Chapter 5: Consignment Business
Q1. What is consignment business?
A consignment business depends on the dealers or agents for selling goods across the countries
or globe. In a consignment business, the owner (consignor) sends the goods to the
agent/dealer/consignee, and the consignee sells the goods in exchange for commission. The
entire profit or loss is enjoyed/ suffered by the owner, and also all risks remain with the owner.
Q2. Types of commission:
Ordinary commission: this commission is usually paid on all sales.
Del credere commission: paid for taking the risk of collecting dues from customers.
Special commission: paid on excess of normal selling price, and usually to test the extent of
market price that the customers are willing to pay in a new market.
Q3. Sales account vs. account sales:
Sales account is a ledger account where all types of sales transactions are posted at the end of a
month or on a real-time basis. Accounts sales, on the other hand, is a statement prepared by the
agent/dealer/ consignee describing the quantity and amount of sales, expenses charged, unsold
stock on hand and balance due to the company.
Q4. Recurring vs. non-recurring expense:
Recurring expenses are incurred repeatedly or regularly such as salaries, wages, advertising,
selling expense, godown/storeroom/warehouse rent, insurance expense incurred by
agent/consignee.
Non-recurring expenses are one-time expenses incurred by consignor or consignee such as
freight, insurance during transit incurred by consignor, handling, loading and unloading etc.
these expenses are included in the computation of abnormal loss and unsold/ending/closing
stock.
Q5. Consignment vs. sales:
Basis of difference Sales Consignment
Ownership Transfer from seller to buyer Remains with owner, only
goods transfer to agent but not
ownership
Risk Transfer to buyer with goods Remains with owners
Right of return No Yes if remains unsold
Relationship Debtor and creditor Principal and agent
Q6. Anlima Mills Ltd. at Dhaka sends regular consignments of yarn to Eastern Traders of
Khulna who are agents for selling the yarn at the risk of the Mill and are entitled to a commission
of Tk 2 per kg of yarn sold. This includes del-credere commission.
Following further information is furnished to you:
Stock of yarn with agents at the beginning 30,000 kg costing Tk 600,000; total quantity of yarn
consigned 140,000 kg at Tk 30 per kg; total quantity of yarn sold 160,000 kg at Tk 60 per kg;
total remittances by the agents Tk 3,000,000; railway freight and insurance paid by the
consignor Tk 400,000 and Tk 200,000 respectively. Of the sales made, Eastern Traders could not
collect Tk 70,000 due to the insolvency of a customer. Eastern traders paid unloading expenses
Tk 60,000; advertising expense Tk 80,000; and storeroom rent Tk 84,000. 2,000 kg of yarn were
damaged in transit by railway for which the agents recovered Tk 30,000. Of the damaged yarn,
2,000 kg were sold in the second hand market @ Tk. 10 per kg.
Requirements:
Prepare the following ledger accounts in the books of Anlima Mills Ltd:
i) Consignment account
ii) Abnormal loss account
iii) Eastern Traders account
Solution:
Requirement i) In the books of (owner) Anlima Mills Ltd
Consignment to Eastern Traders at Khulna Account
Particulars Tk Particulars Tk
To, Consignment stock (Beginning- 600,000 By, Abnormal loss A/C (2,000 kg 68,571
30,000 kg) WN-1)
Goods sent on consignment account Eastern Traders A/C: (160,000 kg 9,600,000
(140,000 kg @ Tk 30 per kg) 4,200,000 @ Tk 60 per kg)
Bank A/C: Consignment stock A/C ( 8,000, 277,764
Railway freight 400,000 Ending) (WN-2)
Insurance 200,000
600,000
Eastern Traders A/C:
Unloading expense 60,000
Advertising expense 80,000
Storeroom rent 84,000
Commission:
(160,000 @ Tk 2)= 320,000
544,000
Profit on consignment 4,002,335
9,946,335 9,946,335
Working Note-1:
Calculation of abnormal loss = [{(Cost of goods sent + Non-recurring expense incurred up to
accident)/Unit sent} × Abnormal or damaged unit]
= [{(4,200,000+600,000)/140,000} ×2,000]
=68,571
Working Note-2:
Calculation of unsold/ending stock = [{(Cost of goods sent + All non-recurring expense incurred
by both consignor and consignee-Cost of abnormal loss)/ (Unit sent-normal loss unit-abnormal
loss unit)} × Unsold unit]
= [{(4,200,000+600,000+60,000-68,571)/ (140,000-2,000)} × (30,000+140,000-160,000-2,000)]
=(4791429/138,000) × 8,000
= Tk 277,764
Requirement ii) Abnormal loss A/C
Particulars Tk Particulars Tk
To, Consignment A/C 68,571 By, Eastern Traders (Or Bank 30,000
A/C if the compensation received
by consignor)
To, Eastern Traders (Commission 4,000 By, Eastern Traders (Sales 2,000 20,000
2,000 kg @ Tk 2 per kg) kg @ Tk 10 per kg)
By, Loss transferred to profit & 22,571
loss A/C
72,571 72,571
Requirement iii) Eastern Traders Account
Particulars Tk Particulars Tk
To, Consignment A/C (Sales) 9,600,000 By, Consignment A/C:
Unloading expense 60,000
Advertising expense 80,000
Storeroom rent 84,000
Commission:
(160,000 @ Tk 2)= 320,000
544,000
To, Abnormal loss A/C 50,000 By, Abnormal loss A/C 4,000
By, Bank A/C (Remittance from 3,000,000
agent)
By, Balanced C/D (Bank A/C if
the balance is paid by the
agent/consignee through bank
draft or check) 6,102,000
9,650,000 9,650,000
Q7. ABC Ltd of Dhaka consigned 90 pieces of refrigerator costing Tk 20,000 each to Mr. Y of
Khulna on 01.06.2019. The goods were to be sold at 30% above cost. Any deficiency in selling
price was to be borne by Mr. Y. Mr. Y was, however, entitled to a special commission @ 25% of
any surplus price realized. Mr. Y was further entitled to an ordinary commission of 5% and del
credere commission of 1% on all sales. ABC incurred the following expenses: loading charges
Tk 12,000, insurance premium Tk 10,000, and railway freight Tk 6,000. The cases were received
by Mr. Y on 15.06.2019. The account sales received from Mr. Y on 30.06.2019 revealed the
following:
30 refrigerators sold @ Tk 28,000, 10 refrigerators sold @Tk 25,000, and 20 refrigerators @Tk
29,000. 3 refrigerators were damaged during transit. The insurance company paid Tk 40,000 to
ABC as compensation. Mr. Y incurred unloading charges Tk 30,000; salesman salary Tk 9,000
and warehouse rent Tk 32,000. Mr. Y enclosed a bank draft for the balance due.
