LET US SUM UP

 

11.5 LET US SUM UP

Sometimes the consignee is not able to sell all goods consigned to him. He is left with some .unsold stock, the cost of which must be shown on the credit side of the Consignment Account before calculating the profit on consignment. The cost of the unsold stock shall include the proportionate amount of non-recurring expenses.

When goods are consigned, it is possible that some goods are lost in transit or destroyed a while it is lying in the consignee's godown. Such losses may occur either due to the inherent nature of goods or due to some accident. The first is called normal loss and the second abnormal loss.

The normal loss is not shown anywhere in the books of account. It simply inflates the cost per unit of the goods consigned and, therefore, affects the revaluation of closing stock and the profit. But the abnormal loss requires special treatment in the books of account of the consignor. The cost of such loss is worked out in the same manner as the cost of unsold stock and credited to the Consignment Account. Any amount received from the insurance company must be subtracted from the abnormal loss before it is transferred to the Profit and Loss Account.

11.6 KEY WORDS

Normal Loss: Loss caused in the ordinary course of things due to evaporation, leakage, breaking the bulk into pieces etc.

Abnormal Loss: Loss caused on account of storm, fire. Accident theft, etc.

11.7 SOME USEFUL BOOKS

Maheshwari S.N. 1986. Introduction to Accounting, Vikas Publishing House: New Delhi. (Chapter 1 Section 11) Patil, V.A, and J.S. Korlahalli, 1986. Principles and Practice of Accounting, R. Chand & Co:, New Delhi. (Chapter 2) William Pickles. 1962 Accountancy, E.L.B.S. and Pitman, London. (Chapter 17) Gupta R.L. and M. Radhaswamy. 1986. Advanced Accountancy Sultan Chand & Sons, New Delhi (Chapter 15)

11.8 ANSWERS TO CHECK YOUR PROGRESS

A a) ii b) iii c) ii d) i e) ii

B 1 i) external forces ii) normal iii) closing stock iv) credited v) credited vi) Profit & Loss    

11.9 TERMINAL OUESTIONS/EXERCISES

Questions.

1 List the expenses taken into account while valuing the unsold stock.

2 What is the difference between normal loss and abnormal loss? Give examples.

3 What procedurals followed for valuation of closing stock when the abnormal and normal losses occur simultaneously?

Exercises

1-Kabir of Jhansi consigned to Moses of Cochin 400 chairs on April 10, 1986. The cost of each chair was Rs. 250. The consignor paid Rs. 2,000 for cartage, freight etc., oh April 12, 1986, and drew a bill on the consignees an advance against the consignment at 3 months for Rs. 60,000. Later, it was discounted at their bank at 5%. The consignee sold all the goods on July 1, 1986 and submitted an Account Sales showing that the goods realized Rs. 1, 20,000. He incurred Rs. 1,000 on coinage inwards and Rs. 550 on selling and other expenses. He was allowed to take 5% commission on the total sales. You are required td show ledger accounts for the above transactions in the books of the consignor and the consignee. (Answer: Profit Rs. 10,450)

2-X of Bangalore consigned 100 bags of cement for sale to his agent Y. Cost price of each bag is Rs. 120. 'X' immediately drew a 4 months bill for Rs. 5,090 on the latter and discounted it with bank at 6% per annum. 'X' paid Rs. 800 on packing and Rs, 250 for carriage. 'Y' spent Rs. 300 as selling expenses. The consignee returned 5 bags. He realized 20 bags at Rs. 130 per bag and 50 bags on credit at Rs. 140 per bag and took the balance in his own stock at Rs. 135 per bag.

