Consignment and joint venture question and solution

Que.4 On 1st January, 2013 2013 Anuj A nuj of Ahmedabad consigned 1,000 1,000 units of FM Radios to Biren of Baroda Baroda at an i nvoice price of Rs. 360. 360. Invoice price was calculated after adding 20% 20% profit on cost price. Anuj i ncurred the foll owing expenses expenses at at the time of di spatching the goods: Freight

Rs. 3,000 3,000

Insurance on goods sent

Rs. 12,000 12,000

Biren is e ntitled ntitle d to get general commission-10% commission-10% and Del credere commission-5%. On 31st March, March, 2013 2013 Biren sent an Account Sales and a Bank draft for the payment due from him. According According to the Account Sales: Sales: 1)

50 FM Radios were totally damaged in transit and the insurance company admitted the claim clai m of Rs. 10,800. 10,800.

2)

500 500 FM Radios were sold for cash, each at Rs. 420. 420.

3) 4)

200 200 FM Radios were sold on credit to Chetan, each at Rs. 450. 450. Expenses incurred by Biren: Clearing charges – Rs. 2,375, Godown Rent – Rs. 5,100, 5,100, and Se lling ll ing and Packing expenses expenses  – Rs. 1,800. 1,800.

5)

Chetan was declared insolvent, insol vent, and Biren was able to recover only 90% 90% o f the amount due from him.

Anuj , and Anuj’s (consignor’s) Account Prepare Baroda Consignment Account in the books of Anuj, in the books books of Biren (consignee ) . Show necessary workings and and calculations as a part of your answer. Que.2 Anuj and Biren commenced commenced business in join joi nt venture on the condition that they will share the profit or loss l oss in the ratio ratio of 2:1. 2:1. From the followi fol lowing ng informati inf ormation on prepare Joint venture account account in books of Biren and Anuj’s Anuj’s Account Account in books of Biren B iren.. Anuj Purchased goods worth Rs. 93,000 93,000 and suppli ed it to Biren for joint venture. Anuj paid Rs. 1,800 1,800 for carriage carriage on goods suppl ied. Biren set aside goods worth Rs. 60,000 60,000 from his personal stock for the purpose of sale unde r  joint  join t venture. He He paid paid Rs. 4,200 4,200 for advertisi advertisi ng expenses. Anuj drew a bil l on Biren of Rs. 30,00 30,000, 0, which was duly accepted accepted by Biren. Biren sold sol d goods worth Rs. 45,000 45,000 for Rs. 63,00 63,000. 0. Moreover some more goods worth Rs. 90,000 90,000 were sold at a profit of 30% on cost price. Remaining Remaini ng goods were left unsold. This stock was rd

taken over by Biren at a price arrived at after adding 1/3 profit to the origi nal cost price. In the end, Biren Bi ren sent a bank draft for the bal ance, to Anuj.

Suggested answers Que. 4 In the books of Anuj ( Consignor) Baroda Consignment A/c Debit (Rs.)

Particulars To Goods sent on consignment A/c (Invoice price 1000 units x 360 Rs.)

360,000

To Cash/bank A/c -Consignor's expenses Freight – 3,000 Insurance premium – 12,000

15,000

Particulars

Credit (Rs.)

By Goods sent on consignment A/c (adjustment -profit (1000 x 60 Rs)

60,000

By Insurance Co. A/c (Claim admitted by ins. Co.)

10,800

By Gen. P & L A/c (WN # 2)

4,950

(abnormal loss amount) To Biren's Account- Consginee's Exps By Biren's A/c - Sales

Clearing charges – 2,375 Godown Rent – 5,100 Packing expenses – 1,800

9,275

Cash – 500 Radi os x 420 Rs.= 210,000 Credit – 200 x 450 Rs. = 90,000

3,00,000

To Biren's Account - Consginee's Comm General – 300,000 x 10% = 30,000 Del credere – 90,000 x 5% = 4,500

34,500 By Consignment Stock A/c (WN #1)

To Consignment Stock reserve A/c (diff.)

94,375

15,000

Adjustment /profit (250 FM Radios x 60)

To General P & L Account

36,350 470,125

470,125

Biren's (Consignee) Account Particulars

Debit (Rs.)

Particulars

Credit (Rs.)

To Consignment A/c - Sales Cash – 500 Radi os x 420 Rs.= 210,000 Credit – 200 x 450 Rs. = 90,000

By Consignment A/c -Expenses 3,00,000 By Consignment A/c -Commission

By Bank A/c (bank draft recd.)

3,00,000

9,275 34,500

2,56,225 3,00,000

Goods sent on Consignment Account Particulars

Debit (Rs.)

To Consignment Account -diff.

60,000

To Trading Account

Credit (Rs.)

Particulars By Consignment Account (IP)

3,60,000

3,00,000 3,60,000

3,60,000

In the books of ' Biren ' (Consignee) Anuj's (Consignor) Account Particulars

Debit (Rs.)

Credit (Rs.)

Particulars By Cash/bank A/c - sales

To cash / bank A/c - Expenses By Commission Income A/c – commission By Bank A/c (bank draft sent to consignor)

9,275 by Consignment Debtors A/c 34,500

210,000 90,000

2,56,225 3,00,000

3,00,000

Working Note # 1 Valuation of closing stock (1000 sent -700 sold - 50 abnormal loss = 250 unsold) Original cost 250 units x 300 Rs.

75,000

Add: Consignor's prop. exps. (1000-15000:250-?) (only Non-recurring expenses to be considered Add: Consignee's prop. exps.

3,750 625

(950-2375:250-?)

[Godown rent (recurring exps.) and packing exps.(selling exps.) not to be considered] Cost Price of Closing Stock 

79,375

Add: profi t / Diff. between invoice and cost (130 units x 400) Invoice price of closi ng stock 

15,000 94,375

Journal Entry

Consignment stock A/c dr (invoice price) To Consignment A/c

94,375

Consignment A/c dr. (Profit) To Stock reserve A/c

15,000

94,375

15,000

Working Note # 2 Cost of abnormal loss Original cost 50 units x 300 Rs. Add: Consignor's prop. exps. (1000-15000 : 50-?) (only Non-recurring expenses to be considered Add: Consignee ’s Proportionate exps. (as abnormal loss occurs in transit, consignee has not incurred anything on the lost goods. Cost Price of abnormal loss Less: Claim admitted by Insurance co.

15,000 750

------15,750 10,800

 Abnormal Loss

4,950

Que.2 In the books of Biren

Joint venture A/c Particulars To Anuj’s A/c - goods purchased

To Anuj’s A/c - Expense To Purchase A/c To Cash/bank A/c – Advertise Expense Profit (2:1) To Anuj’s A/c – his share 30,000 To P & L A/c – Biren’s Share- 15,000

Amount 93,000

Particulars By Cash/bank A/c -Sales By Cash/bank A/c -Sales (90,000 + 30%)

Amount 63,000 1,17,000

1,800 60,000

By Purchase A/c rd (18,000+1/3 of 18,000) (93000+60000-45000-90000)

24,000

4,200

45,000 204000

204000

In the books of Biren

Anuj's A/c Particulars To Bills payable A/c

Amount 30,000

Particulars Joint venture A/c – goods purchased By joint venture A/c - exp

To bank A/c - bank drat

Amount 93,000 1,800

94,800 By Joint venture A/c - profit

124,800

30,000

124,800