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Consignment Accounting Exercises and

Rashid consigned 100 sewing machines to Malik at an invoice price of $160 each when the cost was $130 each. Malik sold 80 machines for $14,000 and incurred expenses of $750. Malik was entitled to a commission of $1,050. Rashid recorded the transaction by debiting Consignment to City B for $16,000 for goods sent and $400 expenses. Malik was credited for $14,000 sales and debited $750 expenses and $1,050 commission. The difference between cost and invoice price of $3,000 was adjusted through Goods Sent on Consignment.

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Muhammad Waseem Nawaz
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8K views

Consignment Accounting Exercises and

Rashid consigned 100 sewing machines to Malik at an invoice price of $160 each when the cost was $130 each. Malik sold 80 machines for $14,000 and incurred expenses of $750. Malik was entitled to a commission of $1,050. Rashid recorded the transaction by debiting Consignment to City B for $16,000 for goods sent and $400 expenses. Malik was credited for $14,000 sales and debited $750 expenses and $1,050 commission. The difference between cost and invoice price of $3,000 was adjusted through Goods Sent on Consignment.

Uploaded by

Muhammad Waseem Nawaz
Copyright
© Attribution Non-Commercial (BY-NC)
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Download as DOCX, PDF, TXT or read online on Scribd
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Consignment Accounting Exercises and Problems:

Learning Objectives:

1. 2.

Prepare journal entries,consignmentaccount and consignee account in the books of consignor. Prepare journal entries and consignor account in the books of consignee.

Problem 1(Journal Entries and Ledger Accounts):


Riaz Sugar Factory of Multan, consigned to Mr. Shahid of Lahore 400 bags of sugar at $25 per bag. They also paid cartage, freight, etc. $250. The consignor drew on consignee as an advance against theconsignmentat 3 months for $6,000 which they discounted at their bank at 5 percent. The consignee sold off the goods and rendered an account sales showing that the goods realized $12,000, out of which he deducted his charges amounting to $80 and his commission at 5 percent. Required:Make journal entries in respect of the above transactions in the books of consignor as well as the consignee

Solution: Consignor's Books


JOURNAL ENTRIES Dr. Consignmentto Lahore account To Goods sent onconsignmentaccount Consignmentto Lahore account To Bank account Bills receivable account To Shahid Ali Bank account Discount account To Bills receivable account Shahid Ali ToConsignmentto Lahore account $ 10,000 Cr. $ 10,000 250 250 6,000 6,000 5,925 75 6,000 12,000 12,000

Consignmentto Lahore account To Shahid Ali Bank To Shahid Ali Consignmentto Lahore account To Profit and loss account Goods sent onconsignmentaccount ToTradingaccount

680 680 5320 5320 1,070 1,070 10,000 10,000

LEDGER ACCOUNTS Consignmentto Lahore Account $ To To To To Dr. Goods sent onconsignment Bank expenses Shahid Ali Profit and loss account 10,000 250 680 1,070 12,000 Cr. By Shahid Ali - Sales Proceeds $ 12,000

12,000

Goods Sent onConsignmentAccount $ Dr. ToTradingaccount 10,000 Cr. ByConsignmentto Lahore 10,000 $

Bank Account Dr. To Bills receivable To Shahid Ali $ 5,925 5,320 Cr. ByConsignmentto Lahore $ 250

Shahid Ali (Consignee) Dr. Cr.

ToConsignmentto Lahore

$ 12,000

By Bills receivable ByConsignmentto Lahore By Bank account

$ 6,000 680 5,320 12,000

12,000

Bills receivable Account Dr. To Shahid Ali $ 6,000 By Bank By Discount Cr. $ 5,925 75 6,000

6,000

Discount Account Dr. To Bills receivable $ 75 Cr. By Profit and loss account $ 75

Profit and Loss Account Dr. $ ByConsignmentto Lahore Cr. $ 1,070

TradingAccount Dr. $ By Goods sent onconsignment Cr. $ 10,000

Consignee's Books
JOURNAL ENTRIES

Dr. Riaz sugar factory To Billspayable account Riaz sugar factory To Bank account Bank account To Riaz sugar factory Riaz sugar factory To Commission account Riaz sugar factory To Bank account Bills payable To Bank account LEDGER ACCOUNTS Riaz Sugar Factory (Consignor) Dr. To To To To Bills payable Bank - expenses Commission Bank - Balance $ 12,000 80 600 5,320 12,000 Cr. By Bank account $ 6,000

Cr. $ 6,000

80 80 12,000 12,000 600 600 5,320 5,320 6,000 6,000

$ 12,000

12,000

Bank Account Dr. To Riaz sugar factory $ 12,000 Cr. By Riaz sugar factory By Riaz sugar factory By Bills payable $ 80 5,320 6,000

Commission Account Dr. Cr.

