UNIT 3 : Consignment Summary CA CPT Notes | EduRev

Principles and Practice of Accounting

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CA CPT : UNIT 3 : Consignment Summary CA CPT Notes | EduRev

The document UNIT 3 : Consignment Summary CA CPT Notes | EduRev is a part of the CA CPT Course Principles and Practice of Accounting.
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SUMMARY:-  

  • In Consignment one person (consignor) sends goods to another person (consignee) to be sold on behalf of and at the risk of the former.
  • In the case of consignment, cost means not only the cost of the goods as such to the consignor but also all expenses incurred till the goods reaches the premises of the consignee. Such expenses include packaging, freight, cartage, insurance in transit, octroi, etc. 
  • Expenses incurred after the goods have reached the consignee’s godown (such as godown rent, insurance of godown, delivery charges) are not treated as part of the cost of purchase for valuing inventories on hand. 
  • If the expected selling price of inventories on hand is lower than the cost, the value put on the inventories should be expected net selling price only, i.e. expected selling price less delivery expenses, etc.i.e. expenses necessary for sales. 
  • Proforma invoice is made to show the high value of goods consigned than the cost and entries in the books of the consignor are made out on that basis. Even the inventories remaining unsold will initially be valued on the basis of the invoice price. 
  • Hence, if entries are first made on invoice basis, the effect of the loading (i.e., amount added to arrive at the invoice price) must be removed by additional entries to ascertain profit or loss. 
  • Abnormal loss is valued just like inventories in hand. Students should be careful while valuing goods lost in transit and goods lost in consignee’s godown. Both are abnormal loss but in case of former consignee’s non-recurring expenses are not to be included whereas it is to be included in case of latter. 
  • Normal loss, is an unavoidable loss and be spread over the entire consignment while valuing inventories. The total cost plus expenses incurred should be divided by the quantity available after the normal loss to ascertain the cost per unit. 
  • Commission is the remuneration paid by the consignor to the consignee for the services rendered to the former for selling the consigned goods. Three types of commission can be provided by the consignor to the consignee, as per the agreement, either simultaneously or in isolation. They are:     
  1. Ordinary commission
  2. Del-credere commission
  3. Over-riding commission
  • For accounting of consignee, he is concerned only when he sends an advance to the consignor, makes a sale, incurs expenses on the consignment and earns his commission. He debits or credits the consignor for all these as the case may be. 
  • It has been assumed that final payment received from Vijay. 
  • Abnormal loss is always calculated at cost even if invoice price of goods is given. 
  • Value of inventories always valued at invoice price if invoice price is given.

TEST YOUR KNOWLEDGE:-
Multiple Choice Questions:-

Ques 1: P of Delhi sends out 1,000 boxes of toothpaste costing ₹200 each. Each box consist of 12 packets. 600 boxes were sold by consignee at ₹20 per packet. Amount of sale value will be:
(a) ₹1,44,000
(b) ₹1,20,000
(c) ₹1,32,000
Ans: (a)

Ques 2: X of Kolkata sends out 2,000 boxes to Y of Delhi costing ₹100 each. Consignor’s expenses ₹5,000. 1/10th of the boxes were lost in consignee’s godown and treated as normal loss. 1,200 boxes were sold by consignee. The value of consignment Inventories will be:
(a) ₹68,333
(b) ₹61,500
(c) ₹60,000
Ans: (b)

Ques 3: Which of the following statement is not true:
(a) If del-credere commission is allowed, bad debt will not be recorded in the books of consignor
(b) If del-credere commission is allowed, bad debt will be debited in consignment account
(c) Del-credere commission is provided by consignor to consignee
Ans: (b)

Ques 4: X of Kolkata sent out 2,000 boxes costing 100 each with the instruction that sales are to be made at cost + 45%. X draws a bill on Y for an amount equivalent to 60% of sales value. The amount of bill will be:
(a) ₹1,74,000
(b) ₹2,00,000
(c) ₹2,90,000
Ans: (a)

Ques 5: Which of the following statement is wrong:  
(a) Consignor is the owner of the consignment Inventories
(b) Del-credere commission is allowed by consignor to protect himself from bad debt
(c) All proportionate consignee’s expenses will be added up for valuation of consignment Inventories.
Ans: (c)

