Consignment Accounts By Prof.

Bharat Gupta
CONSIGNMENT ACCOUNTS

Consignment business refers to the business of sending goods to the agents for sale. In such a business,
the owner of the goods (the consignor) sends the goods to the agent (the consignee). The consignor
retains the ownership of the goods, although the goods are in possession of the consignee. The consignee
(the agent) has to sell the goods on behalf of and at the risk of the consignor (the principal) and the
consignee receives the commission as his remuneration.

The manufacturers and wholesalers are usually concentrated in one place. They can not reach distant
markets. They are also not aware of the marketing conditions prevailing in strange and new markets.
However by appointing agents, they can sell their goods in a wider market and can maximize their
profits.

The consignee contacts the parties and arranges for the sales, thus the manufacturers and wholesalers
are relieved of the burden of reaching the distant market and making sales arrangements. Sometimes the
manufacturers or wholesalers do not have personal and financial resources to speed up their distribution
network, in such circumstances, the consignment sales are preferred by them.

The manufacturers and traders usually appoint their agents at different places in the country to exploit
sales

The agents are also very helpful as they know the marketing conditions well. They possess intimate
knowledge of the nature of competition in the market, needs and preferences of the customers, the
fashion going on in the market, their buying motives, buying powers etc. Therefore they can exploit the
sales opportunities properly.

The agents undertake the task of selling goods at the risk of the manufacturers or traders. They are not
responsible for any loss or damage. The expenses incurred by the agents are also borne by the
manufacturer or trader. The relationship of the manufacturer or agent is that of a principal and an agent.
The agent has to act according to the instructions given by the principal. The manufacturers or the
wholesalers supply goods to the agent for sale. Though the goods supplied to the agent are in his
possession, he does not get any right of ownership. The goods remaining unsold are to be returned to the
principal at his cost.

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Consignment Accounts By Prof. Bharat Gupta

Proforma Invoice

A Proforma Invoice is sent by the consignor to the consignee along with the goods. It is a statement
giving the particulars of goods supplied i.e. quantity, weight, measurement, price, making, packing etc.
Proforma Invoice may be prepared either at cost price or at invoice price (selling price of the goods
consigned). The main purpose of preparing the invoice at a higher price is to keep the consignee in dark
about the actual profit earned by the consignor.

Expenses of Consignment

Paid by the consignor :

Carriage, cartage, dock dues, freight, insurance, packing exp., forwarding exp., insurance etc.

Paid by the consignee :

i) Non recurring : Carriage, custom duty, dock duty, freight, octroi duty, excise duty, unloading
chgs., clearing chgs., transport chgs.
ii) Recurring : Godown rent, advertisement, brokerage, commission, packing, ware house rent,
commission etc.

Account sales

As and when goods are sold by the consignee, an Account sales is sent by him to the consignor. It is
nothing but a statement showing the details of the goods sold i.e. quantity and type of goods sold, the
rate and the total value of goods sold during the period. From the total value, amount of commission,
expenses and advance, if any, is deducted. The balance amount is remitted to the consignor. The main
contents of the account sales are :
i) Gross sale proceeds
ii) Expenditures incurred by the consignee on consignment
iii) Commission payable to the consignee
iv) The amount already sent as an advance to the consignor
v) The balance either to be remitted or remitted along with the account sales

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Commission of Consignee

The consignee sells the goods on behalf of and at the risk of the consignor. In return, he is entitled to
receive the commission at an agreed rate. Usually the commission is paid as a percentage of the total
sales effected by him.
Types of Commission :

i) Ordinary Commission : It is the normal commission allowed to the consignee. It is allowed on

total sales (cash plus credit) at a certain percentage.

ii) Overriding Commission : It is allowed in addition to the normal commission for additional efforts
put in by the consignee for creation of demand for the product in the market. It is calculated at a
certain percentage on the total sales.

iii) Commission on surplus price : It is allowed to the consignee to encourage him to sell the goods at
a higher price on cash or credit basis. In this case, two rates are fixed. One at a certain percentage
on invoice price of the goods sold. It is normally lower. Another rate is fixed for any surplus price
realised over and above the invoice price. It is normally fixed at a higher rate.

