DIRECT RECORDING IN THE LEDGER

 11.2 DIRECT RECORDING IN THE LEDGER

You know for each consignment the consignor prepares the consignment Account, the Goods Sent on Consignment Account and the Consignee's Account in his books, whereas the consignee prepares the Consignor's Account and the Commission Account in his books. In Unit 10 you learnt that all transactions relating to consignment are first recorded in the Journal and then posted into the above mentioned ledger accounts. Sometimes, you may be, asked to prepare the ledger accounts directly i,e, without passing any journal entries. You should therefore learn how to prepare these accounts directly. You should debit the Consignment Account. With the cost of goads consigned, expenses incurred by the consignor, expenses incurred by the consignee, and the consignee's commission; and credit it with sales (both cash and credit) and the goods returned by the consignee The Consignee's Account will be debited with the sales made by him and Credited with his expenses, commission and the remittances made to the consignor. The Consignor's Account in the books of consignee is just the reverse of Consignee's Account in Consignor's books. It is debited with the expenses incurred by the consignee, the commission due to him and the remittances made to the consignor on account; and credited with the total amount of sales. Look at Illustration I and see how the consignment transactions are recorded directly in the ledger accounts.

Illustration 1

Gursharan & Co. of Delhi consigned on January 1, 1998, 50 cases of glassware costing Rs. 40.000 to Singh & Co. of Calcutta for sale on commission @ 5% on gross sale proceeds. Gursharan & Co. paid Rs. 500 for freight and carriage and Rs.600 for packing.

Singh & Co. took the delivery of goods on January 5, 1988 and paid Rs. 300 for clearing charges, Rs. 200 for carriage, Rs. 50 for miscellaneous expenses, and Rs, 100 for godown rent.

They sold 15 cases @ Rs. 1,000each, 25 cases @ Rs. 1,200 each and 10 cases @ Rs. 1,100 each.

On April 5, 1988 Singh & Co. sent a bank 'draft for Rs. 15,000 to Gursharan & Co. on account, On April 10, 1988 Singh & Co. forwarded an Account Sales together with a bill of exchange for the balance due.

Prepare the necessary ledger accounts in the books of both the parties.

Books of Gursharan & Co.
Consignment to Singh & Co's Account

11.3 UNSOLD STOCK

In Illustration 1 you saw that Singh & Co, sold all the goods consigned to them. But, in practice, you will find that at the time of submitting the account sale, a part of goods consigned will still be unsold arid will be lying with tlie c,onsignee. In order to calculate tlie true profit or loss on consigninent the unsold stock should be valued and accounted for. Let us therefore learn first how the unsold stock is valued.

11.3.1 Valuation of Unsold Stock 

You know that valuation of unsold stock is usually done at dost. Cost in case of consignment stock would include the cost at which the goods are consigned plus the proportionate non recurring expenses i.e., all those expenses incurred till the goods rwch the godown of the consignee. You should note that all non-recurring expenses, whether illcurred by the consignor or by the consignees, are to be taken into account. In the absence of details of expenditure incurred by the consignee, all expenses incurred by him are to be taken as recurring expenses and thus are not to bc considered in tlie calculation of closing stock. In other words, while valuing the closing stock we add such proportionate expenses to the cost .price.that have been incurred upto the time the goods are brought to the plnce of the consignee. Any other expenses paid by the consignor or the consignee after this point will not be considered, as these expenses do not add to the value of the goods. Such expenses are godown rent, selling expenses, carriage outwards, godown insurance, discount etc. 

Following expenses are usually added for calculation of closing stock.

Carriage and Freight . Loading Charges 

Customs Duty 

Clearing Charges 

Dock dues 

Carriage paid upto the godown 

Unloading Charges

Following are the expenses which are uot conqid$red for calcula'lion of closing stock

Godow  Rent
Discount
Bad Debts
Insurance of the goods in the godow
Selling and Distribution Expenses.

You will notice that all expenses incurred by the, consignor are considered for valuation of I 1 the closing stock. The problem arises only in case ‘of consignee's expenses. The consignee's expenses which are to be included in the value of closing stock are those expenses which are incurred till the good reach the godown of the consigned. All other expenses incurred thereafter are ignored for purposes of closing stock valuation.

Look at Illustration 2 and see how the unsold stock is valued.

Illustration 2

A sent goods worth Rs. 10,000 to B and Paid Rs. 1,200 for packing and Rs. 800 for insurance B took the delivery of the good  and paid Rs. 2,000 for freight, Rs. 400 for cartage and unloading, Rs. 600 for godawn rent,  Rs.400 400 as selling expense? And Rs. ROO for insurance, B sold three fourth of the goods for Rs, 1,800. Calculate the value of closing stock.

11.3.2 Accounting Treatment of Unsold Stock

Since the value of unsold stock affects the profit or loss on any consignment, its valuation! And recording in the books of consignor is very important, lt is shown on the credit side of Consignment Account for which the Following journal entry will be passed.

Consignment Stock A/C
To Consignment A/C
(Being the value of closing stock)

The Consignee, however, will not pass any entry for the closing stock. It is because he is not the owner of the goods and does not pass any entry even when he receives or returns the goods, Look at Illustration 3 and see how the closing stock is valued and treated in the books of account.

Illustration 3

On January 1, 1988 Universal Sports, Delhi consigned 180 cases of sports goods costing: Rs: 360 each lo Gemini Sports, Bombay. They paid Rs. 360 for insurance and Rs. 1.800 for freight. Gemini sports are entitled to a commission of 10% on gross sales.

Gemini Sports received the consignment on January 15 and sent a 60 days bill for 17s '10,000 Lo Universal Sports. The bill was discounted for Rs. 9,900. On opening the cases the consignee found 10 cases of wrong description and returned them, paying return freight of Rs 400.

Gemini Sports sold 120 cases @ Rs 600 each for cash and 20 cases @ Rs. 700 each on credit. Gemin1 Sports spent Rs. 720 on clearing charges and Rs. 600 on carriage outwards. They incurred bad debts amounting to Rs 400. The accounts were settled on June 30, and the balance remitted by cheque. Show necessary ledger accounts in the books of both the parties. 

Solution

Books of Universal Sports, Delhi

Consignment Account

Check Your Progress-A

1 Tick the correct alternative

    a) 'The cost of consignment stick is the cost at which the goods are consigned plus I

        i)  The non-recurring expenses'

        ii) Proportionate non-recurring, expenses

        iii) All the recurring expenses

    b) Non-recurring expenses are the expenses incurred’

        i) After the goods reach the godown of the consignee j

        ii) In transportation

        iii) Till the goods reach the godown of the consignee 1 I

    c) Consignment stock is shown on

        i) Credit side of Consignee's Account

        ii) Credit side of Consignment Account.

        iii) Debit side of Consignor's Account

    d) Goods returned by the consignee should be charged to the Consignment Account at:

        i) Cost price

        ii) Market price

        iii) Cost or market price whichever is lower

    e) Expense incurred in forwarding the defective goods should be debited to

        i) Profit and Loss Account

        ii) Consignment Account

        iii) Goods Sent on Consignment Account 

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