Consignment Accounting Exercises And

Consignment Accounting Exercises and Problems: Learning Objectives:

1. 2.

Prepare journal entries,consignmentaccount and consignee account in the books of consignor. 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 theconsignmentat 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

Consignmentto Lahore account To Goods sent onconsignmentaccount Consignmentto Lahore account To Bank account

Dr.

Cr.

$ 10,000

$ 10,000

250 250

Bills receivable account To Shahid Ali

6,000

Bank account Discount account To Bills receivable account

5,925 75

Shahid Ali ToConsignmentto Lahore account

6,000

6,000 12,000 12,000

Consignmentto Lahore account To Shahid Ali

680 680

Bank To Shahid Ali

5320

Consignmentto Lahore account To Profit and loss account

1,070

5320

1,070

Goods sent onconsignmentaccount ToTradingaccount

10,000 10,000

LEDGER ACCOUNTS Consignmentto Lahore Account $ To To To To

Dr. Goods sent onconsignment Bank expenses Shahid Ali Profit and loss account

10,000 250 680 1,070

$ Cr. By Shahid Ali - Sales Proceeds

12,000

12,000

12,000

Goods Sent onConsignmentAccount $

$

Dr. ToTradingaccount

Cr. 10,000

ByConsignmentto Lahore

10,000

Bank Account Dr. To Bills receivable To Shahid Ali

Cr. $ 5,925 5,320

ByConsignmentto Lahore

Shahid Ali (Consignee) Dr.

Cr.

$ 250

ToConsignmentto Lahore

$ 12,000

By Bills receivable ByConsignmentto Lahore By Bank account

12,000

$ 6,000 680 5,320 12,000

Bills receivable Account Dr.

Cr. $ 6,000

To Shahid Ali

$ 5,925 75

By Bank By Discount

6,000

6,000

Discount Account Dr.

Cr. $ 75

To Bills receivable

By Profit and loss account

$ 75

Profit and Loss Account Dr.

Cr. $ ByConsignmentto Lahore

$ 1,070

TradingAccount Dr.

Cr. $ By Goods sent onconsignment

Consignee's Books JOURNAL ENTRIES

$ 10,000

Riaz sugar factory To Billspayable account

Dr.

Cr.

$ 6,000

$ 6,000

Riaz sugar factory To Bank account

80 80

Bank account To Riaz sugar factory

12,000 12,000

Riaz sugar factory To Commission account

600 600

Riaz sugar factory To Bank account

5,320

Bills payable To Bank account

6,000

5,320

6,000 LEDGER ACCOUNTS Riaz Sugar Factory (Consignor)

Dr. To To To To

Bills payable Bank - expenses Commission Bank - Balance

Cr. $ 12,000 80 600 5,320

By Bank account

12,000

$ 12,000

12,000

Bank Account Dr. To Riaz sugar factory

Cr. $ 12,000

By Riaz sugar factory By Riaz sugar factory By Bills payable

Commission Account Dr.

Cr.

$ 80 5,320 6,000

$ 600

To Profit and loss account

By Riaz sugar factory

$ 600

BillsPayable Account Dr.

Cr. $ 6,000

To Bank

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 aninvoicecost 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:Prepareconsignmentaccount 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 Consignmentto Karachi Account $ To Goods sent onconsignment

$

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 onconsignment**

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 $ ToConsignmentaccount

1,76,000

$ By Bank

50,000

By Consignmentaccount Duty

14,400

Expenses

2,000 16,400

By Consignmentaccount-commission By Balance c/d

8,800 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 (2)

16,150

**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 100sewing machinesonconsignmentto Malik of city B. The cost of each machine is $130 but theinvoice priceis at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives theconsignmentand 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 Consignmentto city B To Goods sent onconsignmentaccount

16,000 16,000

(100 machines at $160 each sent onconsignment)

Consignmentto city B

400

To Cash account

400

(Expenses incurred onconsignment)

Bills receivable account To Malik

8,000 8,000

(Malik's acceptance received)

Malik ToConsignmentto city B account

14,000 14,000

(80 machine's sold Malik at $175 each)

Consignmentto city B account To Malik

750 750

(Expenses incurred)

Consignmentto city B account To Malik

1,050 1,050

(Commission at 6% plus 1-1/2 on sales)

Consignmentto city B account To Stock reserve account

600 600

(Difference in closing stock adjusted)

Stock onconsignmentaccount ToConsignmentto city B account

3,400 3,400

(Value of 20 machines in the hands of Malik)

Goods sent onconsignmentaccount ToConsignmentto city B account

3,000 3,000

(The difference in the invoicevalue and cost, $30 per machine adjusted)

Goods sent onconsignmentaccount ToTradingaccount

13,000 13,000

(Transfer of goods sent onconsignmentto tradingaccount)

Consignmentto city B account To Profit and loss account

1,600 1,600

(Transfer of profit onconsignment)

Consignmentto City B Account $ To Goods sent onconsignment To Cash - Expenses

16,000 400

To Malik - Expenses: Freight Rent

$ By Malik - Sales proceed By Stock onconsignment By Goods sent onconsignment

600 50

14,000 3,400 3,000

Insurance

100 750

To Malik - Commission

1,050

ToConsignmentstock 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 Commission By Balance c/d 14,000

750 1,050 4,200 14,000