Accounting for Consignments

Consignee's records

The consignee's transactions usually commence when he or she takes possession (but not ownership) of the goods. The accounts which are supposed to be opened are:

1. Consignor account (consignment inward account)
2. Commission account

Example 1

1000 cases of goods costing Shs. 350,000/= were sent on consignment by ABC Ltd. to XYZ Ltd. on 1st January 2003. At the time ABC Ltd. paid delivery expenses of Shs. 10,000/= and insurance of 2,000/=. On 1st March 2003 an interim account sale was received from XYZ Ltd. showing that 800 cases had been sold for Shs. 6,300/= each and that storage charges of Shs. 18,000/= and selling expenses of Shs. 10,000/= had been deducted from the account. After also deducting the commission on sales which was agreed at 5% of gross sales XYZ Ltd. settled the balance due to ABC Ltd. For goods sold by a bank draft.

You are required to prepare the:

1. Interim account sale
2. Consignment account in the books of ABC Ltd.

Working

$$\text{Cost of each case sent on consignment} = \frac{\text{Total Costs}}{\text{Number of cases}}$$ $$= \frac{350,000}{1,000} = \text{Shs } 350$$ $$\text{Cost of unsold cases} = \text{Number of unsold cases} \times \text{cost of each case}$$ $$= (1,000 - 800) \times 350 = 70,000$$

THE VALUE OF UNSOLD STOCK
Cost of unsold cases		70,000
Add: Delivery expenses $\frac{200}{1,000} \times 10,000$	2,000
Insurance $\frac{200}{1,000} \times 2,000$	400
Storage charges $\frac{200}{1,000} \times 18,000$	3,600
THE VALUE OF UNSOLD STOCK		76,000

$$\text{Amount of sales} = \text{Number of cases sold} \times \text{Price of each case}$$ $$= 800 \times 6,300 = 5,040,000$$ $$\text{Amount of commission} = 5\% \times \text{Sales} = \frac{5}{100} \times 5,040,000 = 252,000$$

i.

ABC LTD INTERIM ACCOUNT SALES
CONSIGNMENT OF GOODS SOLD ON BEHALF OF ABC LTD
Sales: (800 cases at Shs. 6,300 each)		5,040,000
Less: Payment - Storage charges	18,000
Selling expenses	10,000
Commission	252,000	280,000
Amount settled by a bank draft		4,760,000

ii.

ABC LTD CONSIGNMENT TO XYZ LTD A/C
DR				CR
Date	Details	Amount		Date	Details	Amount
1/1/2003	Goods sent on consignment				XYZ Ltd. Sales	5,040,000
	Bank/cash:		350,000
	Delivery Expenses	10,000			Unsold stock c/d	76,000
	Insurance	2,000	12,000
	XYZ Ltd.
	Storage charges	18,000
	Selling expenses	10,000
	Commission	252,000	280,000
	Profit and loss A/C		4,474,000
	Profit on consignment
			5,116,000			5,116,000
	Unsold stock b/d		76,000

Example 2

On 5th March 2004, A. Mwakyusa of Mbeya consigned 1,000 units of goods to C. Omari of Zanzibar, the cost price of which was Shs. 800,000. A. Mwakyusa paid the following expenses:

Carriage	Sh. 200,000
Marine insurance	Sh. 80,000
Freight	Sh. 90,000

On 30th June, 2004 C. Omari sent an account sale to A. Mwakyusa, showing that 600 units were sold for Sh. 1,200,000 and he incurred the following expenses:

Carriage	Sh. 150,000
Import duty	Sh. 45,000
Storage	Sh. 50,000
Commission	Sh. 80,000
Sales expenses	Sh. 5,000

Required

Record the above transactions in the books of the consignor, showing the calculations of the unsold stock.

DR	CONSIGNMENT OUTWARD A/C				CR
Date	Details	Amount	Date	Details	Amount
	General trading	800,000	5/03/04	Consignment	800,000
		800,000			800,000

DR	CONSIGNMENT ACCOUNT				CR
Date	Details	Amount	Date	Details	Amount
5/3/2004	Consignment outward	800,000	30/6/2004	Sales 600 units	1,200,000
	Consignor expenses			Unsold stock	566,000
	Carriage	200,000
	Marine Insurance	80,000
	Freight	90,000
30/6/2004	Consignee's expenses
	Carriage	150,000
	Import duty	45,000
	Storage	50,000
	Commission	80,000
	Sales expenses	5,000
	Profit on consignment	266,000
		1,766,000			1,766,000

DR	CONSIGNEE				CR
Date	Details	Amount	Date	Details	Amount
	Consignment	1,200,000		Carriage	150,000
				Import duty	45,000
				Storage	50,000
				Commission	80,000
				Sales expenses	5,000
				Bank	870,000
		1,200,000			1,200,000

DR	BANK A/C				CR
Date	Details	Amount	Date	Details	Amount
	Consignee	870,000		Carriage	200,000
				Marine Insurance	80,000
				Freight	90,000
				Balance c/d	50,000
		870,000			870,000