Ques 6: Out of the following at which point the treatment of “Sales” and “Consignment” is same:
(a) Ownership transfer.  
(b) Money receive.
(c) Inventories outflow.
Ans: (c)

Ques 7: If del-credere commission is allowed for bad debt, consignee will debit the bad debt amount to:  
(a) Commission Earned A/c  
(b) Consignor’s A/c
(c) Trade receivables (Customers) A/c
Ans: (a)

Ques 8: A proforma invoice is sent by:  
(a) Consignee to Consignor
(b) Consignor to Consignee
(c) Customer/Debtors to Consignee
Ans: (b)

Ques 9: Which of the following statement is correct:
(a) Consignee will pass a journal entry in his books at the time of receiving goods from consignor.
(b) Consignee will not pass any journal entry in his books at the time of receiving goods from consignor.
(c) The ownership of goods will be transferred to consignee at the time of receiving the goods.
Ans: (b)

Ques 10: Consignment Inventories will be recorded in the balance sheet of consignor on asset side at:
(a)  Invoice Value
(b)  At Invoice value less Inventories reserve
(c)  At lower than cost price
Ans: (b)

Ques 11: Which of the following expenses of consignee will be considered as non-selling expenses:
(a) Advertisement  
(b) Insurance on freight inward
(c) Selling Expenses
Ans: (b)

Ques 12: The consignment accounting is made on the following basis:
(a)  Accrual  
(b) Realisation
(c) Cash Basi
Ans: (a)

Ques 13: Which of the following item is not credited to consignment account?
(a) Cash sales made by consignee
(b) Credit sales made by consignee
(c) Inventories Reserve on closing consignment Inventories
Ans: (c)

Theory Questions:-
Ques 1: Write short notes on:
(i)  Del-credere commission.
(ii)  Account sales.
(iii)   Over-riding commission.
Ans: (i) Del-credere commission is an additional commission paid by the consignor to the consignee for undertaking responsibility of collection of debts. Generally, the consignee gets ordinary commission for sales made by him as a percentage of gross sales, over and above, he may get delcredere commission for the additional responsibility of debt collection. Sometimes it is agreed that del-credere commission shall be allowed on credit sales only. However, in the absence of any such agreement the consignor allows del-credere commission on total sales and not merely on credit sales. If the consignee is entitled to del-credere commission, he has to bear the bad debts; if any, arising, out of credit sale of consignment goods.  
(ii) Account sales is a periodic statement furnished by the consignee to the consignor stating therein, the quantity sold, price charged, expenses incurred on behalf of the consignee and commission payable to him in respect of a particular consignment, and the net amount due from him and remittance received if any. It also shows the details of quantity of goods received, destroyed, if any, and still held as stock.  
(iii) Over-riding commission is an extra commission allowed to the consignee in addition to the normal commission. Such additional commission is generally allowed:-  
To provide additional incentive to the consignee for the purpose of introducing and creating a market for a new product.  
To provide incentive for supervising the performance of other agents in a particular area.
To provide incentive for ensuring that the goods are sold by the consignee at the highest possible price.

Ques 2: Distinguish between:
(i) Consignment sale and Normal sale.
(ii)  Commission and Discount.
Ans: (i) In case of consignment, the property in the goods remains with the consignor until the goods are actually sold. The consignee acts only as a custodian of goods sent by consignor. In consignment, the ownership of goods does not pass on to the consignee in any case. In case of ordinary sale, the ownership of goods passes to the buyer immediately after sale. In case of consignment, the risk attached to the goods remain with the consignor even after sending the goods to the consignee. However, in case of ordinary sale, as soon as the property in the goods passes on to the buyers, the risk attached to the goods also passes at the same time. The relationship between consignor and consignee is that of principal and agent. In case of credit sale, the relationship between the buyer and the seller is that of a debtor and a creditor.  
(ii) Commission may be defined as remuneration of an employee or agent relating to services performed in connection with sales, purchases, collections or other types of business transactions and is usually based on a percentage of the amounts involved.
Commission earned is accounted for as an income in the books of accounts, and commission allowed or paid is accounted for as an expense in the books of the party availing such facility or service.
The term discount refers to any reduction or rebate allowed and is used to express one of the following situations:
An allowance given for the settlement of a debt before it is due i.e. cash discount.
An allowance given to the whole sellers or bulk buyers on the list price or retail price, known as trade discount. A trade discount is not shown in the books of account separately and it is shown by way of deduction from cost of purchases.

