LET US SUM LIP

10.4 LET US SUM LIP

Consignment is a kind of arrangement where the manufacturer or a trader sends goods to his agents for sale to small traders or consumers. The agents sell goods on behalf of the manufacturer or the trader. The person who sends the goods is called the consignor and the person to whom the goods are sent is called the consignee. The relationship between the consignor and the consignee is that of a principal and an agent.

While sending goods to the consignee, the consignor sends a proforma invoice which gives full details about the goods consigned. After the goods have been sold, the consignee prepares an Accounts Sales, giving full details about the number of units sold, the price at which they have been sold, and the expenses and commission due to him.

The consignee is entitled to commission for the services rendered to the consignor. The commission can be ordinary or special commission.

In order to work out the profit or loss on each consignment and the amount due from each consignee, the consignor prepares Consignment Account, Goods Sent on Consignment Account and Consignee's Personal Account in his ledger for each consignment. The consignee, on the other hand, mainly prepares two accounts in his books viz., Commission Account and Consignor's Personal Account.

This helps him to know the amount due to the consignor and his income from commissions.

10.5 KEY WORDS

Account Sales: A statement submitted by the consignee to the consignor giving account of the sale proceeds, details of various expenses incurred, and the commission due to him.

Consignee: A person to whom the goods are sent on consignment basis.

Consignment: Goods sent by a producer or a trader to his agents for sale on their behalf and at their risk

Consignor: A person who sends the goods to his agents on consignment basis. Del Credre Commission: Commission paid by the consignor to the consignee for bearing the risk of bad debts arising out of credit sales made by him on behalf of the consignor.

Over-riding Commission: It is the commission over and above the normal commission paid to the consignee for extra services provided by him or excess price realized by him.

Proforma Invoice: A statemmt prepared by the consignor and sent to the consignee giving details of goods consigned.

10.7 ANSWERS TO CHECK YOUR PROGRESS

10.8 TERMINAL QUESTPONSIEXERCISES

Questions

1 "Consignment is the same thing as sale". Discuss.

2 What is an 'account sales'? How do you prepare it? State how it is useful to the consignor?

3 Distinguish between

a) Non-recurring and Recurring Expenses

b) Ordinary Commission and Del Credre Commission

C) Account Sales and invoice

Exercises:

1 'X' & Co. Bombay consigned 250 Weston T.V. sets to 'Y' & Co. Banglore. Each T.V. set costs Rs. 7,500. Y & Co. received the consignment and sold the sets as follows:

160 T.V. sets at Rs. 9,000 each on cash basis and

90 T.V. sets at Rs. 10,500 each on credit basis

The consignor allowed 5% normal commission and 2-112% del credre commission to the consignee on the sales effected by him. Compute total commission due to Y & Co.

(Answer: Normal Commission Rs. 1, 19,250; Del Credre Commission Rs. 59,625)

2 Harish & Co. Lucknow, consigned goods valued at Us. 1, 25,000 to Dinesh Enterprises. Ahmedabad. Harish paid Rs. 1,800 towards freight, insurance and carriage, Dinesh received the consignment and accepted a bill for Rs. 50,000. He paid Rs. 1,500 for fright, Rs. 2,200 for carriage and godown rent, and Rs. 2,500 as salesman's salaries. The consignee is allowed to take 7% commission on the total sales. Consignee sold all goods for Rs. 1, 68,000. Balance owed by Dinesh was remitted by a bank draft. Prepare an Account Sales.

(Answer: Balance due from the consignee: Rs. 1, 00,040)

3 On January 1, 1987 Gopal Enterprises, Hyderabad, sent 50 radio sets to Rakesh & Co., Bombay invoiced at Rs. 1,200 per set and incurred the following expenses in relation to the consignment: dock dues Rs.2,000; customs duty Rs.1,000 and freight Rs.2,3QO. Rakes11 & Co. remitted Rs.20,000 by bank draft on January 5, 1987. It sold all the sets at Rs 1,500 each by January 31, 1987 and incurred Rs. 2,500 as godown rent. Commission is allowed at 5% on sales, The consignee sent the Account sale and enclosed a bank draft for the balance.

Journalise the above transaction in the books of the Consignor and the Consignee. Also prepare necessary ledger accounts and calculate the profit on consignment.

(Answer: Profit on consignment Rs. 3,450; Balance due from the consignee Rs. 48,750)

4 Krishna of Bombay consigned goods costing Rs. 2,50,000 to Kajriwal of Jodhpur. Krishna paid Rs. 1,500 for marriage and Rs. 5,250'for freight and insurance. Kajriwal is entitled to a commission of 5% on all sales in addition to 2% del credre commission. Krishna draws on Kajriwal a bill for Rs. 80,000, payable two months after date, which the latter accepts. The bill is discounted with the bank for Rs. 79,000. An Account sale is received from Kajriwal stating that the goods had been sold for Rs. 3,1Q,000 (Rs, 1;60,000 on credit and Rs. 1,50,000 for cash), while expenses incurred by him were: unloading Rs. 1,250; gadown rent Rs. 2,500 insurance Rs. 500. A bank draft was enclosed for the balance due. Kajriwal could not recover Rs. 2,500 from a customer to whom goods were sold on credit.

Pass Journal entries in the books of the consignor and the consignee and prepare necessary ledger accounts.

Hints: -

i) Discount will not be debited to consignment Account

ii) Bad Debts will be brome by the Consignee and debited to his commission Account.

iii) Del Credre commission is computed on total sales.

(Answer: Profit on consignment Rs. 27,300; Amount due from consignee Rs. 2,04,050.)