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Consignment

This document provides an overview of consignment accounting. It defines key terms like consignor, consignee and consignment. It describes the accounting treatment in the books of the consignor and consignee. There are two main methods for accounting for consignments - cost price method and invoice price method. Unsold consignment stock is valued at the lower of cost or market price in the consignor's balance sheet.

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WELCOME TO MY PRESENTATION TOPIC ON CONSIGNMENT ACCOUNT SUBMITTED TO Prof - ISHAN ARORA SUBMITTED BY RAJU SINGH B.COM 2ND SEM. GURU NANAK COLLAGE,PHAGWARA
Fundamental of Accounting
CONTENTS 1. Meaning 2. Importance's 3. Name of party 4. Type of Commission 5. Consignment Expenses 6. Diff. b/w consignment and sale 7. Consignment Loss 8. Accounting treatment 9. Method of Accounting 10. Conclusion Consignment
Meaning  The producers cannot reach everywhere to sell their produce. They reach their consumers l through the wholesalers or retailers. They also hire other channels for distribution of goods. The goods are also made available at different places through the agents and agencies. Generally it is seen that a producer or a wholesaler appoints agents at different markets or in different parts of the country to sell goods on their behalf against commission. One such arrangement is consignment.
EXAMPLE x A B C D M H CONSIGNER CONSIGNEE
Importance of Consignment  Consignment helps producers to bring economies of large-scale production with the increased sale. It facilitates high sale as a result of which large scale of production is required and this leads to economies of scale as large-scale production results to fall in cost per unit.  It is more profitable for those manufacturers who are having their branches at different places in domestic country or in other countries. As in such situations, the local agents of that place have much knowledge of that market as compared to the manufacturers. So he facilitates more profitable sale by approaching local customers.  If prospective buyer is not easily approachable by a producer because of long distance between them the agent plays an important role to contact them on regular basis and to ensure prompt delivery of goods to them out of his stock of consigned goods by consignor.
NAME OF PARTY CONSIGNOR CONSIGNEE
TYPE OF COMMISSION Simple commission Dell credere commission Over riding commission
1) Simple commission :-It is that commission which is paid to an total selling the goods of consignor. It is calculated on total sales (cash + credit). 2) Dell commission:- It is that commission which is given to consignee for guarantee credit sale (full collection from debtors). It is calculated on total sale unless otherwise stated in the question. This commission given for taking the guarantee of credit sale. 3) Over riding commission :-It is that commission which is given for selling the goods at a price higher than the normal selling price is known as ‘surplus price’. It is calculated on surplus price at a given rate .
Consignment expenses  Consignment expenses are those expenses that are to be incurred by consignor and/or consignee for the goods sent on consignment. They are of two types:- 1. Non recurring or direct expense:-Are those exp. Which are incurred for a receiving the goods .They are paid only once when goods are received like caries ,freight ,un-loading and loading. 2. Recurring or indirect expense:- Are those exp. Which are paid by consignee for selling the goods. They are in recurring nature like godown/shop rent advertisement insurance premium etc.
Basis Consignment Sale 1. Name of parties 1) Consignor 2) consignee 1) Seller 2) buyer 2. Relationship principle and agent debtor and creditor 3.Return of goods Consignee has the right the goods in case he is not in possession to sell them. In case of sale goods one for can not be return to the seller. 4.After delivery expense In consignment after delivery expenses are born by consignor those paid by consignee In case of sale after delivery expense are born by buyer 5.Return or reward In case of consignment the whole profit belong to consignor. Consignee gets commission only In case of sale the whole profit belong to seller it is not shared buyer 6.Transfer of risk in Case of consignment risk is not transferred any loss or damages to the goods will be born by consignor In case of sale risk is transfer from seller to buyer any loss or damages to the goods will be born by buyer.
Consignment loss  The goods sent by consignor to consignee may suffer two type loss:- 1. Normal Loss 2. Abnormal Loss 1.Normal Loss :-It is that loss which arise due to nature of goods or types of goods. This loss cannot be fully check or no fully control. FOR EXAMPLE:- loss of coal due to loading and unloading.
2.Abnormal Loss:-Its that loss whoch aries due to negligence or carelessness. This loss can be fully check or control. This loss can divided into two parts :- a) loss in transit b)loss at consignee place a)Loss in transit:-It is that types of abnormal loss which arises when the goods are on the way from consignor to consignee FOR EXAMPLE:-goods may be damages in transit due to accidents.
b) Loss at consignee place:-It is that types of abnormal loss which accurse (take place) after reaching the goods to consignee for example :- goods may be destroyed by fire
Accounting Treatment Books of consignor Books of consignee 1. Consignment a/c 2. Consignee a/c 3. Goods sent on consignment a/c 1. Consignor a/c 2. Commission a/c
Method of Accounting Generally there are two different methods of preparing accounts relating to the consignment of goods. These are (1) Cost Price Method and (2) Invoice Price Method. These two methods are described as under:- 1. Cost Price Under this method, entries relating to consignment in the books of consignor are passed with the actual cost of goods and amount spent or expenses incurred by him.
 Invoice price :-when consignor sent to the goods to consignee at invoice price (not at cost price) invoice price is normal selling price which is cost price + profit. consignment at invoice price (I.P) cost price + profit = I.P (100 + 50) =150
Valuation of stock  It is not always possible that total stock of consigned goods is sold out by consignee. Some stock can remain unsold with the consignee. These goods that remain unsold with the consignee are known as consignment stock. Their valuation is required to record such consignment stock in the balance sheet of consignor. This stock that is left with the consignee is valued at cost price or market price whichever is less.
Valuation of stock
Consignment