CONSIGNMENT ACCOUNTING:

Question :

Riya Radio consigned 500 radios to Pinky Radio Service. The cost price
was ₹ 600 per radio, but the pro-forma invoice was made out at a figure
so as to show a profit of 25% on invoice price.

On the same day, Riya Radio incurred the following expenses:

Carriage ₹ 1,000
Freight ₹ 15,000
Insurance ₹ 12,500

On the same day, Pinky Radio Service sent a bank draft for ₹ 1,22,000.
After 4 months, Pinky Radio service sent an Account sale :
300 Radios were sold at ₹ 820 for cash each
50 Radios were sold at ₹ 850 each to Mr. Navin on credit
20 Radios were sold at ₹ 840 each to Mr. Satya on recommendation and
responsibility of Riya Radio.
Selling expenses incurred ₹ 5,225 ; Octroi incurred ₹ 3,500
Navin and Satya became bankrupt and Pinky Radio could recover only
80% from their estate.

Pinky Radio service is entitled to receive a commission of 5% on sale

and 2% Del credere commission on credit sales, and 1/7 share of the net
profits on consignment after deducting both his commission and share
of profits.

Prepare Journal entries and necessary accounts in the books of

Consignor.
 Solution :

In the books of Riya Radio

JOURNAL

Date Particular’s Dr. (Rs.) Cr. (Rs.)

Consignment A/c Dr... 400000
To Goods sent on consignment A/c 400000
(500 radios of invoice price rs 800
consigned to Pinky) (WN1)
Consignment A/c Dr… 28500
To Cash A/c 28500
(Expenses incurred by consignor:
Carriage Rs 1000, Freight Rs 15000,
Insurance Rs. 12500)
Bills receivable A/c Dr… 122000
To Pinky’s A/c 122000
(Being bank draft received of Rs.
122000)
Consignment A/c Dr… 8725
To Pinky’s A/c 8725
(Expenses incurred by consignee:
Selling expenses Rs. 5225, Octroi Rs.
3500)
Pinky’s A/c Dr… 305300
To Consignment A/c 305300
(Being sales made by the consignee:
Cash Rs. 246000, Navin Rs. 42500,
Satya Rs. 16800)
Consignment A/c Dr. 3360
To Pinky’s A/c 3360
(Being bad debts incurred and to be
borne by consignee)(WN 5)
Consignment A/c Dr. 20480
To Pinky’s A/c 20480
(Commission due to Pinky) (WN 4)
Stock on consignment A/c Dr. 112320
To Consignment A/c 112320
(Stock with consignee at invoice price)
(WN 2)
Consignment A/c Dr. 26000
To consignment stock reserve A/c 26000
(Being difference of invoice price
transferred to stock reserve A/c)
(WN 3)
Goods sent on Consignment A/c Dr. 100000
To Consignment A/c 100000
(Being profit on goods transferred to
Consignment A/c)
Bank A/c Dr. 150735
To Pinky’s A/c 150735
(Bank draft received for net balance
due)
 Consignment A/c Dr. 30555
To P&L A/c
(Transfer of profit on consignment) 30555
Goods sent on consignment A/c Dr. 300000
To Trading A/c 300000
(Transfer of goods sent on consignment
to trading A/c)

CONSIGNMENT A/c

Particular’s Amount Particular’s Amount

To Goods sent on 400000 By Pinky (Sales) 305300
consignment A/c (WN 1) Cash - 300*820=246000
Navin - 50*850= 42500
Satya - 20*840= 16800
To cash A/c (expenses) 28500 By goods sent on 100000
consignment (500*200)
To Pinky’s A/c (expenses) 8725 By Closing Stock (WN 2) 112320
To Pinky’s A/c (Bad 3360
debts)(WN 5)
To Pinky’s A/c (commission) 20480
5% of 305300 = 15265
2% of 42500 = 850
Overriding = 4365 (WN 4)
To consignment stock 26000
reserve A/c ( 130*200)
(WN 3)
To P/L A/c 30555
 517620 517620

PINKY’S A/c

Particular’s Amount Particular’s Amount

To consignment A/c 400000 By B/R A/c 122000
By Consignment A/c 8725
By Consignment A/c 3360
By Consignment A/c 20480
By Bank a/c 150735
305300 305300

GOODS SENT ON CONSIGNMENT A/c

Particular’s Amount Particular’s Amount

To Consignment A/c 100000 By Consignment A/c 400000
To Trading A/c 300000
400000 400000

WORKING NOTES:-

1) Invoice Price:-

Cost Price = 600

Profit= 25% on invoice price
Cost price + Profit = Invoice price
75 + 25 = 100
75% => 600
25% => 200
100% =>800

So, Invoice price = 800 rs.

2) Closing stock:-

Total goods - Sales

500-300-50-20
130 units
 130 radios * cost price rs. 800 =104000
(+) Proportionate expenses of consignor
500 -> 28500
130 -> ( ?)
= 130*28500/500 + 7410

(+) Proportionate expenses of consignee

500 -> 3500
130-> (?)
= 130*3500/500 + 910
112320
3) Difference of Closing Stock :
IP : Profit
100 : 25
104000 : (?)
= 104000*25/100
= 26000

4) Commission :

5% on Total Sales = (5% on 305300) = 15265

2% on Cr. Sales = ( 2% on 42500) = 850

Over - riding Commission :

Total of Cr. Sides - Total of Dr. Sides
= 517620 - 482700
= 34920

1 + 1/7 =8/7
 8/7 -> 34920
1/7 -> (?)
(1/7*34920)/(8/7) = 4365
20480

5) Bad Debts :
Recovered = 80%

Navin Satya
20% of 42500 = 8500 ( No Effect) 20% of 16800 = 3360