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Fundamentals of Financial and Cost Accounting · Consignment

Consignment Goods Invoiced at Higher Price and Stock Reserve

Updated 10 October 2026 · Fact-checked

When a consignor sends goods at an invoice price above cost, the extra amount is called loading. Record the Consignment Account at invoice price, then remove the loading with an adjustment entry. Unsold stock and goods in transit carry unrealised loading, so you create a stock reserve for it and exclude it from profit.

Understand Invoicing Goods at Higher Price and Stock Reserve

A consignor sometimes sends goods to the consignee at a price higher than cost. This is the invoice price. The consignor does this to hide the real cost from the consignee, or to set a minimum selling price. The extra amount over cost is the loading.

The books must still show profit on the real cost basis. So the invoice price entry has to be reversed. The consignor debits Consignment Account and credits Goods Sent on Consignment Account at invoice price. Then an adjustment entry removes the loading on goods sent.

Loading on goods that are still unsold is not a real profit. It has not been earned yet. So you remove it from closing stock in one of two ways. Either show closing stock at invoice price (plus its share of expenses, if the question directs) and create a stock reserve (also called unrealised profit reserve) equal to the loading in that stock. Or show closing stock directly at cost (plus its share of expenses, if the question directs). These are alternatives. Never do both, or the loading is removed twice.

In the next period, the opening stock reserve is reversed. The loading in the opening stock is now treated as realised when the goods are sold. So the profit is credited back to the Consignment Account.

Goods returned by the consignee also carry loading. The loading on returned goods is removed from the return amount too.

Key formulas to remember

Loading on goods sent
Loading = Invoice price − Cost
If loading is given as a % on cost, loading = cost × % ÷ 100.
Cost from invoice price (loading on cost)
Cost = Invoice price × 100 ÷ (100 + % loading on cost)
Example: a 25% mark-up on cost means cost is 100/125 = 4/5 of invoice price.
Cost from invoice price (loading on invoice price)
Cost = Invoice price × (100 − % loading) ÷ 100
Example: 20% on invoice price means cost is 80% of invoice price.
Loading on stock
Stock reserve = Invoice price of unsold stock × Loading ÷ Invoice price
Use the loading fraction of invoice price. For loading of 25% on cost, the fraction is 25/125 = 1/5.
Adjustment entry for goods sent
Goods Sent on Consignment A/c Dr; To Consignment A/c (loading)
This brings goods sent down to cost in the Consignment Account.
Stock reserve entry
Consignment A/c Dr; To Stock Reserve A/c
Create reserve for loading in closing stock at the end of the period.
Opening stock reserve
Stock Reserve A/c Dr; To Consignment A/c
Reverse the reserve in the next period, since the loading is now realised.

How to solve Invoicing Goods at Higher Price and Stock Reserve questions

Follow the same order for every invoice price problem. It keeps the loading separate from the real cost.

  1. 1Read how the loading is stated: on cost or on invoice price. Convert it to a fraction of invoice price.
  2. 2Record goods sent at invoice price. Debit Consignment A/c and credit Goods Sent on Consignment A/c.
  3. 3Add the expenses paid by the consignor and the consignee. Show them in the Consignment A/c.
  4. 4Pass the entry removing loading on goods sent: debit Goods Sent on Consignment A/c, credit Consignment A/c.
  5. 5Work out closing stock at invoice price, adding its share of the expenses that are to be included, as the question directs.
  6. 6Remove loading from closing stock in one way only: create the stock reserve against the invoice-price stock, or show the stock at cost. Never do both. Consider goods in transit as stock too.
  7. 7Credit sales and commission. Then balance the Consignment A/c to find profit or loss.
  8. 8Show the reserve in the Balance Sheet as a deduction from stock, or as the question directs.

Quickest way: Loading fraction shortcut

When to use it: Use it when you need only profit or stock reserve and the question gives a percentage loading.

  1. Turn the loading into a fraction of invoice price, such as 1/5 for 25% on cost.
  2. Stock reserve = invoice value of unsold stock × that fraction.
  3. