CONSIGNMENT ACCOUNTS
MEANING & DEFINITION
Businessmen and enterprise use a number of ways to sell their goods and services to the
customers. For this purpose, they also utilise the services of few agencies called intermediaries
such alternative is “Consignment.”
Consignment refers to the process of sending goods by one person to another person
for the purpose of sale on commission basis at the risk of the sender. It refers to the dispatch of
goods by one person to another person for the purpose of warehousing and ultimately leading
to sales.
The Institute of Charted Accountant of India defines the consignment account as relating to
accounts dealing with a situation where one person or firm sends goods to another person or
firm send goods to another person or firm on the basis that the goods will be sold on behalf of
and at the risk of the former.
FEATURES:
1. The legal relationship between the consignor and consignee is that of a principal and
an agent respectively and there is no seller and buyer relationship between the consignor
and consignee.
2. Goods sent on consignment cannot be treated as sales at the time of consignment. They
are treated as sales when goods sold by the consignee.
3. Agreement between consignor and consignee include a clause about the advance
payment to be made by the consignee to the consignor. Either before or after the goods
sent.
4. Consignor send the goods to the consignee at cost price or at invoice price.
5. The consignor has to meet all the expenses incurred on the goods sent to the consignee.
And the expenses spent by the consignee will reimburse based on the agreement.
6. The consignee does not become debtor of the consignor until the sale of whole or a
portion of the consignment.
7. Consignee is liable to remit the sales proceeds to consignor either after the completion
of sale of goods or periodically in accordance with the agreement.
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
8. When consignee sells the goods on credit basis, there is every possibility of bad debts.
The bad debts normally beared by the consignor. If consignee receive del creder
commission then consignee has to bear.
9. The commission to which consignee is eligible based on the total value of sales.
10. The consignee is not responsible for any loss or destructions of goods.
DIFFERENCES BETWEEN SALES AND CONSIGNMENT:
Sl. Basis of Sales Consignment
NO difference
1 Ownership of Ownership of goods is Goods remain the property of the
goods transferred to the buyer along consignor until they are sold by
with the transfer of physical the consignee. The ownership
possession of goods on the sale vest with the consignor.
of goods
2 Goods Return Once sold goods cannot be Unsold the goods are the
returned to the seller by the property of the consignor and can
buyer except when they are be returned by the consignee.
defective
3 Relationship The relationship between the The relationship between the
between parties buyer and seller is that of debtor parties are principal and agent
and creditor
4 Loss of goods In case of loss of goods after In case of consignment, when
their delivery to the buyer it is
goods are lost it is the consignor
the buyer who bear the loss who bears the loss but not the
consignee.
5 Expenses Expenses beared by the buyer All the expenses beared by the
after the purchase consignor only
6 Risk Risk associated with goods is Risk associated with the goods
transferred from seller to the remains with the consignor only
buyer
7 Requirement of No account sale is required to Account sale will be submitted
Account sales be submitted by the buyer to the by the consignee to the
seller consignor.
8 Commission No commission paid by the Commission is paid by the
seller consignor to the consignee for
selling the goods and services.
TERMS:
Consignor: The person who sends the goods on consignment is called the Principal or
consignor.
Consignee: The person to whom the goods are consigned or sent is called agent or
Consignee.
Consignment: Consignment is a business arrangement through which the consignor
send the goods to the consignee for sale.
Consignment Agreement: It is an loyalty written communication between the
consignor and consignee which define the terms and conditions of the consignment.
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
Proforma Invoice: When the goods are sent to the consignee, the consignor, along
with the goods send a statement giving description of the goods consigned such as the
weight/quantity price and other relevant details. Such statement is known as proforma
invoice. Proforma invoice is the price at which the consignee is require to sell the goods
sent by the consignor. There are two alternative prices in case of consignment
transactions. One actual cost price and second higher than the cost price called Invoice
price.
Advance against consignment: Usually the agreement between consignor and
consignee includes clause relating to the advance to be paid by the consignee to the
consignor. This advance is paid either before sending the goods or after sending the
goods but before the sale of goods. This is the form of guarantee by the consignee to
the consignor that when sales are made, he will make the payment for the revenue
earned after deducting the advance money paid, expenses incurred by him and his
commission for the goods sold.
Expenses incurred by the consignor and consignee: Both consignor and consignee
incur the some expenses on the goods consigned. These expenses comprise of both the
recurring and non recurring expenses. However they should be considered for the
purpose of both ascertaining the value of closing or unsold stock and to determine the
amount of profit earned by the consignor during the accounting period. As the base for
further analysis.
