Consignment Accounts
Consignment may be defined as, “a shipment or transfer of goods by a manufacture or wholesale dealer to an
agent to be sold by him on behalf of the sender for commission”. The person who sends the goods is known
as ‘consignor’ and the person to whom the goods are sent is known as the ‘consignee’.
Consignment means transfer of possession of goods from the owner called consignor, to another person
called the consignee, for the purpose of selling the goods on commission basis. In the consignment the
relationship between consignor and the consignee is that of a principal and an agent. In consignment business
the consignor has to bear all the risks connected with goods till it is sold.
Features of consignment
The following are the main features of consignment
1. The relation between consignor and consignee is that of principal and agent
2. Only the possession of goods, and not the ownership of goods, is transferred to the consignee
3. Risk of goods remains with the consignor because ownership of goods remains with the consignor
4. Consignee is entitled to get an agreed commission
5. As per agreement, consignee is entitled to reimbursement of expenses incurred by him on behalf of the
consignor
6. The sale proceeds belong to the consignor; and the consignee merely gets commission.
7. The profit or loss on sale of goods sent on consignment belongs to the consignor
8. The unsold goods with the consignee is the stock of the consignor
9. The goods can be reposed by the consignor from the consignee at any time
10. Consignment is the dispatch of goods by the consignor to the consignee for the purpose of storage and sale on
commission basis
Terms used in Consignment
Performa Invoice
It is a statement prepared by the consignor and sent to the consignee stating the quantity, quality and price of
the goods consigned. It is sent along with goods dispatched to the consignee. It is prepare like a regular
invoice, but the consignee is not liable to pay the amount stated in the invoice. The object of the Performa
invoice is only to convey information to the consignee regarding quantity, quality and price of the goods
consigned. It can be prepared at cost price or at market price.
Account Sale
Account sale is a statement sent by the consignee to the consignor periodically. It contains the information
like sales made, expenses incurred by the consignee, commission due to the consignee advance given by the
consignee and the net amount due to the consignor. Usually a bank draft is attached with the account sales for
the balance due to the consignor.
Delcredere commission
Delcredere commission is an additional commission given by the consignor to the consignee for bearing the
loss on account of bad debts. Usually it is calculated as a fixed percentage of total sales. If there is delcredere
commission bad debts arising out of credit sales is to be borne by the consignee. Hence, bad debts should not
be entered in the consignment account. If delcredere commission is not allowed, bad debts should be
entered in the consignment account.
Overriding commission
Over riding commission is an extra commission allowed over and above the normal commission. It is generally
offered when the agent is required to put in hard work in introducing a new product in the market or for
effecting sales at a price higher than the price fixed by the consignor. Depending upon the agreement
between the consignor and the consignee, it is calculated on total actual sales or on the difference between
actual sales and sales at invoice price.
Valuation of unsold stock
As per accounting standard-2, Stock is to be valued at cost price or market price whichever is lower on the
principle of conservatism. Cost price for this purpose means the purchase price plus proportionate non-
recurring expenses paid by the consignor and consignee to bring the goods to the present location and
condition. Market price refers to the net realizable value. For valuation of consignment stock, the term cost
price means “original cost of unsold goods + Proportionate on-recurring expenses paid by the consignor and
consignee”
Non-recurring expenses are packing and forwarding charge, freight, Octroi, insurance in transit, customs duty,
import duty, dock dues, clearing charges, loading and unloading charges, carriage and cartage.
Abnormal Loss in Consignment
All avoidable losses are called abnormal losses. Loss by fire, loss by theft, etc are the examples of abnormal
losses. In consignment, the abnormal loss should also be considered while calculating the profit or loss on
consignment. The abnormal loss should be valued like the valuation of consignment stock. It is valued as
follows:-
Abnormal Loss = cost + proportionate non-recurring expenses increased by the consigner and the consignee at
the time of loss.
