Consignment: formula sheet

Key formulas

Profit on consignment

Profit = Sales proceeds + Closing stock on consignment − (Cost of goods sent + Consignor's expenses + Consignee's expenses + Commission + Other costs)

Normal commission and del credere are both costs of the consignment. Add opening stock, if any, on the cost side.

Consignment cost of goods

Cost of goods sent = Cost price (or invoice price adjusted to cost) of goods

Goods sent on consignment are not a sale. Debit Consignment A/c, credit Goods Sent on Consignment A/c.

Commission

Commission = Rate % × Sales (cash plus credit unless stated otherwise)

Read the question to check whether commission applies on total sales or only on specific sales.

Del credere commission

Del credere commission = Rate % × Total sales (or credit sales only, as the question specifies)

Always follow the base given in the question. Bad debts are borne by the consignee when del credere is allowed. Do not charge bad debts to the consignment.

Consignee's amount due

Amount due to consignor = Sales proceeds − Expenses paid by consignee − Commission − Advance already paid

This is the balance shown at the end of the account sales.

Goods sent on consignment (consignor)

Consignment A/c Dr. ; To Goods Sent on Consignment A/c

Record at cost. At year end, Goods Sent on Consignment A/c is credited to Trading A/c, or deducted from Purchases.

Expenses paid by consignor

Consignment A/c Dr. ; To Cash/Bank A/c

Applies to freight, insurance, cartage and loading paid by the consignor.

Expenses paid by consignee

Consignment A/c Dr. ; To Consignee's Personal A/c

Applies to expenses reported on the Account Sales.

Sales by consignee

Consignee's Personal A/c Dr. ; To Consignment A/c

Applies to both cash and credit sales, as reported by consignee.

Commission

Consignment A/c Dr. ; To Consignee's Personal A/c

Commission is a consignment expense for the consignor.

Remittance by consignee

Cash/Bank A/c Dr. ; To Consignee's Personal A/c

Reduces the amount the consignee owes. An advance or bill accepted is entered in the same way.

Closing stock with consignee

Stock on Consignment A/c Dr. ; To Consignment A/c

Value = cost of unsold goods + proportionate direct (up to godown) expenses. Exclude selling expenses.

Profit or loss on consignment

Credit side total − Debit side total (Consignment A/c)

If credits exceed debits, transfer profit to Profit and Loss A/c: Consignment A/c Dr. ; To Profit and Loss A/c. For a loss, reverse the entry.

Consignee's entries

Expenses paid: Consignor's A/c Dr. ; To Cash A/c. Sales: Cash/Debtors Dr. ; To Consignor's A/c. Commission earned: Consignor's A/c Dr. ; To Commission A/c.

These are three separate entries in the consignee's books. The consignee debits Consignor's A/c for expenses and for commission, and credits it for sales.

Closing stock value

Lower of (Cost + proportionate direct expenses) and Net realisable value

Cost means the cost of the unsold units. Do not add selling expenses or commission.

Proportionate direct expenses

Direct expenses on total goods × (Unsold units ÷ Total units sent)

Use units, not rupees, as the base. Take direct expenses on the total consignment, whoever paid them, if they bring the goods to their present location up to the consignee's godown. Freight, insurance, cartage and unloading into the godown are examples. Leave out commission, godown rent, selling expenses and other costs incurred once the goods are in the godown.

Loading when loaded on cost

Loading = Invoice price − Cost; Loading % on cost = Loading ÷ Cost × 100

If invoice price is cost + 25%, then Loading = 25/125 of invoice price.

Loading fraction of invoice price

Loading of x% on cost: Loading ÷ Invoice price = x ÷ (100 + x). Loading of y% on invoice price: Loading = y% of invoice price

Read the wording. Cost plus 25% gives 25 ÷ 125 = 1/5 of invoice price. A loading of 20% on invoice price is also 1/5, but 'cost plus 20%' would be 20 ÷ 120 = 1/6.

Cost from invoice price

Cost = Invoice price × 100 ÷ (100 + loading % on cost)

Example: invoice price ₹1,25,000 at cost + 25% gives cost of ₹1,00,000.

