeds realized as a result of selling the goods over and above the minimum sale price fixed by the consignor.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"relationship-of-agent-and-principal\">RELATIONSHIP OF AGENT AND PRINCIPAL<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">In the consignment, the relationship of consignor and\nconsignee is of principal and agent. The consignee sells the goods on behalf of\nthe consignor to get the commission in consideration.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"ownership-and-possession\">OWNERSHIP AND POSSESSION<\/h4>\n\n\n\n<p>In case of the consignment, the possession of the goods only\nis transferred to the consignee not the ownership. The ownership of the goods\nremains with the consignor only.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"economical-way-of-doing-business\">&nbsp;ECONOMICAL WAY OF\nDOING BUSINESS<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Consignment is an economical way of doing the business. With\nthe help of the agent known as consignee, a large geographical area can be\ncovered easily to sell the goods far off places. Also the consignor is not\nbound to incur the heavy expenses to open the branch in various areas.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"terms-and-conditions\">TERMS AND CONDITIONS<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The following are the terms and conditions of the\nconsignment transaction:<\/p>\n\n\n\n<ul><li>The goods consigned to the agent remains the\nproperty of the consignor.<\/li><li>The agent sell the goods on the risk of the\nprincipal.<\/li><li>All expenses incurred by the agent on goods\nconsigned to him are paid by the principal.<\/li><li>The agent is expected to take the reasonable\ncare of the goods.<\/li><li>The agent is not liable to make the payment for\nthe good until these are sold.<\/li><li>The agent is entitled to get commission at a\nfixed percentage on the total sales made.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"consignment-expenses\">CONSIGNMENT EXPENSES<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">When the goods are sent on the consignment, certain expenses\nare incurred called consignment expenses. These expenses may be incurred by the\nconsignor as well as consignee. These expenses are of two types:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>NON-RECURRING EXPENSES:<\/strong> Non- recurring expenses are those expenses which are incurred by the consignor or consignee to bring the goods to their present condition and location. It means these are the expenses are incurred for bringing the goods from the place of the consignor to the consignee. These expenses will increase the value of the goods. Examples of these expenses are as follows:<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Incurred by Consignor:<\/p>\n\n\n\n<ul><li>Carriage <\/li><li>Freight<\/li><li>Dock Dues<\/li><li>Landing Charges<\/li><li>Loading Charges<\/li><li>Transit Insurance<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Incurred by Consignee:<\/p>\n\n\n\n<ul><li>Unloading Charges<\/li><li>Dock Dues<\/li><li>Import Duty<\/li><li>Octroi <\/li><li>Carriage etc.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>RECURRING EXPENSES:<\/strong> Recurring Expenses are those expenses being direct expenses are added to the cost of the consignment so as to arrive at the cost price of goods at the time of the sale. These expenses are also taken into consideration while valuing unsold stock on consignment.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Incurred by Consignor:<\/p>\n\n\n\n<ul><li>Bank charges or commission on discounting of\nbills.<\/li><li>Expenses incurred on damaged goods received\nback.&nbsp;&nbsp;&nbsp;&nbsp; <\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">Incurred by Consignee:<\/p>\n\n\n\n<ul><li>Godown Rent<\/li><li>Insurance of goods<\/li><li>Carriage on sales<\/li><li>Advertising<\/li><li>Brokerage&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"conclusion\">CONCLUSION<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">The consignment transaction helps the consignor to sell his goods far off places with the help of the agent or the consignee. The consignor send the Proforma invoice along with the goods dispatched and the consignee sends the account sales stating all the details regarding the goods sold etc.<\/p>\n\n\n\n<!--nextpage-->\n\n\n\n<h2 class=\"wp-block-heading\">CONSIGNMENT ACCOUNTS NOTES<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>QUESTION: Explain about treatment of Normal loss and Abnormal loss in the books of consignor with suitable examples.<\/strong><\/h3>\n\n\n\n<p>Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor and Consignee. In this the consignor dispatches the goods to the consignee and consignee is required to sell those goods. For this, the consignee gets a commission. Consignment is a nature of transaction that leads to the expansion of business. The legal relationship between the consignor and consignee is of the agent and the principal. <\/p>\n\n\n\n<p class=\"has-medium-font-size\">In <a rel=\"noreferrer noopener\" aria-label=\"consignment (opens in a new tab)\" href=\"https:\/\/commerceiets.com\/consignment\/\" target=\"_blank\">consignment<\/a>, the goods are to be sent from one place to the other. There is always a possibility of some kind of loss of stock. The consignor has to bear the loss, not the consignee. The Treatment of loss on consignment is for two types of losses:<\/p>\n\n\n\n<ul><li>NORMAL LOSS<\/li><li>ABNORMAL LOSS<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">ACCOUNTING FOR NORMAL LOSS<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Normal loss is the loss that occurs due to the nature of the\ngoods consigned. Its nature is as follows:<\/p>\n\n\n\n<ul><li>It occurs due to unavoidable reasons.