The abnormal loss should be debited to abnormal loss a/c and credited to consignment a/c. The entry will
be:-
Abnormal loss a/c Dr
To Consignment a/c
The abnormal loss should be valued like the valuation of consignment stock. It is valued as follows:-
Abnormal Loss = cost + proportionate non-recurring expenses increased by the consigner and the consignee at
the time of loss
Treatment when goods are sent at Invoice Price
In order to hide the true profit on consignment from the consignee, it is the usual practice to sent goods at
invoice (selling price). In this case, goods sent on consignment and closing stock should be entered in the
consignment a/c at their invoice price. Then the “loading” amount on goods sent and closing stock should be
adjusted in the consignment a/c. The loading amount is the difference between cost price and invoice price.
The loading amount on goods sent should be credited to consignment a/c. The entry will be:
Goods sent on consignment a/c Dr
To Consignment a/c
The loading amount on closing stock should be debited to consignment account. The entry will be:
Consignment a/c Dr
To stock reserve a/c
Accounting entries in the books of the Consignor
1. When goods were send on consignment
Consignment Account Dr
To Goods sent on consignment
2. Expenses paid by Consignor
Consignment account Dr
To Bank
3. Expenses paid by Consignee
Consignment a/c Dr
To Consignee
4. Goods sold by consignee
Consignee a/c Dr
To Consignment
5. Commission due to consignee
Consignment account Dr
To Consignee
6. If there is closing stock
Consignment stock a/c Dr
To Consignment a/c
7. When advance received from consignee
Bank/Bills receivable a/c Dr.
To Consignee
8. Final settlement is made by consignee
Banka/c Dr.
To Consignee
CONSIGNMENT ACCOUNTS – PROBLEMS
Question No. 1
Bajaj Electricals sent 100 fans to Modern Agencies on consignment basis and spent Rs. 400 on packing and
forwarding. The cost of each fan was Rs. 750 but invoice at 20% above cost.
5fans were lost in transit and Modern Agencies took delivery of the remaining fans and paid Rs. 665 as
freight, Rs. 285 as cartage and Rs. 190 as go down rent. They sold 75 fans at Rs.1, 100 each.
Consignee is entitled to a commission of 6% ordinary commission and 2 % Delcredere commission. Modern
agencies could not realize sale proceeds of three fans
Prepare Consignment Account and Consignee’s Account
Consignment account
Particulars Amount Particulars Amount
To Goods sent on consignment 90000 By Modern Agencies (75 x1100) 82500
To Bank 400 By Abnormal loss 3770
To Modern Agencies : By Consignment stock 18280
Freight 665 By Goods sent on consignment 15000
Cartage 285
Go down rent 190
Commission (82500 x8%) 6600
To Stock reserve (20 x 150) 3000
To Profit and loss account 18410
119550 119550
Modern agencies account
Particulars Amount Particulars Amount
To consignment 82500 By Consignment :
Freight 665
Cartage 285
Go down rent 190
Commission 6600
By Balance c/d 74760
82500 82500
Valuation of Abnormal loss
Cost price of 5 Fans (750 x5) 3750
Proportionate expense of consignor (400/100x5) 20
Abnormal loss 3770
Valuation of consignment stock
Invoice price of 20 Fans (900 x20) 18000
Proportionate expense of consignor (400/100x20) 80
Proportionate expense of consignee (950/95x20) 200
Value of costing stock (Invoice price) 18280
Question No. 2
Cromption Greaves Ltd. Pune consigned 100 pump sets to Karsar Agencies, Kottayam at Rs. 6000 per set.
Cromption Greaves Ltd. paid Rs. 2400 for packing Rs. 3000 for freight and Rs. 3600 for insurance.
Karsar Agencies took delivery of the consignment and accepted three months bills for 60% of the invoice price
of goods consigned. The consignor discounted the bill at a discount of 12%
Karsar Agencies sold 80 pump set at Rs. 8500 each, for which they were entitled to a commission of 10% on
sales. The expenses paid by the consignee were freight Rs. 3000; Loading and unloading Rs. 2000;
advertisement Rs. 1800 and salesmen’s salaries Rs. 2200
5 pump sets were lost by fire from the go down of the consignee for whom the insurance company admitted a
claim of only Rs. 2000
Consignment account
Particulars Amount Particulars Amount
To Goods sent on consignment 600000 By Karsar Agencies (80 x8500) 680000
To Bank 9000 By Abnormal loss (Total loss) 30700
To Karsar Agencies: By consignment stock 92100
Freight 3000
Loading and 2000
Advertisement 1800
Salesmen salary 2200
Commission 68000
To Profit and loss account 116800
802800 802800
Karsar Agencies account
Particulars Amount Particulars Amount
To Consignment 680000 By Bills receivable (600000 x 60%) 360000
By Consignment :
Freight 3000
Loading and 2000
Advertisement 1800
Salesmen salary 2200
Commission 68000
By Balance c/d 243000
680000 680000
Valuation of abnormal loss
Cost price of 5 pump sets (5 x 6000) 30000
Proportionate expense of consignor (9000/100 x5) 450
Proportionate expense of consignee (5000/100 x5) 250
Abnormal loss 30700
Valuation of consignment stock
Cost price of 15 pump sets (15 x6000) 90000
Proportionate expense of consignor (9000/100 x 15) 1350
Proportionate expense of consignee (5000/100 x 15) 750
Value of consignment stock 92100
Question No. 3
Havells India Ltd. Noida consigned 1000 fans at Rs. 1200 each to Blue moon Electricals Calicut. They paid
freight Rs. 5000, Insurance Rs. 2500 and carriage Rs. 500.
One hundred fans were totally destroyed in transit and the consignee took delivery of the remaining fans,
paying octroi and clearing charge Rs. 8000. Carriage Rs. 3000 and loading and unloading charge Rs. 1000 Blue
moon Electricals sold 600 fans @ Rs. 2000 each; their selling expenses being Rs. 7000. The consignee charged
5% normal commission, 3% delcredere commission and 2% over riding commission.
Prepare Consignment Account and Blue moon Electricals Account in the books of Havells India LTD.
Consignment account
Particulars Amount Particulars Amount
To Goods sent on consignment 1200000 By Abnormal loss 120800
To Bank 8000 By Blue moon electrical(sales) 1200000
To Blue moon electrical: By consignment stock 366400
Octroi and clearing 8000
Carriage 3000
Loading and unloading 1000
Selling expenses 7000
Commission 120000
To Profit and loss account 340200
1687200 1687200
Blue moon electrical account
Particulars Amount Particulars Amount
To Consignment 1200000 By consignment
Octroi 8000
Carriage 3000
Loading 1000
selling exp 7000
commission 120000
By balance c/d 1061000
1200000 1200000
Goods sent on consignment account
Particulars Amount Particulars Amount
To Trading account 1200000 By consignment 1200000
1200000 1200000
In the books of consignee
Havells India Ltd. Account
Particulars Amount Particulars Amount
To Bank : By Bank 1200000
Octroi 8000
Carriage 3000
Loading 1000
selling exp 7000
To Commission 120000
To Balance c/d 1061000
1200000 1200000
Calculation of abnormal loss
Abnormal loss = Cost + proportionate non recurring expenses incurred by consignor
Cost of 100 fans = 1200x100 = 120000
Proportionate expense of consignor = 8000/1000x100 = 800
120800
Valuation of consignment stock
Consignment stock = Cost + Proportionate non recurring expenses incurred by consignor and consignee
Cost price of 300 units (1200 x 300) 360000
Proportionate expense of consignor (8000/1000 x300) 2400
Proportionate expense of consignee (12000/900 x300) 4000
Value of consignment stock 366400
Question No. 4
Sunsilk Ltd. Delhi consigned 100 packets of shampoo to Beauty palace, Trichur to be sold at their risk. The cost
price of one packet was Rs. 150 but the invoice price was Rs. 200. The consignors paid freight Rs. 600 and
insurance in transit Rs. 200
Beauty palace sent a bank draft for Rs. 10000 as advance payment and later sent an account sales showing
that 80 packets of shampoo were sold at Rs. 220 each. Expenses incurred by Beauty palace were carriage Rs.
25, Octroi Rs. 75; Go down rent Rs. 500 and advertisement Rs. 300. The consignee is entitled to a commission
of 5% on sales.
Prepare ledger accounts in the books of Sunsilk Ltd. and Beauty palace.
