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Consignment Accounting Exercises and  Problems:

Learning Objectives:

  1. Prepare journal entries, consignment account 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 the consignment at 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.
  $ $
Consignment to Lahore account 10,000  
     To Goods sent on consignment account   10,000
   
Consignment to 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
   
Shahid Ali 12,000  
     To Consignment to Lahore account   12,000
   
Consignment to Lahore account 680  
     To Shahid Ali   680
   
Bank 5320  
     To Shahid Ali   5320
   
Consignment to Lahore account 1,070  
     To Profit and loss account   1,070
   
Goods sent on consignment account 10,000  
     To Trading account   10,000
   

LEDGER ACCOUNTS

Consignment to Lahore Account

  $   $

Dr.

  

Cr.

  
To Goods sent on consignment 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 on Consignment Account

  $   $

Dr.

  

Cr.

  
To Trading account 10,000 By Consignment to Lahore 10,000
       
 
 

Bank Account

Dr.

  

Cr.

  
  $   $
To Bills receivable 5,925 By Consignment to Lahore 250
To Shahid Ali 5,320    
 
 

Shahid Ali (Consignee)

Dr.

  

Cr.

  
  $   $
To Consignment to Lahore 12,000 By Bills receivable 6,000
    By Consignment to 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.

  
  $   $
    By Consignment to Lahore 1,070
       
 
 

Trading Account

Dr.

  

Cr.

  
  $   $
    By Goods sent on consignment 10,000
       
     

Consignee's Books

JOURNAL ENTRIES

  Dr. Cr.
  $ $
Riaz sugar factory 6,000  
     To Bills payable 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

Dr.

  

Cr.

  
  $   $
To Profit and loss account 600 By Riaz sugar factory 600
       
 
 

Bills Payable 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 an invoice cost 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: Prepare consignment account 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

Consignment to Karachi Account

  $   $
To Goods sent on consignment 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 on consignment** 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
 
 

Bashir

  $   $
To Consignment account 1,76,000 By Bank 50,000
    By Consignment account  
              Duty 14,400  
              Expenses 2,000  
     
16,400
    By Consignment account-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 100 sewing machines on consignment to Malik of city B. The cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives the consignment and 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

Consignment to city B 16,000  
     To Goods sent on consignment account   16,000
(100 machines at $160 each sent on consignment)    
   
Consignment to city B 400  
     To Cash account   400
(Expenses incurred on consignment)    
   
Bills receivable account 8,000  
     To Malik   8,000
(Malik's acceptance received)    
   
Malik 14,000  
     To Consignment to city B account   14,000
(80 machine's sold Malik at $175 each)    
   
Consignment to city B account 750  
     To Malik   750
(Expenses incurred)    
   
Consignment to city B account 1,050  
     To Malik   1,050
(Commission at 6% plus 1-1/2 on sales)    
   
Consignment to city B account 600  
     To Stock reserve account   600
(Difference in closing stock adjusted)    
   
Stock on consignment account 3,400  
     To Consignment to city B account   3,400
(Value of 20 machines in the hands of Malik)    
   
Goods sent on consignment account 3,000  
     To Consignment to city B account   3,000
(The difference in the invoice value and cost, $30 per machine adjusted)    
   
Goods sent on consignment account 13,000  
     To Trading account   13,000
(Transfer of goods sent on consignment to trading account)    
   
Consignment to city B account 1,600  
     To Profit and loss account   1,600
(Transfer of profit on consignment)    

Consignment to City B Account

  $   $
To Goods sent on consignment 16,000 By Malik - Sales proceed 14,000
To Cash - Expenses 400 By Stock on consignment 3,400
To Malik - Expenses:   By Goods sent on consignment 3,000
        Freight 600      
        Rent 50      
        Insurance 100      
 
750    
To Malik - Commission 1,050    
To Consignment stock 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
    By Consignment to city B account  
               Expenses 750
               Commission 1,050
    By Balance c/d 4,200
 
 
  14,000   14,000
 
 

You may also be interested in other articles from "accounting for consignment" chapter:

  1. Definition and Explanation of Consignment
  2. Distinction/Difference Between Consignment and Sale
  3. Definitions of Important Terms Used in Consignment Accounting
  4. Consignment Accounting Journal Entries
  5. Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
  6. Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
  7. Invoicing Goods Higher Than Cost in Consignment
  8. Consignment Accounting Problems, Exercises and Questions
  9. Consignment Accounting Questions and Answers

 

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Financial Accounting
 
■ Bookkeeping and Bookkeeping Terms
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■ Journal
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■ Subdivision of Journal
■ Final Accounts
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■ Single Entry System/Accounting From Incomplete Records
■ Accounting For Non-Trading Concerns
■ Accounting for Consignment / Consignment Accounts
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