ACCOUNTING FOR GOODS SENT AT INVOICE PRICE

12.4   ACCOUNTING FOR GOODS SENT AT INVOICE PRICE

You have learnt about the concept of invoice price, the calculation of loading involved and the adjustment entries to be passed in respect of all items involving loading. As for the recording of transactions for goods consigned at invoice price, the treatment in books of the consignee is not affected at all. Even in the books of the consignor all entries remain the same. But, the amounts with which the four items involving loading (opening stock, goods sent on consignment, goods returned by the consignee, and closing stock) will reflect the invoice price. Then, at the time of working out the profit on consignment, you will have to pass the necessary adjustment entries for the loading involved in respect of all the four item as stated earlier. Look at illustrations 1 to 4 and see how various consignment transactions have been recorded when goods are invoiced at the invoice price.

Illustration 1

Ages Cycle Co., Delhi sent 100 bicycles on January 1,1987 to Murugan Enterprises, Madras. Tile cost of each bicycle was Rs. 500 and it was invoiced at Rs. 600. Ages Cycle Co. incurred Rs. 2,000 on freight and insurance and received Rs. 30,000 as advance from t Murugan' Enterprises. Murugan Enterprises paid Rs. 1,000 as octroi and carriage, Rs. 800 as rent and Rs. 600 as insurance. By June 30, 1987 they had sold 100 bicycles for Rs. 62,500. Murugan Enterprises are entitled to a commission @ 10% on the proforma invoice price and 20% of any surplus realized over and above the invoice price. Murugan Enterprises remitted the amount due from them by a bank draft.

You are required to prepare ledger accounts in the books of both parties

Solution:

Working Notes

3 Since there are no opening and closing stocks and the goods returned, by the consignee, the adjustment for loading has been made only in respect of the goods sent on consignment.

Illustration 2

Raj Traders of Ludhiana consigned LOO computers costing Rs. 20,000 each to Bahadur of Gauhati at 10% above cost. Raj Traders incurred Rs. 500 for packing and other charges on each computer. The consignee received the consignment by  

paying Rs. 1,500 for railway charges, Rs. 1,300 for 'insurance and Rs. 200 for carriage. He submitted an Account Sales as follows:

20 Computers sold at Rs. 25,000, each for cash
SO Computers sold on credit at Rs. 30,000 each
10 taken for his own stock at Rs. 25,000 each

Consignee remitted the balance after deducting his commission at 10% on sales. Assuming that original entries are made at invoice price and consignment stock is valued at invoice price, write necessary accounts in the books of Raj Traders.

Solution:

Illustration 4

Verma Bros, of Bombay consigned goods: it the invoice price of Rs. 1, 00,000 which is 25% above cost price, to their agent Kabir Agency. Ahmedabad. The consignor incurred Rs. 5,000 for carriage and freight and Rs. 3,500 for insurance. Verma Bros. received Rs. 25,000 as advance against the consignment.

The consignee is allowed 3% Commission on all sales. Any goods taken by the consignee himself or lost through consignee's negligence shall he valued at cost plus 12 ½% and on commission would be valued on them. 'The consignee sold 4/5^th of the goods consigned for Rs. 1, 40,000. Goods of the invoice price of Rs. 10,000 were taken by the consignee and the remaining goods were lust through his negligence. The consignee paid Rs. 2,500 for advertisement and selling expenses. Prepare necessary accounts in the books of the consignor.

12.4     LET US SUM UP

Sometimes, in order to conceal the actual profit earned on consignment the consignor invoices the goods to the consignee at a price which is higher than the cost. This is called invoice price (ITJ). The difference between the invoice price (IP) and the cost price'(CP) is called loading. This affects four items shown in the Consignment Account viz, (i) goods sent on consignment (ii) goods returned by the consignee (iii) opening consignment stock, and (iv) closing consignment stock. In order to work out the actual profit, the effect of loading on all these items has to be nullified, otherwise the Consignment Account will show profit which is less than the profit actually earned.

Loading can be found out b) subtracting CP from IP. The calculation of loading is simple on both CP and 11' are given. But it needs special attention when the loading is given as a p cent age of CP or IP and only the figure of IP or CP is given. In such a situation, the formula IP =: CP-!-P is used for the calculation of loading or the cost price, invoice price .whichever is not given. For the adjustment of loading involved in different items, we have to, pass the necessary journal entries in the books of the consignor. However, the hooks of the consignee are not affected by loading because his books do not include any entry in respect of the four items involved.

12.5     KEY WORDS

Invoice Price he price at which the consignor invoices the goods to the consignee. It is usually higher than cost.

Loading: Difference between the invoice price and the cost price.

12.6     ANSWERS TO CHECK YOUR PROGRESS

1 i) False ii) True iii) False iv) True v) False vi) False.

2 Difference between IP and CP

3 L) goods sent on consignment

ii) Goods returned by the consignee

iii) Opening consignment stock *

iv) (Closing consignment stock

4    i) Rs. 600

      ii) Rs. 200

      iii) Rs. 625

      iv) Rs. 225

i)                   Rs. 250

5     i) Rs. 400 ii) Rs. 120 ii) Us. 150 iv) Us. 120 v) Rs. 100