To Profit and loss account

$ 600

By Riaz sugar factory

$ 600

BillsPayable Account Dr. To Bank $ 6,000 Cr. By Riaz sugar factory $ 6,000

Problem 2 -(Abnormal Loss):


1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at aninvoicecost of $150 each. A & Co., paid freight $10,000 and insurance $1,500. During transit 100 motors were completely destroyed. Bashir took delivery of the remaining motors and paid $14,400 as duty. Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later sent an account sale showing that 800 motors were sold at $220 each. Expenses incurred by Bashir on godown rent and advertisement etc., amounted to $2,000. Bashir is entitled to commission of 5 per cent. Required:Prepareconsignmentaccount and Bashir's account in the books of A & Co., assuming that nothing has been recovered from the insurance company due to defect in the policy.

Solution
Consignmentto Karachi Account
$ To Goods sent onconsignment To Bank - freight and insurance To Bashir - duty To Bashir - expenses To Bashir - commission To Profit and loss account 1,50,000 11,500 14,400 2,000 8,800 23,200 2,09,900 2,09,900 By sales (800 220) By Profit and loss account - Ab. Loss* By Stock onconsignment** $ 1,76,000 16,150 17,750

Bashir $
ToConsignmentaccount 1,76,000 By Bank

$
50,000

By Consignmentaccount Duty Expenses By Consignmentaccount-commission By Balance c/d 1,76,000 14,400 2,000 16,400 8,800 1,00,800 1,76,000

Working Note:
(1) *Calculation of abnormal loss: 100 motors at $150 each Add 100/1000 of freight and insurance (11,500 100/1000) Abnormal loss (2) **Calculation of Closing Stock: 100 motors at $150 each Add 100/1000 of freight and insurance (11,500 100/1000) 100/900 of duty Closing stock or unsold stock $15,000 1,150 1,600 17,750 $15,000 1,150 16,150

Problem 3(Invoicing Goods Higher Than Cost):


Rashid of city A sends 100sewing machinesonconsignmentto Malik of city B. The cost of each machine is $130 but theinvoice priceis at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives theconsignmentand immediately accepts Rashid's draft for $8000. Subsequently, Malik informs Rashid that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight $600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6 per cent on sales and 1-1/2 percent as del credere commission. Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:

Solution:
Journal Consignmentto city B To Goods sent onconsignmentaccount
(100 machines at $160 each sent onconsignment)

16,000 16,000

Consignmentto city B

400

To Cash account
(Expenses incurred onconsignment)

400

Bills receivable account To Malik


(Malik's acceptance received)

8,000 8,000

Malik ToConsignmentto city B account


(80 machine's sold Malik at $175 each)

14,000 14,000

Consignmentto city B account To Malik


(Expenses incurred)

750 750

Consignmentto city B account To Malik


(Commission at 6% plus 1-1/2 on sales)

1,050 1,050

Consignmentto city B account To Stock reserve account


(Difference in closing stock adjusted)

600 600

Stock onconsignmentaccount ToConsignmentto city B account


(Value of 20 machines in the hands of Malik)

3,400 3,400

Goods sent onconsignmentaccount ToConsignmentto city B account


(The difference in the invoicevalue and cost, $30 per machine adjusted)

3,000 3,000

Goods sent onconsignmentaccount ToTradingaccount


(Transfer of goods sent onconsignmentto tradingaccount)

13,000 13,000

Consignmentto city B account To Profit and loss account


(Transfer of profit onconsignment)

1,600 1,600

Consignmentto City B Account $


To Goods sent onconsignment To Cash - Expenses To Malik - Expenses: Freight Rent 600 50 16,000 400 By Malik - Sales proceed By Stock onconsignment By Goods sent onconsignment

$
14,000 3,400 3,000

Insurance To Malik - Commission ToConsignmentstock reserve To Profit and loss account

100 750 1,050 600 1,600 20,400 20,400

Malik $
To Consignment to city B account 14,000 By Bills receivable account By Consignment to city B account Expenses Commission By Balance c/d 14,000 750 1,050 4,200 14,000

$
8,000

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