CONSIGNMENT

SALES
 CONSIGNMENT ARRANGEMENT

Consigned goods are included in the consignor’s inventory until

they are
Freight andsold to incidental
other the end customer.
costs of The consignee
transferring records the
consigned goods
consignedform
to the consignee goods through
part memo
of the cost entries
of the only. goods.
consigned

GOODS CONSIGNEE
CONSIGNOR Who undertakes to sell the
(AGENT)
goods to end customers

NET
PROCEEDS

Commissions earned by the consignee are

normally deducted
In cases
When where from
the
the related the amounts
commission
goods to
areissoldbe
given to
to the
the remitted
consignee to in
the consignor.
advance,
end customer, the consignor
the consignor
records the advanced
derecognizes commissionand
the receivable as
receivable and commission
recognizes not cost of inventory.
expense.
If the consignee shoulders the freight and other costs necessary in
bringing the inventory to the consignee’s location and condition for sale,

In a typical consignment, the consignee is entitled to commission based

on sales. In other arrangements, the consignee “purchases” the goods
simultaneously with the sale of the goods to the final customer.

In effect, the consignee’s commission is based on the mark-up he made

on the final selling price.
Commissions are accounted for as expense by the consignor and as
income by the consignee. Accordingly, commissions do not affect the
cost of consigned goods.

When the consigned goods are sold to end customers,

 The consignor recognizes revenue at the gross amount of consideration,

i.e, the sale price agreed with the consignee.

The consignee recognizes revenue at the commission or fee to which it is

entitled.
Illustration 1: Consignment Sales

ABC Co. enters into a consignment arrangement with XYZ, Inc. Under the
arrangement, ABC Co. transfers goods to XYZ, Inc. which XYZ, Inc. undertakes
to sell on behalf of ABC Co. In exchange, XYZ, Inc. is entitled to a 20%
commission based on sales.

The following are the transactions:

April 1 XYZ, Inc. accepts delivery of consigned goods with total sales value of
P390,000. The cost of those goods to ABC Co. is P220,000.

April 3 XYZ, Inc. sells consigned goods, costing P55,000, for P100,000. ABC Co.
is not notified of the sale.

April 7 XYZ, Inc. makes the weekly remittance of sale proceeds, net of
commission, to ABC Co.

Requirement: Prepare the journal entries in each of the books of ABC Co. and
XYZ, Inc.
 Solution:

ABC CO. XYZ, INC.

CONSIGNOR CONSIGNEE

April 1, 2017 April 1, 2017

Memo Entry Memo Entry
April 3,2017
April 3, 2017 April 3, 2017
Receivable from XYZ 80,000
No Entry
Commission Expense 20,000 Cash 100,000
Revenue 100,000 Commission Income 20,000
Payable to ABC Co. 80,000

April 7, 2017 April 7, 2017

April 7, 2017
Cash 80,000 Payable to ABC Co. 80,000
Cash
Commission Expense 80,000
20,000 Cash 80,000
Receivable from XYZ 100,000
Revenue 80,000

Cost of Goods Sold 55,000

Inventory 55,000
PROBLEMS
1. On November 30, 2017, Northup Co. consigned 90 freezers to
Watson Co. for sale at P1,600 each and paid P1,200 in
transportation costs. A report of sales was received on
December 30, 2017 from Watson reporting the sales of 20
freezers, together with a remittance that was net of the agreed
15% commission. How much, and what month, should Northup
recognize as sales revenue?

November December
Sales Revenue= 20* P1600
a. 0 32,000
= P32,000
b. 0 27,200
c. 144,000 0
d. 142,800 0
2. On December 1, 2017, Alt Department Store received 505
sweaters on consignment from Todd. Todd’s cost for the sweaters
was P80 each, and they were priced to sell at P100. Alt’s
commission on consigned goods is 10%. At December 31, 2017, 5
sweaters remained. In its December 31, 2017 balance sheet, what
amount should Alt report as payable for consigned goods?

a. 49,000 No. of sweaters sold= 505-5 = 500 sweaters

b. 45,400
Sales (500* P100) P50,000
c. 45,000 Less: Commission Expense
d. 40,400 (50,000* 10%) 5,000
Payable to Todd P45,000
3. On October 20,2017, Grimm Co. consigned 40 freezers to
Holden Co. for sale at P1,000 each and paid P800 in
transportation costs. On December 30, 2017, Holden reported
the sale of 10 freezers and remitted P8,500. The remittance was
net of the agreed 15% commission. What amount should Grimm
recognize as sales revenue for 2017?

a. 7,700 Sales Revenue = 10 * P1,000

b. 8,500 = P10,000
c. 9,800
d. 10,000
4. On January 1, 2017, DEF Co. Paid P5,000 for the insurance of
consigned goods, while in transit, shipped to a consignee, and
P7,000 for the freight. In addition, DEF Co. advanced P5,000 as
part of the commission that will be due when the consignee sells
the goods. The consigned goods costs DEF P50,000 and will be
sold for a total amount of P80,000. What is the total amount of
inventory should DEF report for the consigned goods?

a. 50,000
Cost of Goods P50,000
b. 62,000
Insurance 5,000
c. 67,000 Freight in 7,000
d. 97,000 Total P62,000