AFAR: CONSIGNMENT

Consignment A marketing arrangement/method whereby the owner or seller (consignor) transfers physical
possession of goods to another party (consignee) who acts as an agent for the consignor to
sell goods.

POV of
Consignor (PFRS 15) ➢ Revenue is based on the GROSS amount of consideration
➢ Owns the Inventory
Consignee ➢ Revenue is based on the commission

Rights of the Consignee Obligations of the Consignee

Compensation ➢ In the form of commission
➢ Affects NET INCOME of the
Consignor (deducted as
expense)
➢ Affects REMITTANCE
(deducted)
Reimbursement ➢ Expenses paid by the agent on
behalf of the principal
(consignor)
Protect the goods
Collect Receivables
Inventory Identification & Preparation of reports
The Principal/Consignor, on the other hand, ….
Has the primary responsibility for the goods
Dictates the Selling Price
“Risk”
Direct Cost
Freight Cost from Consignee
(Consignor to Consignee)
To Treatment
Freight from Consignor to Consignee
Consignor – retuned merchandise Expense
Insurance, Handling Cost
Direct Buyer Expense
Cartage Fee

Direct Cost - Treatment Cost of

Sold Sales
Capitalizable Direct
unsold Capitalized
sold Ending Inventory Cost
Ending
Unsold
Cost of Sales Inventory

Cost of Sales Example for COS Solution

Manufacturing Cost Computation Consigned Goods 100
Direct Cost Data: Returned Goods (5)
Returned Goods* Consigned Goods 100 Unsold Goods (10)
Returned Goods 5 Goods Sold P 85
*whether successful or unsuccessful
(disposal of goods), cost has been Unsold Goods 10 85 x P100 =
P8,500
already incurred. Cost per unit P 100
COS
Direct Cost
P8,950
Direct Cost P 500 [(85+5)/100] x P500
= P450
Formula to Compute Net Income
Sales (Units Sold x Selling Price) XXX
Less: Cost of Sales (1 + 2)
(1) Unit Sold x Cost per unit or
XXX
Mfg. Cost x (Unit Sold/Total Units Mfg.)
(2) Transaction Cost x [(Unit Sold + Returned Merch.) /
XXX XXX
Total Consigned Goods]
Gross Profit XXX
Less: Expenses XXX
NET INCOME XXX

Formula to Compute Inventory Out of Consignment

Cost of Unsold Merchandise (Cost per unit x Unsold Invty.) XXX
Add: Deferred Transaction Cost
XXX
[Transaction Cost x (Unsold Inventory/Total Consigned Goods)]
Total Cost of Inventory out of Consignment XXX
Formula to Compute Cash Remittance
Sales or Collection XXX
Reimbursable Expenses (1+2+3+4)
(1) Freight Collect paid by the consignee (Goods from Consignor to Consignee) (XXX)
(2) Freight out paid by the consignee (Goods from Consignor to Buyer) (XXX)
(3) Freight paid by the consignee for the returned goods (Goods from Consignee
(XXX)
to Consignor)
(4) Local Advertising paid by the Consignee (XXX)
Commission (Sales x % of Commission) (XXX)
Advances (XXX)
Cash Remittance XXX