CONSIGNMENT SALES

LECTURE NOTES
Consignment Sales – arrangement whereby the owner of the goods transfers possession of the same
to a third party, the agent, so the latter may sell it to customers. In accounting for consignment
sales, the owner is called consignor, and the seller, consignee.

There will be no transfer of title over the goods upon the shipment from the consignor to the
consignee; it will occur when the goods are sold by the consignee to the ultimate buyer. The
consignor owns the goods until sold even though they are in the meantime held by the consignee
and cared for as if they were its own.

Two types of costs incurred in consignment arrangement

1. Costs incurred upon the transferred of goods from the consignor to the consignee
- Deferred and allocated to the cost of sales and to the ending inventory of the consigned
goods.
- One deferral method is to capitalize these items as additional cost of the consigned goods to
achieve simultaneous allocation.
- Examples: shipping, freight and handling costs, insurance premium on consigned goods,
assembly or reconditioning costs on consigned goods.
2. Costs incurred by the consignee in selling the goods to individual customers
- Includes commissions earned for selling the goods.
- Expensed in full immediately by the consignor.
- Examples: advertising, delivery, installation of sold units, insurance premium while in transit
to buyer, reconditioning or repair of already delivered units to customers.

LECTURE DRILLS
Theories.

1. Goods out on consignment are part of the inventory balance of

a. The consignor
b. The consignee
c. The customer
d. The supplier

2. Which of the following statements is true about consignment sales?

a. Both the consignor and consignee recognizes sales revenue after the goods have been sold
to third party customers.
b. Sales revenue are recognized at the point in time when the consignor transfers the goods to
the consignee.
c. Inventory risks still rests with the consignor even after transfer of goods to the consignee.
d. The consignor receives a commission from the consignment sales.

3. This document shows all the sales transactions made by the consignee on behalf of the
consignor will all the commissions and other charges included.
a. Sales order
b. Sales invoice
c. Account sales
d. Accounts receivable

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Problems.
Problem 1
On August 1, 2023, JBD Inc. consigned to Mags Store 10 ladies handbags costing P3,000 each, paying
freight charge of P3,000. At the end of the month, Mags Store reported sales of 6 handbags at
P6,000 each and expenses incurred of 2,500, and remitted the net proceeds due to JBD after
deducting a 20% commission.
1. How much net income (loss) did JBD realize in August on the consignment?
a. 7,500 net income
b. 6,500 net income
c. 6,700 net loss
d. 6,500 net loss
2. What is the total cost of inventory of unsold handbags?
a. 12,000
b. 13,200
c. 14,200
d. 15,000

Problem 2
On November 1, 2023, the Western Appliance Center ships five (5) of its appliances to ABC store on
consignment. Each unit is to be sold at P25,000 payable P5,000 in the month of purchase and P1,000
per month thereafter. The consignee is to be entitled to 20% of all amounts collected on
consignment sales. ABC store sells three (3) appliances in November and one (1) in December.
Regular monthly collections are made by the consignee, and appropriate cash remittances are made
to the consignor at the end of each month. The cost of the appliances shipped by the consignor was
P15,500 per unit. The consignor paid shipping costs to the consignee totaling P5,000.
1. The cost of inventory on consignment on December 31, 2023?
a. 15,500
b. 16,500
c. 19,600
d. 24,500
2. The profit on consignment for 2023?
a. 29,400
b. 15,500
c. 15,000
d. 14,000
3. The total amount remitted to consignor for the year 2023 is?
a. 23,000
b. 18,400
c. 12,000
d. 16,400

END

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