iv) Del credere Commission : The consignee may sell goods either on cash or credit basis, unless
otherwise instructed. When the goods are sold on credit, there is a possibility of loss on account
of non recovery from the debtors. In case the debtors fail to make payment, there will be a loss
due to bad debt. This loss is borne by the consignor. The consignor may allow additional
commission to the consignee for taking the additional responsibility of recovery of dues from
customers. In this case, the consignee bears the loss on account of bad debts, if any. The
additional commission allowed to the consignee for additional responsibility is called Del credere
commission. It is calculated at a certain percentage on total sales. Once Del credere commission
is allowed, the consignee gives guarantee of recovery from the customers. Any bad debt loss is to
be borne by the consignee.

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Consignment Accounts By Prof. Bharat Gupta
Valuation of Consignment stock

Cost of the closing stock xx

Add : Proportionate consignor’s expenses xx
Add : Proportionate consignee’s non recurring expenses xx
Value of consignment stock xx

Loss of stock

Sometimes the goods supplied by the consignor to the consignee may be partly damaged in transit and
there is a loss on this account. Such a loss is to be properly valued and taken into the books of accounts.
The valuation will be made as per the principles that are followed in valuation of unsold stock. The loss
may be normal or abnormal.

Pro. 1 : 50 Radio sets are sent on consignment at a cost of Rs. 1,000 per set. The consignor spent Rs.
2,000 on freight. The consignee spent Rs. 3,000 for octroi duty and Rs. 2,000 for insurance of Godown.
Presuming 30 sets are sold out, how the stock will be valued ?

Pro. 2 : Alpha Ltd., Bombay dispatched 500 tons of coal to Beta Ltd. of Calcutta, costing Rs. 100 per
ton. They also paid Rs. 5,000 towards freight. The consignee receives only 475 tons of coal. 50 tons of
coal remained unsold, what will be the value of closing stock ?

Pro. 3 : Ratanlal consigned 500 boxes of tea costing Rs. 100 per box to Sohanlal. Ratanlal paid freight
Rs. 500, insurance Rs. 200 and sundry exp. Rs. 80. He drew a bill of exchange on Sohanlal and received it
from Sohanlal duly accepted for Rs. 10000. The bill was discounted with bank by giving a discount of Rs.
100.
Sohanlal sold 300 boxes of Tea at Rs. 150. He paid Rs. 180 for carriage. He was entitled to a commission
of 5% on total sales. The balance due was sent by Bank draft.
Prepare necessary accounts.

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Consignment Accounts By Prof. Bharat Gupta
Pro. 4 : S. Gupta of Mumbai sent 500 cases at Rs. 150 each to M. K. Menon of Chennai, to be sold on his
account and at his risk, for 7.5% commission and 2.5% Del credere commission and incurred Rs. 5500 as
expenses. He received Rs. 20000 as advance.
Mr. Menon sent an account sales disclosing that 300 cases have been sold for Rs. 230 each and another
100 cases at Rs. 220 each. He has incurred unloading expenses of Rs. 750 and selling expenses Rs. 1000.
He informed that Rs. 1000 was proved bad since the customer became insolvent and another customer
deducted Rs. 500 due to dispute in quality of goods.
Prepare necessary accounts.

Pro. 5 : P of Calcutta consigned goods costing Rs. 160000 to R of Mumbai. The terms of consignment
were :
a) Consignee to get commission of 5% on cash sales and 4% on credit sales
b) Any goods taken by the consignee himself or goods lost through consignee’s negligence shall be
valued at cost plus 12.5% and no commission will be allowed on them.
The expenses incurred by the consignor were carriage and freight Rs. 6720 and insurance Rs. 3440.
The consignor received Rs. 50000 as an advance against the consignment.
Account sales together with a draft for the balance due was received by the consignor showing the
following position :
a) Goods costing Rs. 128000 were sold for cash at Rs. 140000 and on credit at Rs. 108000.
b) Goods costing Rs. 8000 were taken by R and
c) Goods costing Rs. 4000 were lost through R’s negligence.
d) The expenses incurred by R were advertisement Rs. 1720, other selling expenses Rs. 1080.
Prepare necessary ledger accounts.

