Consignment Accounting Exercises and
Problems:
Learning Objectives:
1.
Prepare journal entries,consignmentaccount and consignee account in the books of consignor.2.
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 theconsignmentat 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.
$ $
Consignmentto Lahore account 10,000
To Goods sent onconsignmentaccount
10,000
Consignmentto Lahore account 250
To Bank account
250
Bills receivable account 6,000
To Shahid Ali
6,000
Bank account 5,925
Discount account 75
To Bills receivable account
6,000
Consignmentto Lahore account 680
To Shahid Ali
680
Bank 5320
To Shahid Ali
5320
Consignmentto Lahore account 1,070
To Profit and loss account
1,070
Goods sent onconsignmentaccount 10,000
ToTradingaccount
10,000
LEDGER ACCOUNTS Consignmentto Lahore Account
$
$
Dr.
Cr.
To Goods sent onconsignment 10,000 By Shahid Ali - Sales Proceeds 12,000
To Bank expenses 250
To Shahid Ali 680
To Profit and loss account 1,070
12,000
12,000
Goods Sent onConsignmentAccount
$
$
Dr.
Cr.
ToTradingaccount 10,000 ByConsignmentto Lahore 10,000
Bank Account
Dr.
Cr.
$
$
To Bills receivable 5,925 ByConsignmentto Lahore 250
To Shahid Ali 5,320
Shahid Ali (Consignee)
$
$
ToConsignmentto Lahore 12,000 By Bills receivable 6,000
ByConsignmentto Lahore 680
By Bank account 5,320
12,000
12,000
Bills receivable Account
Dr.
Cr.
$
$
To Shahid Ali 6,000 By Bank 5,925
By Discount 75
6,000
6,000
Discount Account Dr.
Cr.
$
$
To Bills receivable 75 By Profit and loss account 75
Profit and Loss Account
Dr.
Cr.
$
$
ByConsignmentto Lahore 1,070
TradingAccount Dr.
Cr.
$
$
By Goods sent onconsignment 10,000
$ $
Riaz sugar factory 6,000
To Billspayable account
6,000
Riaz sugar factory 80
To Bank account
80
Bank account 12,000
To Riaz sugar factory
12,000
Riaz sugar factory 600
To Commission account
600
Riaz sugar factory 5,320
To Bank account
5,320
Bills payable 6,000
To Bank account
6,000
LEDGER ACCOUNTS
Riaz Sugar Factory (Consignor)
Dr.
Cr.
$
$
To Bills payable 12,000 By Bank account 12,000
To Bank - expenses 80
To Commission 600
To Bank - Balance 5,320
12,000
12,000
Bank Account Dr.
Cr.
$
$
To Riaz sugar factory 12,000 By Riaz sugar factory 80
By Riaz sugar factory 5,320
By Bills payable 6,000
Commission Account
$
$
To Profit and loss account 600 By Riaz sugar factory 600
BillsPayable Account
Dr.
Cr.
$
$
To Bank 6,000 By Riaz sugar factory 6,000
Problem 2 -
(Abnormal Loss)
:
1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at aninvoicecost 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:Prepareconsignmentaccount 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
Consignmentto Karachi Account
$
$
To Goods sent onconsignment 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 onconsignment** 17,750
To Bashir - expenses 2,000
To Bashir - commission 8,800
To Profit and loss account 23,200
2,09,900
2,09,900
Duty 14,400
Expenses 2,000
16,400
By Consignmentaccount-commission 8,800
By Balance c/d 1,00,800
1,76,000
1,76,000
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
Abnormal loss 16,150
(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
Closing stock or unsold stock 17,750
Problem 3
(Invoicing Goods Higher Than Cost):
Rashid of city A sends 100sewing machinesonconsignmentto Malik of city B. The cost of each machine is $130 but theinvoice priceis at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives theconsignmentand 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
Consignmentto city B 16,000
To Goods sent onconsignmentaccount
16,000
(100 machines at $160 each sent onconsignment)
To Cash account
400
(Expenses incurred onconsignment)
Bills receivable account 8,000
To Malik
8,000
(Malik's acceptance received)
Malik 14,000
ToConsignmentto city B account
14,000
(80 machine's sold Malik at $175 each)
Consignmentto city B account 750
To Malik
750
(Expenses incurred)
Consignmentto city B account 1,050
To Malik
1,050
(Commission at 6% plus 1-1/2 on sales)
Consignmentto city B account 600
To Stock reserve account
600
(Difference in closing stock adjusted)
Stock onconsignmentaccount 3,400
ToConsignmentto city B account
3,400
(Value of 20 machines in the hands of Malik)
Goods sent onconsignmentaccount 3,000
ToConsignmentto city B account
3,000
(The difference in the invoicevalue and cost, $30 per machine adjusted)
Goods sent onconsignmentaccount 13,000
ToTradingaccount
13,000
(Transfer of goods sent onconsignmentto tradingaccount)
Consignmentto city B account 1,600
To Profit and loss account
1,600
(Transfer of profit onconsignment)
Consignmentto City B Account
$
$
To Goods sent onconsignment 16,000 By Malik - Sales proceed 14,000
To Cash - Expenses 400 By Stock onconsignment 3,400
To Malik - Expenses:
By Goods sent onconsignment 3,000
750
To Malik - Commission 1,050
ToConsignmentstock reserve 600
To Profit and loss account 1,600
20,400
20,400
Malik
$
$
To Consignment to city B account 14,000 By Bills receivable account 8,000