<\/li><li>It is due to natural causes such as losses due\nto evaporation, normal leakage, spoilage, breakdown, drying etc.<\/li><li>It forms the part of cost of goods sold.<\/li><li>It is taken into account only when unsold stock\nis to be valued.<\/li><li>It is not shown in the consignment account.<\/li><li>No entry is passed in the books regarding the\nnormal loss.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CALCULATION<\/strong><\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>Value of unsold stock= {Total cost of goods consigned\/ (Total Quantity sent-quantity of normal loss)}*Unsold Quantity<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>EXAMPLE:<\/strong> Suppose 200 tons of coal is consigned @ Rs. 20 per ton, expenses being Rs. 400. If loss due to loading and unloading is 10 tons and if the quantity sold by the consignee is 152 tons, then the value of stock unsold (38 tons) will be as follows:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Cost of 200 tons of coal\n  <\/td><td>\n  4,000\n  <\/td><\/tr><tr><td>\n  ADD: Expenses\n  <\/td><td>\n  400\n  <\/td><\/tr><tr><td>\n  <strong>Total cost of 200 tons<\/strong>\n  <\/td><td>\n  <strong>4,400<\/strong>\n  <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-medium-font-size\">The cost of 200 tons becomes the cost of 190 tons because of\na normal loss of 10 tons.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Hence the cost of 190 tons= Rs. 4,400<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Value of 38 tons of stock= (4,400\/190)*38= Rs. 880<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">ACCOUNTING FOR ABNORMAL LOSS<\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Abnormal Loss may arise due to mishap, mischief and\ninefficiency. This loss is not natural and can be avoided with proper care. Its\nnature is as follows:<\/p>\n\n\n\n<ul><li>It is unnatural and avoidable.<\/li><li>It arises due to reasons like fire, riot, flood,\ntheft, road accident etc.<\/li><li>In case of abnormal loss, the value of stock is\nnot inflated.<\/li><li>It is calculated after taking into consideration\nthe proportionate expenses incurred on it.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>JOURNAL ENTRIES <\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>WHEN GOODS ARE INSURED<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>   When abnormal loss is incurred   <br \/><\/strong>Abnormal loss account Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To consignment account   <\/td><\/tr><tr><td><strong>   When insurance company admits the claim   <br \/><\/strong>Insurance claim account Dr.   <br \/>Profit and Loss Account Dr.<br \/>   &nbsp;&nbsp;&nbsp; To Abnormal Loss Account.   <\/td><\/tr><tr><td><strong>   Receipt of Insurance Claim<br \/><\/strong>Bank A\/c&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To Insurance company A\/c   or Insurance Claim A\/c   <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>WHEN GOODS ARE NOT INSURED<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>   When abnormal loss is incurred   <br \/><\/strong>Abnormal loss account Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To consignment account   <\/td><\/tr><tr><td><strong>   Transfer of abnormal loss   <br \/><\/strong>Profit and loss account Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To abnormal loss account   <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CALCULATION OF ABNORMAL LOSS<\/strong><\/p>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>STATEMENT SHOWING CALCULATION OF ABNORMAL LOSS DURING TRANSIT<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td><strong>AMOUNT<\/strong>   <\/td><\/tr><tr><td>   Cost price of goods lost in transit   <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td><strong>   ADD:<\/strong>   Consignor\u2019s proportionate expenses   (Consignor\u2019s total expenses\/   total units sent)*units lost   <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  Cost of abnormal loss during transit (A+B)\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>STATEMENT SHOWING CALCULATION OF ABNORMAL LOSS IN CONSIGNEE\u2019S GODOWN<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  <strong>PARTICULARS<\/strong>\n  <\/td><td>\n  <strong>AMOUNT<\/strong>\n  <\/td><\/tr><tr><td>\n  Cost price of goods lost in consignee\u2019s godown\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>   <strong>ADD:<\/strong>   Consignor\u2019s proportionate expenses   (Consignor\u2019s total expenses\/   total units sent)* Units lost.   <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>   <strong>ADD:<\/strong>   Consignee\u2019s proportionate non-recurring expenses   (Consignor\u2019s total   non-recurring expenses\/ Total units received by consignee)*Units lost   <\/td><td>\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  Cost of Abnormal loss in consignee\u2019s godown\n  (A+B+C)\n  <\/td><td>\n  &nbsp;\n  <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p><strong>EXAMPLE: <\/strong><\/p>\n\n\n\n<p>ABC Ltd. Dispatched 1000 transistors at \u20b970 each to PQR Ltd. The consignors paid freight 750, cartage \u20b950 and insurance \u20b9250. ABC Ltd. Received only 900 sets and incurred the following expenses:<\/p>\n\n\n\n<p>Octroi and other expenses: \u20b910,000<\/p>\n\n\n\n<p>Cartage: 500<\/p>\n\n\n\n<p>Sales expenses: 600<\/p>\n\n\n\n<p>The consignee sold 600n sets only. The valuation of stock in this case of abnormal loss will be made as follows:<\/p>\n\n\n\n<p>Number of sets lying in the stock= 1000- (100+600)= 300<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Cost of 300 sets @\u20b970 per set<\/td><td>\u20b921,000<\/td><\/tr><tr><td>Add: Proportionate expenses incurred by the consignor i.e. {(300\/1000)*1050}<\/td><td>\u20b9315<\/td><\/tr><tr><td>Add: proportionate expenses (direct) incurred by the consignee i.e. {(300\/900)*10,500}<\/td><td>\u20b93,500<\/td><\/tr><tr><td>Value of Stock<\/td><td>\u20b924, 815<\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p>So, above is the treatment of normal loss and abnormal loss. <\/p>\n\n\n\n<p>To conclude, normal loss can be recovered by inflating the selling price of the goods but abnormal loss has to be charged in Profit and loss account and cannot be recovered by inflating the selling price of the goods.<\/p>\n\n\n\n<!--nextpage-->\n\n\n\n<h2 class=\"wp-block-heading\">CONSIGNMENT ACCOUNTS NOTES<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>QUESTION: What do you mean by &#8216;Stock on consignment&#8217;? How will you value it? Illustrate with examples.<\/strong><\/h3>\n\n\n\n<p><strong>CONSIGNMENT: <\/strong>Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor and Consignee. In this the consignor dispatches the goods to the consignee and consignee is required to sell those goods. For this, the consignee gets a commission. Consignment is a nature of transaction that leads to the expansion of business. The legal relationship between the consignor and consignee is of the agent and the principal.<\/p>\n\n\n\n<p><strong>STOCK ON CONSIGNMENT: <\/strong>Stock on consignment refers to the quantity of the goods sent by consignor to consignee for the resale purposes. Sometimes it happens that the goods do not reach the consignee, as they are still in transit. Such stock is treated as closing stock in transit. The cost of goods in transit will include the basic cost of goods to the consignor plus proportionate expenses of consignor. Such stock does not includes the part of expenses of consignee.<\/p>\n\n\n\n<p><strong>VALUATION OF STOCK: <\/strong>The value of the closing stock is brought into the books by means of the following journal entry:<\/p>\n\n\n\n<p>Consignment Stock A\/c\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026\u2026.Dr.<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Consignment Account<\/p>\n\n\n\n<p>The consignment stock is an asset and will be shown in the balance sheet. Next year it will be transferred to the debit side of the consignment account. The principal of valuing stock \u201cCost price or market price whichever is lower\u201d Applies in this case also. However, cost price means original cost of the unsold stock plus proportionate amount of the expenses which are necessary to put the goods in their present place and condition.<\/p>\n\n\n\n<p><strong>DIRECT EXPENSES IN VALUATION OF STOCK: <\/strong>Direct expenses are those expenses which are incurred for putting the goods in a \u2018saleable condition\u2019. Such expenses are incurred on the goods till these reach the godown of the consignee. Direct expenses are recurring in nature. At the time of valuation of unsold stock, such expenses form part of the cost of the stock.<\/p>\n\n\n\n<p>Examples of direct expenses are Loading charges, freight, insurance during transit, unloading charges etc.<\/p>\n\n\n\n<p><strong>INDIRECT EXPENSES IN VALUATION OF STOCK: <\/strong>Indirect expenses are the expenses which are incurred after the goods reach consignee\u2019s godown. These expenses are recurring in nature. Such expenses do not form the part of the stock.<\/p>\n\n\n\n<p>Examples of indirect expenses are Storage charges, godown rent, insurance during storage etc.<\/p>\n\n\n\n<p><strong>CALCULATION OF VALUE OF UNSOLD STOCK<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>PARTICULARS<\/strong><\/td><td><strong>AMOUNT (\u20b9)<\/strong><\/td><\/tr><tr><td>Cost of unsold goods<\/td><td>&#8211;<\/td><\/tr><tr><td><strong>Add: <\/strong>Proportionate non-recurring expenses of consignor {(Non-recurring expenses of consignor\/ Total Quantity)*Units of unsold stock}<\/td><td>&nbsp;<\/td><\/tr><tr><td><strong>Add: <\/strong>Proportionate non-recurring expenses of consignee {(Non-recurring expenses of consignee\/ Total Quantity)*Units of unsold stock}<\/td><td>&nbsp;<\/td><\/tr><tr><td>Value of unsold stock<\/td><td>&nbsp;<\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p><strong>EXAMPLE:<\/strong><\/p>\n\n\n\n<p>Raj of Rajpura consigned 1200 boxes costing \u20b99,000 per box to Laxman of Ludhiana. Raj paid freight of \u20b915,000 and insurance in transit of \u20b93,000. Laxman received the boxes and incurred, Octroi duty \u20b95,000 and cartage \u20b92,000 up to his godown. Laxman also paid insurance of godown \u20b910,000 godown rent \u20b95,000. Laxman sold 1,000 boxes at \u20b912,000 per box. Laxman is entitled to a commission of 5% of sales. The value of unsold stock will be valued as follows:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>PARTICULARS<\/strong><\/td><td><strong>AMOUNT<\/strong><\/td><\/tr><tr><td>Cost price of unsold units (200*9000)<\/td><td>18,00,000<\/td><\/tr><tr><td><strong>Add: <\/strong>Proportionate non-recurring expenses Freight: \u20b915,000+ Insurance in transit: 3,000+ Octroi duty: 5,000+ Cartage: 2,000 {(200\/1200)*25,000}<\/td><td>4,167<\/td><\/tr><tr><td><strong>Value of the stock<\/strong><\/td><td>18,04,167<\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>STOCK VALUATION IN CASE OF LOSS<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">Value of the remaining stock is composed of the following:<\/p>\n\n\n\n<ol><li>Proportion of the cost of goods.