# 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

### 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

 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