Published on March 3, 2014
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Mr. Vivek sends his goods to Mr. Amit, together with a ‘Proforma Invoice’, to sell such goods Principal of Mr. Amit Consignor Mr. Vivek on behalf of & at the Risk of Mr. Vivek Proforma Invoice Quantity Rate etc. Agent of Mr. Vivek Consignee This is called Mr. Amit Account Sales …………………………… ………………………… ………………………… ………………………… ………………….……………………………… ………………………… ………………………… ………………………… ………………………….. . Account Sales A Statement showing Amount to be Remitted to Consignor, after making deductions ` Sale to Buyers Mr. Amit remits all sales proceeds to Mr. Vivek, after deducting his expenses and ‘Commission’, together with an ‘Account Sales’. 3
Types of Commission Del-credere Commission Over-riding Commission Commission paid to Consignee as reward for his work done Additional commission paid to encourage consignee to make credit sales This is the additional commission paid to consignee, Bad-debts are borne by Consignor Bad-debts are borne by Consignee Ordinary Commission To promote sales at higher prices than specified, or To encourage consignee to put hard work in introducing a new product. -- Calculation of Commission It is paid as Fixed percentage of Gross Sale Unless otherwise agreed, it is paid on Total Sales [not only Credit Sales] As per Agreement, it is paid on Total Sales, or Difference b/w Actual Sale value & Specified value 4
Calculate Commission in Following Cases : Commission = 2% on Sales + 20% of Gross Sales less All Commission, exceeds Cost price Implies Commission X = 2% on Total Sales + 20% of [Gross Sales – All Commissions – Cost price] = 2% * 95,000 + 20% * [95,000 – X – 80,000] X = 4083.33 = Commission 500 units, Cost `200 each 500 units, Cost `200 each Commission = 4% on Sales @ 20% of any Surplus + price realised `225 p.u. 4/5th goods for `95,000 Commission = 4% (225 * 400) + 20% [95,000–(225 * 400)] = 4,600 Out of Sales `95,000, Credit sales were `50,000 Commission = Commission 4% on Sales + = 4% * 95,000 + 2% Del-credere Comm. 2% * 95,000 = 5,700 5
Consignee’s exp. (upto goods reach his premises) Consignor’s expenses Loading, freight, insurance-in-transit etc. Consignor Non-recurring exp. Unloading, Custom duty, Octroi Carriage inwards, Transportation etc. Consignee Mr. Vivek Mr. Amit Expenses while in premises Godown rent Insurance charges Office & admin. etc. Recurring exp. Expenses related to sales Here are the various Expenses Sale to Buyers Selling & Distribution expenses incurred at different stages of Consignment 6
Valuation of Consignment Stock At the year-end, any Unsold goods with Consignee, will be treated as Stock of Consignor Cost Price or Net Realizable Value (NRV) Purchase Price PLUS All expenses incurred to bring goods to their present location & condition Expected Sale Price of Unsold goods All expenses incurred by consignor Expenses incurred by consignee till goods have finally reached his godown i.e. only Non-recurring expenses of Consignee MINUS Selling expenses Whichever is lesser 7
Consignor’s expenses Valuation of Stock at Cost Consignee’s expenses Non-recurring ` 4,000 `1,000 500 units 500 units Cost `400 each Cost `400 each Consignee’s expenses Particulars Cost of goods Amt. / Units 2,00,000 Consignor’s Expenses Recurring `2,000 4,000 Consignee’s Non-R Exp. 300 units Sold 1,000 Total cost of goods consigned 2,05,000 No. of Units 500 u Cost per unit `410 Value of Stock at Cost [200u] 82,000 8
Consignment at ‘Above Cost Price’ In some cases, Consignor prepares Proforma Invoice, at a price more than Cost Price (say, 100+20). Such price is called ‘Invoice Price’ Consigning goods above Cost Price has 2 impacts : Consignment Dr. 120 A/c To Goods Sent on Consignment ‘Goods sent’ are Unsold Stock at the end recorded at Invoice of year, is also valued price at Invoice price Closing Stock Dr. To ascertain True Profit/Loss 120 To Consignment position, both above should be recorded at Cost Effect of Loading is Effect of Loading is Removed by 120 removed by passing a Reverse Journal entry 120 transferring the loading to a Reserve,called ‘Stock Reserve’ Goods Sent on Dr. 20 Consignment To Consignment 20 Consignment Dr. 20 To Stock Res. 20 9