<\/li><li>Expenses incurred on goods before the occurrence\nof loss.<\/li><li>Expenses incurred on goods after the loss has\noccurred.<\/li><\/ol>\n\n\n\n<p class=\"has-text-align-center has-medium-font-size\"><strong>(Closing Stock\/ Total Cost)*(Cost of goods+ expenses before loss)<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>EXAMPLE:<\/strong> X consigned 100 cycles costing Rs. 150 each to his agent Y. Expenses incurred in sending them were Rs. 1,000. On the way 5 cycles were damaged. Y took the delivery of the rest and&nbsp; incurred direct expenses of Rs. 285 and indirect expenses of Rs. 150. Calculate the amount of abnormal loss.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  Cost Price of 5 damaged cycles @ Rs. 150 each\n  <\/td><td>\n  750\n  <\/td><\/tr><tr><td>   <strong>ADD:<\/strong> Proportionate expenses of X    (1,000\/100)*5   <\/td><td>\n  50\n  <\/td><\/tr><tr><td>\n  &nbsp;\n  <\/td><td>\n  800\n  <\/td><\/tr><\/tbody><\/table><figcaption>CONSIGNMENT ACCOUNTS NOTES<\/figcaption><\/figure>\n\n\n\n<p>Thus, above is the valuation of stock on consignment.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting\/\"><strong>Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/non-profit-organisation\/\"><strong>Non profit organisation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/depreciation\/\"><strong>Depreciation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/liquidity-ratios-types\/\"><strong>Liquidity ratios<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/nature-of-accounting\/\"><strong>Nature of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/receipt-and-payment-account-pdf\/\"><strong>Receipts and Payments Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/depreciation-accounting\/\"><strong>Depreciation Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/acid-test-ratio-formula\/\"><strong>Acid Test Ratio<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/benefits-of-accounting\/\"><strong>Benefits of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-accounting\/\"><strong>Scope of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/hire-purchase-accounting-notes-pdf\/\"><strong>Hire Purchase Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cash-ratio\/\"><strong>Cash Ratio<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-cost-accounting-and-financial-accounting\/\"><strong>Difference between cost accounting and financial accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\"><strong>Financial accounting, cost accounting and management accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-hire-purchase-and-instalment\/\"><strong>Difference between hire purchase and instalment system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/financial-ratio-analysis\/\"><strong>Financial ratio analysis<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-transaction-and-event\/\"><strong>Difference between transaction and event<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/transactions\/\"><strong>Transactions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/users-of-accounting\/\"><strong>Users of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/current-ratio-formula\/\"><strong>Ratio analysis<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/limitations-of-accounting-2\/\"><strong>Limitation of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/capital-expenditure\/\"><strong>Capital Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/instalment-system\/\"><strong>Instalment System<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-consignment-and-sale\/\"><strong>Difference between consignment and sale<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/book-keeping\/\"><strong>Book Keeping<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue-expenditure\/\"><strong>Revenue Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reserves-accounting\/\"><strong>Reserves Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-normal-and-abnormal-loss\/\"><strong>Abnormal loss vs normal loss in consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accountancy\/\"><strong>Accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-capital-expenditure-and-revenue-expenditure\/\"><strong>Difference between capital and revenue expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reserves-accounting\/\"><strong>Provisions&nbsp;<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/treatment-of-loss-on-consignment\/\"><strong>Treatment of loss on consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Accounting as science or an art<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-equation\/\"><strong>Accounting Equation<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/single-entry-system-in-accounting\/\"><strong>Single entry system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-consignment\/\"><strong>Accounting treatment of consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Book Keeping vs accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/deferred-revenue-expenditure\/\"><strong>Deferred Revenue Expenditure<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/statement-of-affairs-and-balance-sheet-difference\/\"><strong>Difference between statement of affairs and balance sheet<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-joint-venture-and-consignment\/\"><strong>Joint venture vs