Requirements: Prepare the following ledger accounts in the books of ABC:
i) Consignment to Khulna Account
ii) Abnormal Loss Account
iii) Mr. Y Account
Solution:
Requirement i) In the books of (owner) ABC Ltd
Consignment to Mr. Y at Khulna Account
Particulars Tk Particulars Tk
To, Goods sent on consignment 1,800,000 By, Abnormal loss A/C (WN-1) 60,933
account (90 Refrigerators @ Tk
20,000)
Bank A/C: Y A/C (Sales):[(30×28,000)+
Loading charges 12,000 (10×25,000)+ (20×29,000)]= 1,670,000
Insurance 10,000
Railway freight 6,000
28,000 Consignment stock A/C (Ending) 557,710
(WN-2)
Mr. Y A/C:
Unloading expense 30,000
Salesman salary 9,000
Warehouse rent 32,000
Commission (WN-3) 120,200
191,200
Profit on consignment 269,443
2,288,643 2,288,643
Working Note-1:
Calculation of abnormal loss = [{(Cost of goods sent + Non-recurring expense incurred up to
accident)/Unit sent} × Abnormal or damaged unit]
= [{(1,800,000+28,000)/90} ×3]
=60,933
Working Note-2:
Calculation of unsold/ending stock = [{(Cost of goods sent + All non-recurring expense incurred
by both consignor and consignee-Cost of abnormal loss)/ (Unit sent-normal loss unit-abnormal
loss unit)} × Unsold unit]
= [{(1,800,000+28,000+30,000-60,933)/ (90-3)} × (90-3-60)]
=1797067/87*27
= Tk 557,710
Working Note-3:
Ordinary commission= 1,670,000×5%= 83,500
Del-credre commission =1,670,000×1%= 16,700
Special commission= 30 (28,000-26,000) ×25%=15,000
20(29,000-26,000) ×25%= 15,000
Total special commission 30,000
Total commission received = 83,500+16,700+30,000 =130,200
Less: Deficiency in selling price 10 (25,000-26,000) = 10,000
Net commission received--------------------------------=120,200
Minimum selling price= 20,000+ (30% of 20,000)= 26,000
Requirement ii) Abnormal loss A/C
Particulars Tk Particulars Tk
To, Consignment A/C 60,933 By, Bank A/C 40,000
By, Loss transferred to profit & 20,933
loss A/C
60,933 60,933
Requirement iii) Mr. Y Account
Particulars Tk Particulars Tk
To, Consignment A/C (Sales) 1,670,000 By, Consignment A/C:
Unloading expense 30,000
Salesman salary 9,000
Warehouse rent 32,000
Commission (WN-3) 120,200
191,200
By, Bank A/C 1,478,800
1,670,000 1,670,000
Home Work
Q8. WALTON Ltd of Dhaka consigned 80 pieces of refrigerator costing Tk 20,000 each to Mr. Y of
Khulna on 01.06.2017. The goods were to be sold at 20% above cost. Any deficiency in selling price
was to be borne by Mr. Y. Mr. Y was, however, entitled to a special commission @ 25% of any
surplus price realized. Mr. Y was further entitled to an ordinary commission of 5% and del credere
commission of 2% on all sales. WALTON incurred the following expenses: loading charges Tk
12,000, insurance premium Tk 10,000, and railway freight Tk 6,000. The cases were received by Mr.
Y on 15.06.2017. The account sales received from Mr. Y on 30.06.2016 revealed the following:
30 refrigerators sold @ Tk 27,000, 10 refrigerators sold @Tk 23,500, and 20 refrigerators @Tk
29,000. 2 refrigerators were damaged during transit. The insurance company paid Tk 30,000 to
WALTON as compensation. Mr. Y incurred unloading charges Tk 3,000; salesman salary Tk 8,000
and warehouse rent Tk 3,000. Mr. Y enclosed a bank draft for the balance due.
Requirements: Prepare the following ledger accounts in the books of WALTON:
i) Consignment to Khulna Account
ii) Mr. Y Account
iii) Abnormal Loss Account