Pro. 6 : Anita of Delhi sends 10000 units at Rs. 10 each to Bali of Mumbai. Bali received 9600 units and
the remaining were in transit and gave a cheque of Rs. 30000 as advance.
Anita incurred freight Rs. 5000 and insurance Rs. 3900.
Bali submitted the account sales stating that 7500 units were sold at Rs. 15 each, expenses incurred Rs.
4800 non recurring and Rs. 5000 recurring. Commission is 7% of sales
Prepare necessary accounts.

Pro. 7 : On 1st March, 2007, Surendra of Calcutta, consigned goods of Rs. 11000 to Navnitbhai of Nagpur
at a Proforma invoice value of Rs. 15000. Surendra paid Rs. 400 for freight and insurance. Navnitbhai paid

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Consignment Accounts By Prof. Bharat Gupta
Rs. 1000 for carriage and other expenses. Navnitbhai sent a bank draft of Rs. 2000 to Surendra as an
advance. Navnitbhai sold all the goods for Rs. 16000. Navnitbhai was entitled to a commission of 5% on
sale proceeds. Navnitbhai remitted the balance to Surendra after deducting his commission and
expenses. Prepare necessary accounts.

Pro. 8 : M/S Ramdayal & Co. of Bombay sent 100 boxes of Tea powder at Rs. 70 per box, to Shamlal of
Solapur. The boxes were invoiced at Rs. 100 per box and paid Rs. 70 for carriage and Rs. 30 on
miscellaneous heads.
Shamlal sold 50 boxes at Rs. 100 per box for cash and 50 boxes at Rs. 110 per box on credit.
M/S Ramdayal & Co. drew a bill for three months for Rs. 6000 which was duly accepted by Shamlal.
Shamlal incurred Rs. 50 for carriage and Rs. 20 for sundry charges.
Shamlal was entitled to 5% Commission and 2% Del credere commission on total sale proceeds.
Shamlal remitted the balance to M/S Ramdayal & Co. and settled the account.
Prepare necessary accounts.

Pro. 9 : On 1st June, 2007; Chandrasekhar of Chndrapur consigned goods to Badrinath of Bombay for
sale, at invoice price. Badrinath entitled to commission of 2.5% on invoice price and 15% of any surplus
price realised. Goods costing Rs. 14000 were consigned to Badrinath at the invoice price of Rs. 16400.
Chandrashekar paid Rs. 950 for expenses.
On 31st March, 2008; an account sales received from Badrinath shows that he made sales of Rs. 15000
in respect of 75% of the quantity of goods consigned. Badrinath paid Rs. 700 for expenses and accepted a
bill of Rs. 6000 and remitted the balance to Chandrasekhar in settlement of his account.
Prepare necessary accounts.

Pro. 10 : Miss Suryakumari, the proprietor of Modern Sewing Machines, sent on consignment to Mr.
Suryakumar 100 sewing machines costing Rs. 300 each. The machines were sent at an invoice price which
is 25% above cost price. Miss Suryakumari spent Rs. 800 on freight and insurance.
Mr. Suryakumar paid Rs. 500 for carriage etc. and had sold 70 machines on credit at Rs. 500. He found
5 machines defective and therefore returned them to consignor at a cost of Rs. 60. He is entitled to a
commission of 5% on invoice price, 10% on surplus price realised and 1% Del credere commission.
Show necessary accounts.

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Consignment Accounts By Prof. Bharat Gupta
Pro. 11 : M/S Dilip & Co. of Bombay consigned to Balkrishna of Nagpur 1000 bags of tobacco costing Rs.
250 per bag. They were invoiced at 20% above cost price. M/S Dilip & Co. paid Rs. 1500 for insurance, Rs.
3500 for carriage and Rs. 5000 for miscellaneous exp.
On receiving the consignment Mr. Balkrishna accepted a Bill for half the amount of invoice price. M/S
Dilip & Co. discounted the bill for Rs. 147500 and the discount was charged to consignment account.
Mr. Balkrishna sent an account sales which shows as :
a) Cash sales of 600 bags at Rs. 350 each.
b) Credit sales of 300 bags at Rs. 400 each.
c) Mr. Balkrishna took 50 bags for his own use at Rs. 320 per bag.
d) Expenses paid by Balkrishna were godown rent Rs. 3000 and selling expenses Rs. 5000.
Mr. Balkrishna remitted the balance due by a bank draft after deducting his expenses and commission
at 10% on sales and Del credere commission at 2% on credit sales of 300 bags only.
Show necessary accounts.

