Consignment Accounting Exercises and Problems


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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