Stock reserve on unsold goods

Stock reserve = Unsold stock at invoice price × (Loading ÷ Invoice price)

Apply to the invoice value of goods in hand at the consignee. Direct expenses added to stock are not loaded, so exclude them from the reserve.

Adjusting entries for loading (reserve method)

Goods Sent on Consignment A/c Dr; To Consignment A/c (loading on all goods sent). Consignment A/c Dr; To Consignment Stock Reserve A/c (loading on unsold goods)

The reserve method has two parts that work together. The loading on goods sent is credited to the Consignment A/c, and the loading on unsold goods is debited to it through the reserve. Closing stock in the account is shown at invoice price of unsold goods plus proportionate direct expenses, and the reserve brings it down to cost. The alternative cost method shows goods sent and closing stock at cost, with no loading or reserve entries in the account. Choose one method for the whole account, never both.

Cost per unit with normal loss

Cost per unit = Total cost of goods and expenses ÷ (Units consigned − Units of normal loss)

Use this when the loss is normal. Closing stock is valued on this higher unit cost.

Value of abnormal loss

Abnormal loss = Total cost up to the loss point × Abnormal units ÷ (Units sent − Normal loss units occurring before that point)

The divisor includes the abnormal units themselves. Deduct only normal loss that occurred before the point of abnormal loss.

Entry for abnormal loss

Abnormal Loss A/c Dr; To Consignment A/c

This reduces the consignment cost and shows the loss separately.

Entry for insurance claim

Insurance Company A/c (or Claim Receivable) Dr; To Abnormal Loss A/c

Pass this for the amount the insurer admits.

Write-off of net loss

Profit and Loss A/c Dr; To Abnormal Loss A/c

Transfer the balance not recovered from the insurer.

Closing stock

Closing stock = Cost per unit × Units unsold, plus later expenses on those units

Unsold units at the consignee's end bear the proportion of later expenses such as godown rent.

Ordinary commission on sales

Commission = Total sales × Commission rate ÷ 100

Use the base the question states: total sales, cash sales, or invoice price sales.

Commission on net proceeds

Commission = (Sales − Expenses deducted) × Rate ÷ 100

Only when the question says commission is on net proceeds. Deduct the stated expenses first.

Commission on net amount after charging commission itself

Commission = (Amount before commission) × Rate ÷ (100 + Rate)

Use when the rate applies to the amount left after the commission is deducted. Illustration: amount before commission ₹1,05,000, rate 5%. Commission = 1,05,000 × 5 ÷ 105 = ₹5,000. Net amount = ₹1,00,000, and 5% of ₹1,00,000 = ₹5,000, which confirms the result.

Del Credere commission

Del Credere = Credit sales × DC rate ÷ 100

Normally on credit sales. If the question says total sales, use total sales (cash + credit). The consignee then bears bad debts.

Overriding commission

Overriding = (Actual sales − Invoice price or stated target) × Rate ÷ 100

Usually on the excess of actual sales over invoice price (or the stated target). If the question names another base, such as total sales, use that.

Total commission

Total = Ordinary + Del Credere + Overriding

Debit Consignment Account with the total, each shown separately.

Bad debts rule

With del credere: bad debts borne by consignee. Without it: bad debts borne by consignor.

Bad debts are a Consignment Account debit only when there is no del credere commission.

Loss on goods sold below cost

Loss = (Cost per unit − Selling price per unit) × Units sold

Use cost including proportionate non-recurring expenses such as freight to the consignee's godown. The Consignment Account shows this automatically when you record actual sales.

Commission on sales

Commission = Rate % × Actual sales made by the consignee

Use actual sale value, even if below cost. Do not apply it to goods taken over or returned unless the question says so.

Goods returned by consignee

Dr Goods Sent on Consignment A/c; Cr Consignment A/c (at cost, or invoice price if goods were invoiced above cost)

This reverses the despatch for the returned units. Return freight paid by the consignor is a debit to the Consignment Account.

Goods taken over by consignee

Dr Consignee's A/c; Cr Consignment A/c (at agreed price)

Treated as a sale. It is not closing stock.

Profit or loss on consignment

Credits (sales + goods returned + goods taken over + closing stock) − Debits (goods sent + expenses + commission) before profit

A negative result is a loss. Transfer it to the Profit and Loss Account.