Recurring expenses
1. Discount on the bills of exchange discounted
2. Bad debts
3. Expenses on goods returned by the consignee
Consignor
Non Reccurring Expenses:
1. Packing, Loading, freight and carriage
expenses
2. Octroi, Dockdues, forward charges
3. Insurance, Customs duty
Expenses incurred
by Recurring Expenses:
1. Godown rent, Insurance, Storage
2. Establishment expenses, Advertisement,
Salesman salary
3. Expenses incurred on damaged and returned
goods
Consignee
Non recurring expenses:
1. Import or customs duty
2. Dockdues, unloading charges, Railway
charges, Insurance
3. Octroi, cartage or carriage
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
The term recurring implies again and again. That means, the expenses incurred by the
consignor again and again fall into the category of recurring expenses. These expenses are
normally indirect in nature. Most of the items of recurring expenses are incurred after the goods
consigned reach the place of consignee.
The expenses which are incurred for the whole consignment and expenses which are direct in
nature fall into the category of non-recurring expenses. These expenses are incurred from the
time when goods are dispatched to the consignee till the consignee makes the goods ready for
sale.
Consignee’s Commission:
The consignee sells goods consigned on behalf of consignor. For this effort the
consignor rewards the consignee by paying commission at an agreed rate. This commission is
usually calculated at an agreed percentage on the gross sales proceeds.
Ordinary Commission
Del credere commission
Special commission
1. Ordinary Commission: As the consignee sell the goods consigned to him by the
consignor, he is paid some remuneration by the consignor. It is because of the reason
that the consignee sells the goods on behalf of the consignee. This remuneration is in
the form of commission at an agreed percentage on the gross sales revenue which
includes both the cash and credit sales revenue. It may be noted here that the gross sales
revenue represents the total revenue earned from the sale of goods and services before
deducting the expenses incurred by the consignee.
2. Del credere commission: The goods are sold by the consignee to the customers on
both cash basis and credit basis. When the goods are sold on credit basis, there is every
possibility that a part of the amount may not be realised by the consignee from the
consignment debtor. Since the consignee sell the goods as an agent of the consignor
and not on his own account. It is the consignor who runs the risk of bad debts arising
from the credit sales. The consignor requires the consignee to render an additional
service of collecting the amount from the customer and to remit the same to the
consignor. Further there is any bad debts then consignee has to pay to the consignor.
For taking this additional responsibility of collecting the dues and or assuming risk of
bad debts, the consignor pays the consignee some extra commission. This extra
commission is called as Del creder commission.
3. Special commission: With the objective of encouraging the consignee to sell the goods
consigned at a higher price than the invoice price and to encourage the consignee to
promote the sale of a new product. The consignor pay an additional commission to the
consignee. This is additional to the ordinary commission. As this commission over and
above the ordinary commission it is called as special or over riding commission.
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
Account Sales: The agreement between the consignor and the consignee specifies the
periodically submission of accounts by the consignee about the sales, expenses,
commission etc. Usually a statement of account showing the sales made by the
consignee, gross sales revenue earned, expenses incurred, commission to which the
consignee is eligible, advance money paid by the consignee to the consignor after the
sale of all the goods sent to him by the consignor or at the end of the accounting period
of the consignor whichever is earlier.
ILLUSTRATIONS:
Calculation of Commission:
1. Mr. X sends the goods on consignment for sale worth Rs. 75,000 to Mr. Y. He sold
them for 90,000 As per the terms of the contract, he is entitled for an ordinary
commission @5% on total sales. Compute the amount of commission.
2. Mr. Arun sent the goods on consignment worth Rs. 1,50,000 to Mr. Kumar. He sold
some goods for Rs. 100,000 on cash basis and remaining goods for Rs. 75,000 on credit
basis. As per the terms of the contract, he is entitled for an ordinary commission @
7.5% Compute the amount of commission.
3. Mr. Murali sends 3,000 units on consignment basis costing Rs.750 each to Mr. Krishna.
Mr. Krishna sold 1500 units @ Rs. 950 per unit on cash basis and 1250 units @ Rs.
1000 on credit basis. The consignee is entitled to a ordinary commission @ 15% and
Del credere commission @ 5% on sales. Compute the amount of total commission.
4. Mr. Suhas sends the goods costing Rs. 5,00,000 to mr. Suresh on consignment basis.
Mr. Suresh sold entire goods for Rs. 750000 Calculate the amount of commission
payable to Mr. Suresh if rdinary commission @ 5% and Over riding commission @
2.5%.