consignment<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Book keeping vs accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/capital-receipt\/\"><strong>Capital receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/ifrs\/\"><strong>IFRS<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/departmental-accounting\/\"><strong>Departmental Accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-is-an-art-or-science\/\"><strong>Accounting vs accountancy<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue-receipt\/\"><strong>Revenue receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/balance-sheet\/\"><strong>Balance Sheet<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-departmental-accounting\/\"><strong>Methods of departmental accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/basis-of-accounting\/\"><strong>Basis of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-capital-and-revenue-receipt\/\"><strong>Difference between capital and revenue receipt<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/profit-and-loss-account\/\"><strong>Profit and loss Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-of-expenses-in-departmental-accounting\/\"><strong>Allocation of expenses in departmental accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/branches-of-accounting\/\"><strong>Branches of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-accounting-concepts-and-conventions\/\"><strong>Difference between accounting concepts and conventions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/trading-account\/\"><strong>Trading Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/inter-departmental-transfers\/\"><strong>Inter-departmental transfers<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cash-and-mercantile-system-of-accounting\/\"><strong>Cash and mercantile system of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-standards\/\"><strong>Accounting Standards<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/voyage-account\/\"><strong>Voyage Account<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/different-types-of-branches\/\"><strong>Different types of branches<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/accounting-principles\/\"><strong>Accounting Principles<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/objectives-of-accounting\/\"><strong>Objectives of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-for-incomplete-voyage\/\"><strong>Accounting for Incomplete Voyage<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-departmental-and-branch-accounting\/\"><strong>Departmental vs Branch accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/golden-rules-of-accounting\/\"><strong>Golden ru\nles of accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-accounting\/\"><strong>Process of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-venture\/\"><strong>Joint venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-branch-accounting\/\"><strong>Methods of branch accounting<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/double-entry-system-of-accounting\/\"><strong>Double entry system of book keeping<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-accounting\/\"><strong>Scope of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-joint-venture-and-partnership\/\"><strong>Joint Venture Vs Partnership<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incorporation-of-branch-trial-balance\/\"><strong>Incorporation of branch trial balance<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-double-single-entry-system\/\"><strong>Double entry vs Single entry system<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-accounting-concepts-and-conventions\/\"><strong>Accounting Concepts vs Accounting conventions<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/methods-of-recording-transactions-in-joint-venture\/\"><strong>Methods of recording transactions in Joint Venture<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/garner-vs-murray-rule\/\"><strong>Garner VS Murray Rule<\/strong><\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/history-of-accounting-pdf\/\"><strong>History of Accounting<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-provisions-and-reserves\/\"><strong>Difference between provisions and reserves<\/strong><\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consignment\/\"><strong>Consignment<\/strong><\/a><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Consignment Accounts notes on meaning and features of consignment accounts, treatment of normal and abnormal loss and valuation of stock on consignment? QUESTION: What do you mean by Consignment? What are its salient features? CONSIGNMENT: Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor and Consignee. In this the consignor&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/consignment-accounts-notes-for-b-com-1st-year\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;CONSIGNMENT ACCOUNTS NOTES FOR B.COM 1ST YEAR&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":5831,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[253],"tags":[166,165,306,307],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/5827"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=5827"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/5827\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/5831"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=5827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=5827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=5827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}