Consignment account
Particulars Amount Particulars Amount
To goods sent on consignment 20000 By Beauty palace 17600
To Bank 800 (80 x 220)
To Beauty palace By Consignment stock 4180
Carriage 25 By Goods sent on consignment
Octroi 75 account (100x 50) 5000
Go down rent 500
Advertisement 300 900
To Beauty palace (17600x5%) 880
To stock reserve (20 x50) 1000
To Profit and loss account 3200
26780 26780
Beauty palace Account (Consignee)
Particulars Amount Particulars Amount
To Consignment 17600 By Bank (advance) 10000
By consignment (expense) 900
By consignment(commission) 880
By Balance c/d 5820
17600 17600
Accounts in the Books of Beauty palace Account
Sunsilk Ltd. Account (Consignor)
Particulars Amount Particulars Amount
To Bank 10000 By Bank 17600
To Bank 900
To Commission 880
To Balance c/d 5820
17600 17600
Goods sent on Consignment account
Particulars Amount Particulars Amount
To consignment 5000 By consignment 20000
To Trading account 15000
20000 20000
Valuation of consignment stock
Invoice price of 20 units [20x200] 4000
Proportionate exp. of consignor [800x20/100] 160
Proportionate exp. of consignee [100x20/100] 20
Value of consignment stock as per invoice price 4180
Problem No. 5
Ram Manohar of Ram Nagar sent goods on consignment to Bijoy of Bihar. The cost of the goods was Rs.
60000; but the invoice price was made out at cost plus 25%. Ram Manohar incurred Rs. 5000 as expenses
Bijoy received the goods and immediately sent a draft for Rs. 30000. He also spent Rs. 6000 as expenses. He
sold 3/4th of the goods for Rs. 70000. Bijoy is entitled to a commission of 6%. He is entitled to re-imbursement
of expenses. Along with Account sales, the necessary remittance was enclosed. A customer who had
purchased goods on credit to the extent of Rs. 5000 could not pay.
Give important accounts in the books of Ram Manahan
Consignment Account
Particulars Amount Particulars Amount
To Goods sent on consignment 75000 By Bijoy(Sales) 70000
To Bank 5000 By Consignment stock 20000
To Bijoy (expense) 6000 By Goods sent on consignment 15000
To Bijoy (commission) 4200 (75000 – 60000)
To Bijoy (Bad debts) 5000
To Stock reserve 3750
To Profit and loss account 6050
105000 105000
Bijoy Account
Particulars Amount Particulars Amount
To Consignment 70000 By Bank 30000
By consignment (expense) 6000
By Consignment (Com) 4200
By Consignment (Bad debts) 5000
By Bank 24800
70000 70000
Goods sent on Consignment Account
Particulars Amount Particulars Amount
To consignment 15000 By consignment 75000
To trading account 60000
75000 75000
Valuation of consignment stock
Invoice price of the stock (75000 x1/4) 18750
Proportionate exp. of consignor (5000 x1/4) 1250
Value of stock 20000
Distinction between consignment and sales
Basis of distinction Consignment Sales
1. Nature of relationship The relation between the consignor The relation between the seller and
and the consignee is that of principal the buyer is that of creditor and
and agent debtor
2. Ownership and possession of Only the possession and not the Bothe the possession and ownership
goods ownership is transferred to the are transferred
consignee
3. Proforma Invoice Consignor prepares only a Proforma Seller prepares a sales invoice
invoice
4. Risk of goods Risk remains with the consignor, Risk remains with the buyer, because
because ownership is not transferred ownership is transferred
5. Return of goods Goods can be returned at any time , if Return of goods is not possible unless
they are unsold otherwise agreed
6. Account sales Account sales has to be submitted by No account sales is to be submitted by
the consignee to consignor The buyer to the seller
periodically
7. Unsold goods Unsold goods with the consignee will
be treated as stock of the consignor The seller has nothing to do with the
unsold goods
8. Expenses All the expenses are borne by the Expenses incurred after the sale of
consignor goods are borne by the buyer
9. Repossession of goods Goods sent to the consignee cannot Goods once sold cannot be called back
be called back at any time
10. Profit / Loss Profit or loss on sale belongs to the After sale is complete, profit or loss
consignor belongs to buyer
11. Ordering of goods The goods are sent without any order There must be an order from the
from the consignee buyer to buy goods
12. Chief consideration The chief consideration of The chief consideration of a sale is
consignment is commission profit