5. Mr. Hari, a consignor sent the goods on consignment to Mr. Ram, a consignee costing
50,00,000 (10,000 units @ Rs. 500 per unit) Mr. Ram sold goods on cash and credit
basis for Rs. 40,00,000 (5000 units @ Rs. 800 per unit) and 30,00,000 (4000 units @
Rs. 750 per unit) respectively. Compute the amount of commission payable to Mr. Ram
a) Commission is payable @ 10% on total sales
b) Commission payable at Rs. 50 per unit sold.
For Exercise:
1. Mr. Santhosh consigned goods costing Rs. 50,000 to Mr. Shashi on consignment basis.
The entire stock was sold out by Mr. Shashi for Rs. 65000 Mr. Shashi is entitled to
receive 5% ordinary commission and 2.5% over riding commission. Compute the total
amount of commission payable to Mr. Shashi.
2. Mr. Avinash send the goods on consignment costing Rs. 5,50,000 to Mr. Akash. Mr.
Akash sold the same for Rs. 7,50,000 As per the consignment terms Mr. Akash is
entitled to receive 6% ordinary commission, 3% del credere commission and 1.5% over
riding commission. Compute the total amount of commission is payable to Mr. Akash.
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
TREATMENT OF LOSSES IN THE BOOKS OF CONSIGNOR:
NORMAL LOSS: When goods are consigned from one place to another place due to
unavoidable reasons a loss in quantity may be suffered and such losses are called as Normal
Loss. For example evaporation of petrol due to atmosphere, leakage of oil, loss in weight ue to
loading and unloading goods etc.
Treatment: While valuing the stock at the end, this loss is deducted from total quantity of
goods consigned but the value is not deducted.
ABNORMAL LOSS: Loss suffered due to fire, accidents, floods etc is known as abnormal
loss. When the goods are consigned from one place to another during transit or at the consignee
place, the goods may be destroyed due to any of the reasons stated above and the loss is treated
as abnormal loss.
Treatment: we need to calculate the value of abnormal loss separately. Should be considered
the value and quantity at the time of calculation of value of closing stock.
Calculation of Value of Abnormal Loss:
= Value of goods in transit X Abnormal loss in unit
Units of goods in transit
FORMAT FOR CALCULATION OF CLOSING STOCK:
PARTICULARS AMOUNT UNITS
Goods sent on consignment
Add: Non recurring expenses of Consignor
Value of goods in Transit
Less: Normal loss in transit
Abnormal loss in transit
Cost of the goods received by consignee
Add: Non recurring expenses of consignee
Less: Normal loss in godown
Abnormal loss in godown
Good Available for sales
Less: Sales
Closing stock
Calculation of Value of Closing Stock:
= Value of goods available for sales X Closing stock unit
Goods available for sale in units
ILLUSTRATIONS ON CALCULATION OF STOCK, NORMAL LOSS AND
ABNORMAL LOSS
1. Lokesh of Mysore sends 2000 kgs of oil at Rs. 120 to Nagaraj at Hubli. The consignor
spends Rs. 11000 on cartage, insurance and freight. On the way 100 kgs of oil was lost
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
due to leakage and evaporation. Nataraj took delivery of the consignment and spent
Rs. 9000 on octroi and carriage. His selling expenses were Rs. 7000 on 1700 kgs of oil
sold. Determine the value of stock.
2. Bhaskar consigns 1200 units of a product costing Rs. 300 each to Chandan. He incurs
Rs. 6000 for carriage expenses, 60 units of the product are stolen in transit. Chandan
receives the remaining goods and sells 1020 units at Rs. 460 per unit. Expenses incurred
by him amounted to Rs. 4,260, the entire amount being non recurring. He reports a
normal loss of 24 units.
Find out the value of abnormal loss and closing stock.
3. Mr. Nandish of Mysore consigned 500 Kgs of oil at Rs. 30 per kg to Mr. Satish. He
paid Rs. 4000 as carriage and freight charges.
Mr. Satish also paid Rs. 1000 towards unloading charges Rs. 2000 as godown rent and
Rs. 1500 as selling expenses.
Normal loss due to the leakage is 40 kgs during transit
Satish sold 320 kgs of oil @ Rs. 55 per kg and 19 kgs of oil @ Rs. 60 per kg
Calculate the value of unsold stock
METHODS OF CONSIGNMENT ACCOUNTING
I. Cost price method
II. Invoice price method
ACCOUNTING TREATEMENT OF CONSIGNMENT TRANSACTIONS
IN THE BOOK OF CONSIGNOR
1. Consignment Account: For the purpose of ascertaining the profit or loss on each
consignment, the consignor maintains a separate account called Consignment account.