Practice Questions Goods costing `80,000 Sent at Cost + 25% Invoice Value = ?? Goods Costing `1,00,000 Sent at 20% profit on Invoice Value Invoice Value = ?? ` 1,00,000 ` 1,25,000 20% of the Goods, whose Invoice value was `15,000, were destroyed. Invoice Value of Goods sent = ?? ` 75,000 Goods Invoiced at `1,00,000 Sent at Cost + 20% Cost = ?? ` 83,333 10
Calculate Commission in Following Case : Goods costing `1,00,000 4% upto Commission = Invoice Value Cost + 25% 20% of any Surplus + above Invoice Value 4/5th goods for `1,10,000 11
Valuation of Stock at Invoice Pr. Consignor’s expenses Amount of Stock Reserve Consignee’s expenses Non-recurring ` 4,000 `1,000 500 units I/P `500 500 units Cost `400 each each Consignee’s expenses 300 units sold Particulars Amt. / Units Total cost of goods consigned at I/P [(500*500) + 4000 + 1000] Recurring `2,000 2,55,000 No. of Units 500 u Cost per unit `510 Value of Stock at I/P [200u] 1,02,000 Value of Stock at Cost [200u] 82,000 Amount of Stock Reserve 20,000 Simpler way to calculate Stock Reserve : Loading on 1 unit (500-400) = `100 Loading on Stock of 200 units = `100 * 200 = 20,000 = Stock Reserve 12
Loss-in-Transit Loss at Godown Losses Abnormal Loss Normal Loss Sale to Buyers Avoidable losses, due to abnormal factors like fire, theft. [Loss-in-transit; Loss in consignee’s godown] Unavoidable losses, due to inherent features of goods e.g. evaporation. Not treated as part of cost Treated as part of cost Valuation just as of Closing Stock No separate valuation is done 13
Consignor’s expenses Valuation of Loss Valuation of Stock - Loss in Godown ` 4,000 Consignee’s expenses Non-recurring `1,000 1/10th units Lost in Godown 500 units 500 units Cost `400 each Cost `400 each Particulars If Loss is Abnormal If Loss is Normal Total cost of goods consigned at I/P [(500*400) + 4000 + 1000] 2,05,000 2,05,000 This Cost is borne by 500 u 450 u Cost per unit `410 `455.5 Value of Stock [150u] 61,500 68,325 Value of Loss [50u] 20,500 300 units Sold Consignee’s expenses Recurring – Normally, it must be treated as ‘Abnormal Loss’ `2,000 14
Consignor’s expenses ` 4,000 Valuation of Loss Valuation of Stock - Loss in Transit Consignee’s expenses Non-recurring `1,000 500 units Cost `400 each Loss-in-transit – 1/10th goods Particulars Cost of units Loss is Abnormal 450 units Cost `400 each Loss is Normal Borne by 2,00,000 4,000 4,000 2,04,000 Consignors’ exp. 2,00,000 2,04,000 All 500 u 300 units Sold Consignee’s expenses Recurring 450 u Cost p.u. of all units  ` 408 ` 453.3 Consignee’s Non-R exp. 1,000 1,000 Only 450 u 450 u Cost p.u. of good units  ` 2.2 ` 2.2 Total cost p.u. for good units 410.2 455.5 Value of Stock [150 Good units] 61,530 68,325 Value of Lost goods [50u * 408] 20,400 – `2,000 Borne by 15
Following is the Consignment Account which helps to Learn Journal Entries of Consignment, and Calculate Profit/Loss on Consignment Consignment A/c Date Particulars Amt. (`) Date Particulars Goods sent (At Invoice Value) Sale Proceeds from Consignee [To Goods Sent on Consignm. A/c] [By Consignee’s A/c] All Expenses of Consignor Stock on Consignment (At Inv. Val.) [To Cash A/c] [By Stock A/c] All Expenses of Consignee Amt. (`) Goods sent (Loading) [To Consignee’s A/c] [By Goods Sent on Consign. A/c] Bad-debts (IF Consignee is not to bear Risk of Bad-debts) [To Consignee’s A/c] Commission [To Consignee’s A/c] Stock on Consignment (Loading) [To Stock Reserve A/c] Profit on Consignment Loss on Consignment [To P & L A/c] [By P & L A/c] 16
Following is the Account Sales which helps to Calculate the amount to be remitted by Consignee to Consignor Account Sales Actual Sales xx (-) All Expenses incurred by Consignee (-) Bad-debts (if no delcredere commission) (-) Commission due to him (-) Advance already given to consignor xx xx xx xx Amount to be remitted xx 17
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