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Accounting treatment In The Books OF Consignor When Goods Consigned At Invoice Price

Whenever a consignor sends goods to consignee at a price higher than the cost price, that is known as invoice price method. It is done if the consignor does not want to disclose the real profit to the consignee. The consignee will not be able to know the cost price if the goods are consigned at above price. Hence, he cannot find out profit or loss being made by the consignor on these goods.
For the goods consigned at invoice price, the entries in the books of both consignor and consignee will be same. But the following changes and adjustment entries are required in the books of the consignor for eliminating loading charge in goods sent, goods returned, unsold goods and abnormal loss.


1. For goods sent on consignment
Consignment to.................. A/C..........Dr.(invoice price)
To goods sent on consignment A/C

2. For loading goods sent on consignment
Goods sent on consignment A/C........Dr.(loading amount)
To consignment to......A/C

3. For abnormal loss
Abnormal loss A/C...............Dr.(invoice price)
To consignment to........A/C

4. For loading on abnormal loss
Consignment to......A/C.............Dr.(loading amount)
To abnormal loss A/C

5. For unsold stock
Consignment stock A/C.............Dr.(invoice price)
To consignment to........A/C

6. For loading on unsold stock
Consignment to..........A/C.......Dr. (loading amount)
To consignment stock reserve A/C

7. For goods return by consignee
Goods sent on consignment A/C.............Dr. (invoice price)
To consignment to.....A/C

8. For loading on goods returned
Consignment to.........A/C ........Dr.(loading amount)
To goods sent on consignment A/C

2 comments:

Fahim Nathani said...

A of Surat consigns goods to B of Jaipur to be sold at or above invoice price. B is entitled to get a
commission of 8% on sales at invoice price plus 25% of any surplus price realized. B accepted a bill
of exchange drawn by A amounting to 50% of the invoice price.
In the year 2010 goods consigned by A were invoiced at Rs. 2,50,000. These goods cost to A Rs.
2,00,000 (including freight). Sales made by B during the year amounted to Rs. 2,35,000. At the
end of the year, goods unsold with B represented an invoice value of Rs. 60,000. During the year,
A had received from B Rs. 40,000 by bank drafts, certain remittances being in transit on 31st Dec.,
2010. Prepare necessary ledger accounts in the books of both the parties. Also show how the
consignment stock will appear in the Balance Sheet.

MSI Alnoman said...

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