Pro. 12 : Mr. X from Calcutta consigned to Mr. Y of Patna, 100 machines. The original cost price of every
machine is Rs. 260 but it has been valued at Rs. 320 each in the invoice. X has spent Rs. 800 on packing
etc. Mr. Y has accepted a bill drawn by Mr. X for Rs. 16000.
Mr. Y informed that 80 machines were sold at Rs. 300 each and that has incurred the following
expenses :
Railway freight of Rs. 1200; Rent for the godown Rs. 100 and Insurance Rs. 20.
Consignor is authorized to get ordinary commission of 6% and 1.5% Del credere commission.
Pass necessary journal entries.

Pro. 13 : Usha Fans, Calcutta, consigned to Vijay & Sons, Amravati 100 fans costing Rs. 250 each, at 20%
above cost and paid Rs. 100 for insurance, Rs. 400 for carriage and Rs. 500 for other expenses. Vijay &
Sons accepted a bill for Rs. 15000 after receiving the consignment.
Usha Fans then discounted the bill for Rs. 14700 and in due course, received an account sales, showing
:
a) Credit sales 60 fans at Rs. 350 each
b) Cash sales 30 fans at Rs. 400 each
c) Expenses incurred by Vijay & Sons : Godown rent Rs. 300; Carriage Rs. 500 and commission Rs. 1730.
d) Vijay & Sons took 5 fans for their own use at an agreed value of Rs. 320 each.

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Consignment Accounts By Prof. Bharat Gupta
e) Vijay & Sons received Rs. 20300 from the debtors, allowed Rs. 300 as discount and incurred bad debts
Rs. 400.
They remitted the balance due by a bank draft sent with the account sales.
The discount on the bill is to be treated as a consignment expenses.
Prepare necessary accounts.

Pro. 14 : Vikrant & Co. of Ahmednagar consigned to Mr. Vikas of Beed 1000 radio sets costing Rs. 250
per set. The proforma invoice was prepared at 20% above the cost price. Vikrant & Co. paid Rs. 1500 for
insurance, Rs. 3500 for carriage and Rs. 5000 for sundry exp.
On receipt of consignment, Mr. Vikas accepted a bill for Rs. 150000 which was discounted by Vikrant &
Co., with the bank for Rs. 147500 and discount was charged to consignment account.
Mr. Vikas sent an Account Sales which showed the following :
a) Cash sales of 600 radio sets at Rs. 350 each
b) Credit sales of 300 radio sets at Rs. 400 each.
c) Cash sales of 50 radio sets at Rs. 320 each.
d) Expenses paid by Mr. Vikas were : Godown rent Rs. 3000; selling expenses Rs. 5000
Mr. Vikas remitted the balance due by bank draft after deducting his expenses and commission at the
rate of 10% on gross sales and Del credere commission at 2% on credit sales.
Prepare necessary accounts.

Pro. 15 : Dipti of Ahmedabad consigned to Swati of Nagpur the goods of the value of Rs. 150000 and
invoiced them so as to show 25% profit on sales. Dipti paid Rs. 9350 for freight, Rs. 3520 for insurance
and Rs. 2310 for other expenses. Dipti received a bill from Swati for Rs. 100000 for 3 months and
discounted with bank at 8% p.a.
Swati send an account sales showing :
a) 4/5 of the goods were sold for Rs. 180000, out of which cash sales amounted to Rs. 60000.
b) Expenses incurred by Swati : Discount Rs. 3000; godown rent Rs. 1500 and other selling exp. Rs. 500.
c) Bad debts incurred Rs. 1600. Consignee was entitled to 10% commission on total sales and 2% Del
credere commission on credit sales. The Balance was remitted by Swati by Bank Draft. Prepare …..

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