Consignment Accounting Exercises and Problems
Consignment Accounting problems and exercises:
Learning Objectives:
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Prepare journal entries, consignment account and consignee account in the books of consignor.
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Prepare journal entries and consignor account in the books of consignee.
Problem 1 (Journal Entries and Ledger Accounts):
Riaz Sugar Factory of Multan, consigned to Mr. Shahid of Lahore 400 bags of sugar at $25 per bag. They also paid cartage, freight, etc. $250. The consignor drew on consignee as an advance against the consignment at 3 months for $6,000 which they discounted at their bank at 5 percent. The consignee sold off the goods and rendered an account sales showing that the goods realized $12,000, out of which he deducted his charges amounting to $80 and his commission at 5 percent.
Required: Make journal entries in respect of the above transactions in the books of consignor as well as the consignee
Solution:
Consignor’s Books
JOURNAL ENTRIES
Dr. | Cr. | |
$ | $ | |
Consignment to Lahore account | 10,000 | |
To Goods sent on consignment account | 10,000 | |
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Consignment to Lahore account | 250 | |
To Bank account | 250 | |
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Bills receivable account | 6,000 | |
To Shahid Ali | 6,000 | |
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Bank account | 5,925 | |
Discount account | 75 | |
To Bills receivable account | 6,000 | |
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Shahid Ali | 12,000 | |
To Consignment to Lahore account | 12,000 | |
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Consignment to Lahore account | 680 | |
To Shahid Ali | 680 | |
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Bank | 5320 | |
To Shahid Ali | 5320 | |
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Consignment to Lahore account | 1,070 | |
To Profit and loss account | 1,070 | |
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Goods sent on consignment account | 10,000 | |
To Trading account | 10,000 | |
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LEDGER ACCOUNTS
Consignment to Lahore Account
$ | $ | ||
Dr. |
Cr. |
||
To Goods sent on consignment | 10,000 | By Shahid Ali – Sales Proceeds | 12,000 |
To Bank expenses | 250 | ||
To Shahid Ali | 680 | ||
To Profit and loss account | 1,070 | ||
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12,000 | 12,000 | ||
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Goods Sent on Consignment Account
$ | $ | ||
Dr. |
Cr. |
||
To Trading account | 10,000 | By Consignment to Lahore | 10,000 |
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Bank Account
Dr. |
Cr. |
||
$ | $ | ||
To Bills receivable | 5,925 | By Consignment to Lahore | 250 |
To Shahid Ali | 5,320 | ||
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Shahid Ali (Consignee)
Dr. |
Cr. |
||
$ | $ | ||
To Consignment to Lahore | 12,000 | By Bills receivable | 6,000 |
By Consignment to Lahore | 680 | ||
By Bank account | 5,320 | ||
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12,000 | 12,000 | ||
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Bills receivable Account
Dr. |
Cr. |
||
$ | $ | ||
To Shahid Ali | 6,000 | By Bank | 5,925 |
By Discount | 75 | ||
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6,000 |
6,000 | ||
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Discount Account
Dr. |
Cr. |
||
$ | $ | ||
To Bills receivable | 75 | By Profit and loss account | 75 |
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Profit and Loss Account
Dr. |
Cr. |
||
$ | $ | ||
By Consignment to Lahore | 1,070 | ||
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Trading Account
Dr. |
Cr. |
||
$ | $ | ||
By Goods sent on consignment | 10,000 | ||
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Consignee’s Books
JOURNAL ENTRIES
Dr. | Cr. | |
$ | $ | |
Riaz sugar factory | 6,000 | |
To Bills payable account | 6,000 | |
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Riaz sugar factory | 80 | |
To Bank account | 80 | |
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Bank account | 12,000 | |
To Riaz sugar factory | 12,000 | |
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Riaz sugar factory | 600 | |
To Commission account | 600 | |
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Riaz sugar factory | 5,320 | |
To Bank account | 5,320 | |
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Bills payable | 6,000 | |
To Bank account | 6,000 |
LEDGER ACCOUNTS
Riaz Sugar Factory (Consignor)
Dr. |
Cr. |
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$ | $ | ||
To Bills payable | 12,000 | By Bank account | 12,000 |
To Bank – expenses | 80 | ||
To Commission | 600 | ||
To Bank – Balance | 5,320 | ||
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12,000 | 12,000 | ||
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Bank Account
Dr. |
Cr. |
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$ | $ | ||
To Riaz sugar factory | 12,000 | By Riaz sugar factory | 80 |
By Riaz sugar factory | 5,320 | ||
By Bills payable | 6,000 | ||
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Commission Account
Dr. |
Cr. |
||
$ | $ | ||
To Profit and loss account | 600 | By Riaz sugar factory | 600 |
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Bills Payable Account
Dr. |
Cr. |
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$ | $ | ||
To Bank | 6,000 | By Riaz sugar factory | 6,000 |
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Problem 2 – (Abnormal Loss):
1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at an invoice cost of $150 each. A & Co., paid freight $10,000 and insurance $1,500. During transit 100 motors were completely destroyed. Bashir took delivery of the remaining motors and paid $14,400 as duty.
Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later sent an account sale showing that 800 motors were sold at $220 each. Expenses incurred by Bashir on godown rent and advertisement etc., amounted to $2,000. Bashir is entitled to commission of 5 per cent.
Required: Prepare consignment account and Bashir’s account in the books of A & Co., assuming that nothing has been recovered from the insurance company due to defect in the policy.
Solution
Consignment to Karachi Account
$ | $ | ||
To Goods sent on consignment | 1,50,000 | By sales (800 × 220) | 1,76,000 |
To Bank – freight and insurance | 11,500 | By Profit and loss account – Ab. Loss* | 16,150 |
To Bashir – duty | 14,400 | By Stock on consignment** | 17,750 |
To Bashir – expenses | 2,000 | ||
To Bashir – commission | 8,800 | ||
To Profit and loss account | 23,200 | ||
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2,09,900 | 2,09,900 | ||
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Bashir
$ | $ | |||
To Consignment account | 1,76,000 | By Bank | 50,000 | |
By Consignment account | ||||
Duty | 14,400 | |||
Expenses | 2,000 | |||
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16,400 | |||
By Consignment account-commission | 8,800 | |||
By Balance c/d | 1,00,800 | |||
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1,76,000 | 1,76,000 | |||
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Working Note:
(1) |
*Calculation of abnormal loss: | |
100 motors at $150 each | $15,000 | |
Add 100/1000 of freight and insurance (11,500 × 100/1000) | 1,150 | |
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Abnormal loss | 16,150 | |
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(2) |
**Calculation of Closing Stock: | |
100 motors at $150 each | $15,000 | |
Add 100/1000 of freight and insurance (11,500 × 100/1000) | 1,150 | |
100/900 of duty | 1,600 | |
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Closing stock or unsold stock | 17,750 | |
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Problem 3 (Invoicing Goods Higher Than Cost):
Rashid of city A sends 100 sewing machines on consignment to Malik of city B. The cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives the consignment and immediately accepts Rashid’s draft for $8000. Subsequently, Malik informs Rashid that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight $600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6 per cent on sales and 1-1/2 percent as del credere commission.
Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:
Solution:
Journal
Consignment to city B | 16,000 | |
To Goods sent on consignment account | 16,000 | |
(100 machines at $160 each sent on consignment) | ||
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Consignment to city B | 400 | |
To Cash account | 400 | |
(Expenses incurred on consignment) | ||
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Bills receivable account | 8,000 | |
To Malik | 8,000 | |
(Malik’s acceptance received) | ||
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Malik | 14,000 | |
To Consignment to city B account | 14,000 | |
(80 machine’s sold Malik at $175 each) | ||
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Consignment to city B account | 750 | |
To Malik | 750 | |
(Expenses incurred) | ||
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Consignment to city B account | 1,050 | |
To Malik | 1,050 | |
(Commission at 6% plus 1-1/2 on sales) | ||
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Consignment to city B account | 600 | |
To Stock reserve account | 600 | |
(Difference in closing stock adjusted) | ||
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Stock on consignment account | 3,400 | |
To Consignment to city B account | 3,400 | |
(Value of 20 machines in the hands of Malik) | ||
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Goods sent on consignment account | 3,000 | |
To Consignment to city B account | 3,000 | |
(The difference in the invoice value and cost, $30 per machine adjusted) | ||
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Goods sent on consignment account | 13,000 | |
To Trading account | 13,000 | |
(Transfer of goods sent on consignment to trading account) | ||
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Consignment to city B account | 1,600 | |
To Profit and loss account | 1,600 | |
(Transfer of profit on consignment) |
Consignment to City B Account
$ | $ | |||
To Goods sent on consignment | 16,000 | By Malik – Sales proceed | 14,000 | |
To Cash – Expenses | 400 | By Stock on consignment | 3,400 | |
To Malik – Expenses: | By Goods sent on consignment | 3,000 | ||
Freight | 600 | |||
Rent | 50 | |||
Insurance | 100 | |||
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750 | |||
To Malik – Commission | 1,050 | |||
To Consignment stock reserve | 600 | |||
To Profit and loss account | 1,600 | |||
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20,400 | 20,400 | |||
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Malik
$ | $ | ||
To Consignment to city B account | 14,000 | By Bills receivable account | 8,000 |
By Consignment to city B account | |||
Expenses | 750 | ||
Commission | 1,050 | ||
By Balance c/d | 4,200 | ||
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14,000 | 14,000 | ||
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You may also be interested in other articles from “accounting for consignment” chapter:
- Definition and Explanation of Consignment
- Distinction/Difference Between Consignment and Sale
- Definitions of Important Terms Used in Consignment Accounting
- Consignment Accounting Journal Entries
- Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
- Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
- Invoicing Goods Higher Than Cost in Consignment
- Consignment Accounting Problems, Exercises and Questions
- Consignment Accounting Questions and Answers
Other Related Accounting Articles:
- Invoicing Goods Higher Than Cost in Consignment
- Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
- Definitions of Important Terms Used in Consignment Accounting
- Consignment Accounting Questions and Answers
- Consignment – Definition and Explanation
- Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
- Distinction/Difference Between Consignment and Sale
Or
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Purchase include goods worth Rs.12000 which are unpaid. The goods are received on consignment basis for sale which 10% commission is receivable.
i can want what is consignment
Goods sent on consignment is a gross amount despatched from one location to another location and it is not sale or purchase. Then, why trading account is credited in final Jv? Secondally, we have to show Stock with consignment agent as our stock in the Profit and Loss a/c and balance sheet, then again the quantity to the extent of stock is duplicated. Once we show the entry of goods on Consignment a/c in Trading a/c and second time when we create stock a/c after crediting Consignment to >>>>>a/c ledger. I did not understand the concept.
Moreover, Please show me that how to reflect the Consignment Sales in our main P & L a/c as turnover of the Company. No such entry shows this aspect. I sicerely request you to elaborate. Thanks
please what are the accounting processes involved in a consignment?
answer of this problem – On 10/6/2000 Ahuja and Company Consigned 5000 tape cassettes costing Rs. 20 each to Rathi and Co., the Consignee. The Proforma Invoice is prepared to show a profit on sales price at the rate of 20%. The consignee is not allowed to sell cassettes below the invoice price. The Consignor paid freight and insurance Rs. 2500. On 28/6/2000 the consignee on receiving the goods paid for outward carriage Rs. 550. He also accepted the bill drawn by the consignor Rs.50000 for the 3 month period. On checking the goods received he found that 100 cassattes were damaged and not fit for sale. This fact was reported to the consignor. The consignor claimed for damages and the insurance company settled the claims for Rs. 1500. On 30/7/200 the consignee reported the consignor as below: 1. Half of the goods received were sold at rs. 30 per unit. 2. One-fourth of the goods received were sold at invoice price. 3. The balance in stock. The Consignee was to receive a commission at the rate of 3% on sales at invoice price and at the rate of 2% on sales above invoice price. Show the necessary Ledger Accounts in the books of both the parties.
hy I, am a student from Rwanda whether possible I would like to be partner with you in this course