Consignee is entitled to get commission of 3% and 2% Del credre commission on credit sales. 'Y' recovered all money from debtors except Rs. 500. Prepare the necessary ledger accounts in the books of both parties. (Answer: Loss Rs. 204)

3-Grover Enterprises, Delhi sent 100 bicycles to Khan Enterprises, Patna. Cost of each cycle was Rs. 640. Grover incurred Rs. 1,500 for freight and Rs. 1,100 for insurance in transit. Khan paid Rs. 650 for cartage and 2,000 towards godown rent and selling expenses. 20 bicycles remained unsold at the end. The remaining bicycles realized Rs. 800 per cycle. Calculate the value of unsold stock. (Answer: Cost of unsold stock Rs. 13,450)

4-Kiran Bros. on January 1, 1986 consigned sports materials costing Rs. 10,000 to their agent Kabir Agency. Kiran Bros. paid Rs. 200 for freight and Rs. 100 for insurance and other charges. Consignee received the delivery by paying Rs. 150 for non-recurring expenses on January 15, 1986. He sent an account sale on February 20, 1986 showing that 20% of the stock realized Rs. 3,200 and 30% of the stock was sold on credit for Rs. 3,600. One customer from whom Rs. 500 was due became insolvent and only 25% of the debt could be recovered. Consignee is entitled to a commission of 5% on sales. Pass journal entries and prepare the necessary ledger accounts. (Answer: Profit Rs. 860: Stock Rs. 5,225)

5-Srikanth consigned 2,500 kg. Of coconut oil costing Rs. 50,000. Expenses incurred were Rs. 1,400. Consignee spent Rs. 2,000 on unloading and cartage. 100 kg. of oil was lost due to natural deterioration and 1,500 kg. Were sold. Calculate the cost of stock at the end? (Answer: Cost of Stock Rs. 20,025)

6- Kapur of Lucknow consigned 200 bags of rice, each costing Rs. 300 to Jain Traders of Bombay on April 1,1987. 'The consignor paid Rs. 2,000 towards freight and insurance. 30 bags were damaged in transit. The consignee received on May 31, 1987 Rs. 2,000 on account of the damaged bags from the Insurance Company. On May 31, 1987 the consignee reported that 140 bags were sold at Rs. 375 per bag. The consignee incurred Rs. 2,000 for godown rent and selling expenses. The consignee is allowed 10% commission on the sale proceeds. You are required to prepare the ledger accounts in the books of Mr. Kapoor assuming that Jain Traders remit the balance by bank draft on May 31, 1987.(Answer : Profit Rs. 1,850 : Accidental Loss Rs. 9,300)

7- Dinesh of Delhi consigned 200 sewing machines costing Rs. 150 each to Chander of Calcutta. He paid Rs. 2,800 on insurance and received an advance of Rs. 20,000 from Chander. 30 machines were damaged in transit. Chander took the delivery of the remaining goods and paid Rs. 1,700 for unloading the consignment. He sold 50 machines @ Rs. 270 each for cash and 100 machines @ Rs. 300 each on credit. Chander could not realize Rs. 2,000 from his debtors. Chander recovered Rs. 1,500 from the insurance company. He sold damaged machines for Rs. 2,300.

Chander is entitled to an ordinary commission @ 5% and 3% Del credre commission. The accounts were settled and balance remitted by bank draft. Show the necessary ledger accounts in the books of Dinesh.

Hint:

i) Sale of damaged stock as well as the amount recovered from insurance company Will be credited to Abnormal Loss Account and debited to Chander's Account.

ii) Commission on sale proceeds of damaged goods @ 5% will be debited to Abnormal Loss Account and credited to Chander's Account.

Answer: Abnormal Loss Rs. 4,920; Value of Unsold Stock Rs. 3,480; Profit Rs. 13,920; Balance due from Chander Rs. 22,005)

8 -Sohna Vanaspati, Faridabad consigned 10,000 kg. of ghee to Krishna Dealers of Delhi at Rs. 16 per kg. The consignor pa~d Rs. 950 as carriage, Rs. 250 as freight and Rs. 400 as insurance in transit. 1,000 kg, of ghee was accidentally destroyed for which an amount of Rs. 8,000 was recovered from the insurance company in full settlement.

Krishna Dealers reported that 8,000 kg. of ghee was sold @ Rs. 20 per kg. They spent Rs. 500 on salesmen salary and Rs. 200 on godown rent. The consignee is entitled to a commission of 5% on sales. Krishna dealers reported a shortage of 40 kg. due to leakage. Prepare necessary ledger accounts in the books of both the parties.

(Answer: Profit Rs. 22,443; Abnormal Loss Rs. 16,160; Closing stock Rs. 15,583)

Note:

These questions will help you to understand the unit better. Try to write answers I for them. But do not submit your answers to the University. These are for your practice only