Amount due from consignee

Sales + goods taken over − expenses paid by him − commission − advance − accepted bills

What remains is the cash the consignee must remit.

Quick revision

• In consignment, goods remain the consignor's property until the consignee sells them.
• The consignor sends a proforma invoice, which is not a sales invoice.
• The consignee sends an Account Sales showing sales, expenses, commission and amount due.
• Profit is recognised only on sale by the consignee, not on dispatch.
• Closing stock is valued at cost plus the non-recurring direct expenses up to the consignee's godown, on a proportionate basis. Recurring expenses such as godown rent are excluded.
• Normal loss is absorbed in the cost of the remaining goods, so the unit cost rises.
• Abnormal loss is valued at cost plus proportionate direct expenses and shown separately, not in stock.
• For abnormal loss, pass Abnormal Loss A/c Dr, to Consignment A/c (value of the loss). If the insurer admits a claim, pass Insurance Claim A/c Dr (admitted amount only) and Profit and Loss A/c Dr (balance), to Abnormal Loss A/c. If the goods are uninsured or the claim is not admitted, debit the full abnormal loss to Profit and Loss A/c.
• Del credere commission compensates the consignee for bad debts, and the consignee bears them.
• Overriding commission is an additional commission given to encourage the consignee to sell at higher prices. Its base, either total sales or the excess of sale price over invoice price, is stated in the question.
• Under the invoice price method, the loading is removed from goods sent on consignment (reduced from the Goods Sent on Consignment account) and from opening and closing unsold stock (through Stock Reserve), so that profit is shown on a cost basis. Abnormal loss is taken at cost (invoice value less loading), and its loading is adjusted through the Goods Sent on Consignment account and the Consignment Account. Stock Reserve applies only to unsold stock.
• Keep the commission base clear: some questions pay it on total sales, others on credit sales.

Common mistakes

• Treating goods sent on consignment as a sale. Fix: Credit Goods Sent on Consignment A/c, not Sales A/c. Recognise revenue only when the consignee sells to customers.
• Charging bad debts to the consignment when del credere commission is allowed. Fix: If del credere is paid, the consignee bears bad debts. Show only the commission as a cost.
• Treating goods sent as a sale and crediting Sales A/c. Fix: Credit Goods Sent on Consignment A/c. Sales are recognised only when the consignee sells to a third party.
• Including selling expenses in the value of closing stock. Fix: Add only expenses up to the point where goods reach the consignee's godown, such as freight and transit insurance. Exclude godown rent, selling expenses and commission.
• Adding the consignee's commission or godown rent to closing stock. Fix: Add only direct expenses to bring goods to the present location. Commission and selling expenses are charged to the Consignment A/c and not carried into stock.
• Taking all direct expenses into stock instead of the proportionate part. Fix: Multiply total direct expenses by unsold units ÷ total units sent. Use units, not rupees.
• Passing a separate entry for normal loss. Fix: Do not pass an entry. Reduce the units and recompute cost per unit on the good units.
• Dividing by the wrong number of units when valuing abnormal loss. Fix: Divide by the units available at the loss point: units sent less normal loss before that point. The divisor includes the abnormal units themselves.
• Charging bad debts to the Consignment Account even when del credere commission is given. Fix: Tick the del credere line first. If present, the loss belongs to the consignee and nothing is recorded by the consignor.
• Applying del credere commission to the wrong base. Fix: Use credit sales unless the question states total sales. Underline the base in the question and write it in the working before calculating.

Exam tips

• Write the key difference first in comparison questions: ownership, risk and relationship of the parties.
• In MCQs, look for words like agent, commission and unsold stock to spot a consignment.
• Always show the account sales layout with net amount due; it earns step marks.
• Mention that bad debts go to the consignee under del credere, and to the consignor otherwise.
• There is no negative marking in Section A, so attempt every MCQ.
• Write the correct title: Consignment A/c in the Books of Consignor, and state the period.
• Show the closing stock calculation as a working note. Step marks are usually given for it.
• Label every item on the Consignment A/c as 'To' or 'By' and note who paid it.