Dr Cr
Particulars Amount Particulars Amount
To Consignment Stock By Goods sent on
Account (Opening Stock) Consignment
(Goods returned by
consignee)
To Goods sent on By Consignee’s A/c (Gross
Consignment sales revenue)
To Cash/Bank A/c By consignment Stock A/c
(Expenses incurred by (Closing stock with
consignor) consignee)
To Consignee A/c By Profit and loss A/c
(Expenses incurred by
consignee)
To Consignee A/c
(Commission payable to
consignee)
To Profit and loss A/c
XXXX XXXX
2. Consignee A/c: This is necessary to ascertain the amount due from each consignee.
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
Dr Cr
Particulars Amount Particulars Amount
To Consignment A/c By Consignment A/c
(Gross sales revenue) (Expenses incurred by
consignee)
By Consignment A/c
(Commission to consignee)
By cash or bank or Bills
Receivable (Advance money)
By Cash /Bank (Balance)
XXXX XXXX
3. Goods sent on consignment account: This is another important account maintained
by the consignor in his books.
Goods Sent on Consignment A/c
Dr Cr
Particulars Amount Particulars Amount
To Consignment A/c By Consignment A/c
To Trading A/c
XXX XXX
ILLUSTRATIONS ON COST PRICE METHOD:
1. Uma sent 200 cycles costing Rs. 1,00,000 to Jyothi to be sold at a commission of 10%.
Uma paid for insurance and freight Rs. 3600. The account sales shows that she sold 160
cycles at Rs. 1,400 each she paid for octroi and carriage Rs. 800 and Rs. 600
respectively. She also spent Rs. 400 for advertisement. Prepare consignment account
2. Electronic Co. Ltd consigned 100 calculator cost Rs. 500 each to Ramesh of Bangalore.
They paid Rs. 500 for railway charges, Rs. 250 for packing charges and Rs. 750 for
insurance. The proforma invoice of consignment was Rs. 80000 The remuneration was
fixed at 10% on sales. Ramesh has accepted a bill for Rs. 20,000 as an advance.
10 calculators were totally damaged in transit and the consignor received Rs.
5000 from insurance company. On receipt of consignment Ramesh paid Rs. 1800 for
octroi. Ramesh sold 80 calculators for Rs. 800 each for cash an paid Rs. 3200 as selling
expenses. Ramesh settled his account.
Prepare Consignment A/c, Consignee A/c and Abnormal loss A/c
3. Mr. Sunil Consign 400 packets of Tea, Each packet containing 100 pouches. The cost
price of each pouch was 300. He spent Rs. 5 per package as cartage, Insurance and
forwarding expenses. 10 Packets were lost on the way and Insurance company had
given a claim of Rs. 2700. The consignee took the delivery of rest of the goods and
recurring expenses 1250 and non recurring expenses 780. He sold 370 packets at Rs. 5
per pouch. His commission is 3%. Prepare Consignment A/c, Consignee A/c and
Abnormal loss A/c
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
ILLUSTRATIONS ON INVOICE PRICE METHOD:
1. Rahul consignees 100 cycles to Sachin at Proforma Invoice price of Rs. 600 per cycle.
The cost of each cycle was Rs. 500. He paid Rs. 1500 on packing and forwarding and
received an advance of Rs. 20,000 from Sachin Incurred Rs. 500 as unloading and
cartage and selling expenses Rs. 1250. Sachin is entitled to a commission at 5% on
gross sales. He sold 90 cycles for 59,000 and remitted the amount due to Rahul by draft.
Prepare Consignment A/c and Consignee A/c
2. Soni company Ltd consigned 100 TV sets to Prakash Traders. The cost of each TV is
Rs. 19,200 but Invoice price was made of Rs. 20,000 each. Consignor paid for freight
Rs. 1,12,000 and Insurace Rs. 48,000. 10 TV sets were totally damaged and Insurance
company paid 1,28,000
Prakash traders sold 10 TV sets @ Rs. 24,800. They paid Rs. 40,000 towards
showroom expenses and Rs. 56000 for godown Insurance. Commission fixed @ 5%.