Practical Questions:-
Ques 1: X of Delhi purchased 10,000 metres of cloth for ₹2,00,000 of which 5,000 metres were sent on consignment to Y of Agra at the selling price of ₹30 per metre. X paid ₹5,000 for freight and ₹500 for packing etc.
Y sold 4,000 metre at ₹40 per metre and incurred ₹2,000 for selling expenses. Y is entitled to a commission of 5% on total sales proceeds plus a further 20% on any surplus price realised over ₹30 per metre. 3,000 metres were sold at Delhi at ₹30 per metre less ₹3,000 for expenses and commission. Owing to fall in market price, the inventories of cloth in hand is to be reduced by 10%.  
Prepare the Consignment Account and Trading and Profit & Loss Account in books of X.
Ans: 
UNIT 3 : Consignment Summary CA CPT Notes | EduRev
UNIT 3 : Consignment Summary CA CPT Notes | EduRev
UNIT 3 : Consignment Summary CA CPT Notes | EduRev

Ques 2: D of Delhi appointed A of Agra as its selling agent on the following terms:  
Goods to be sold at invoice price or over.
A to be entitled to a commission of 7.5% on the invoice price and 20% of any surplus price realized over invoice price  
The principals to draw on the agent a 30 days bill for 80% of the invoice price.
On 1st February, 2016, 1,000 cycles were consigned to A, each cycle costing ₹640 including freight and invoiced at ₹800.  
Before 31st March, 2016, (when the principal’s books are closed) A met his acceptance on the due date; sold off 820 cycles at an average price of  ₹930 per cycle, the sale expenses being  ₹12,500; and remitted the amount due by means of Bank draft.  
Twenty of the unsold cycles were shop-spoiled and were to be valued at a depreciation of 50% of cost.
Show by means of ledger accounts how these transactions would be recorded in the books of A and find out the value of closing inventory with A to be recorded in the books of D at cost.
Ans: 
UNIT 3 : Consignment Summary CA CPT Notes | EduRev
UNIT 3 : Consignment Summary CA CPT Notes | EduRev
UNIT 3 : Consignment Summary CA CPT Notes | EduRev 

Ques 3: Mr. Y consigned 800 packets of toothpaste, each packet containing 100 toothpastes. Cost price of each packet was ₹900. Mr. Y Spent ₹100 per packet as cartage, freight, insurance and forwarding charges. One packet was lost on the way and Mr. Y lodged claim with the insurance company and could get ₹570 as claim on average basis. Consignee took delivery of the rest of the packets and spent ₹39,950 as other non-recurring expenses and ₹22,500 as recurring expenses. He sold 740 packets at the rate of ₹12 per toothpaste. He was entitled to 2% commission on sales plus 1% del-credere commission.  You are required to prepare Consignment Account. Calculate the cost of inventories at the end, abnormal loss and profit or loss on consignment.
Ans: 
UNIT 3 : Consignment Summary CA CPT Notes | EduRev

Ques 4: A of Agra sent on consignment goods valued ₹1,00,000 to B of Mumbai on 1st March, 2016. He incurred the expenditure of  ₹12,000 on freight and insurance. A’s accounting year closes on 31st December. B was entitled to a commission of 5% on gross sales plus a del-credere commission of 3%. B took delivery of the consignment by incurring expenses of  ₹3,000 for goods consigned.  
On 31.12.2016, B informed on phone that he had sold all the goods for  ₹1,50,000 by incurring selling expenses of  ₹2,000. He further informed that only   ₹1,48,000 had been realized and rest was considered irrecoverable, and would be sending the cheque in a day or so for the amount  due along with the accounts sale.
On 5.1.2017, A received the cheque for the amount due from B and incurred bank charges of  ₹260 for collecting the cheque. The amount was credited by the bank on 9.1.2017.
Write up the consignment account finding out the profit/loss on the consignment, B’s account, Provision for expenses account and Bank account in the books of the consignor, recording the transactions upto the receipt and collection of the cheque.
Ans: 
UNIT 3 : Consignment Summary CA CPT Notes | EduRev
UNIT 3 : Consignment Summary CA CPT Notes | EduRev  

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