Final settlement made through the draft
3. Prepare the necessary accounts in the books of Shri Ganganna from Particulars
Consignor Shri. Ganganna
Consignee Sri Rajanna
Goods consigned at Invoice price Rs. 3,00,000 (2000 units)
Loading on goods sent 20% on cost price
Consignor expenses Freight and Insurance Rs. 16000
Goods lost in transit 200 units
Claim from Insurance company Rs. 25000
Consignee expenses Selling charges Rs. 10,500
Goods sold by consignee Rs. 3,00,000 (1500 units)
Commission to consignee 10% on sales
For Exercise
4. From the following prepare necessary ledger accounts in the books of Akash Co Ltd
Goods sent on consignment 600 Radios
Invoice price of each Radio Rs. 1500
Cost price of each ratio Rs. 1,200
Akasha company paid for freight and Rs. 18,000
Insurance
Damaged during the transit 25 Radios
Insurance company compensation Rs. 30,000
Consignee paid carriage and octroi Rs. 7500
Consignee paid sales expenses Rs. 10,000
Sold by consignee 500 Radios @ Rs. 1800
Consignee commission 5% on sales
5. Mr. Shankar of hubli consigned goods to Ravikumar of Raichur at a invoice price of
Rs. 20,000 which is 25% above the cost. He paid Rs. 1000 toward freight and Rs. 600
towards Insurance.
Ravikumar took the delivery of the gods and paid unloading charges of Rs. 200 His
other expenses were Rs. 100 godown rent and Rs. 200 selling expenses. He sold 3/4th
of the goods for Rs. 23,000 He was entitled to an ordinary commission of 5% and del
credere commission @ 2% on sales, He sent draft for the balance to Shankar.
Prepare the necessary accounts in the book of Mr. Shankar
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.
CONSIGNMENT ACCOUNTS
6. Arun of Kustagi consigned goods to Balram of Bellary costing Rs. 60,000 and Invoiced
them at a price so as to show a profit of 25% on Invoice price. He paid freight and
Insurance Rs. 3000
Balaram took the goods paying Rs. 1000 for octroi and carriage. He accepted one month
bill for Rs. 30,000 as an advance. Arun sold 3/5th of goods for Rs. 60,000 and 1/5th of
the goods were returned as they were unstable. Balaram reported that he was confied of
selling the remaining goods. Arun paid Rs. 400 freight on the returned goods. Balaram
incurred 3,400 as selling expenses. The consignee was entitled for a commission of 3%
and delecredere commission of 2% on sales. One customer failed to pay the due amount
to Balaram. Prepare necessary ledger accounts in the books of Mr. Arun.
7. Chetan of chenai dispatched the goods to Raghu of Mysore 500 chairs at an invoice
price of Rs. 300 each, which was 25% above the cost price. He paid Rs. 200 for packing
and Rs. 300 for carriage and Insurance. Chetan draw 3 months bills for Rs. 50,000
which was accepted by Raghu and Chetan discounted the same for Rs. 49800.
Raghu received the consignment and incurred Rs. 100 for unloading and
carriage. Rs. 500 as selling expenses and Rs. 1000 as salesman salary. Raghu returned
50 chairs and sold 200 chairs at Rs. 330 each on cash and 200 chairs @ Rs. 350 each
on credit. Raghu sent draft for the amount after deducting all his expenses and
commission @ 10% on sales and Dele credere commission @ 3% on credit sales.
Market value of chair is Rs. 250
All the necessary due was collected from debtors except Rs. 3000 from the Mr.
Kumar, a debtor . Prepare necessary ledger accounts in the book of Chetan.
8. Amco Batteries Ltd Bangalore consigned 1500 batteries costing 5000 each to the Manju
Electricals of Mulbaga. The consignor paid Rs. 75000 towards freight charges and
Insurance Rs. 30,000 During transit he found that 10 batteries were damaged and
insurance company paid 45,000 compensation. Manju electricals received the balanced
goods and paid unloading charges Rs. 14,900 They accepted bill drawn for Rs.
20,00,000 as advance. Manju Electrical sold 800 batteries for cash Rs. 6500 and 450
batteries on credit Rs. 7000 They spent 42,000 for godown rent, Rs. 6500 for
advertisement and Rs. 30,000 as salesman salary. The consignee entitled to get an
ordinary commission at 5% on sales and Del credere commission @2% on credit sales.
Manju Electricals remit the balance due to the consignor by draft.
Prepare necessary accounts in the book of consignor
MEGHA BHOOTE, ASSISTANT PROFESSOR, DEPT OF COMMERCE, GFGC SAGAR.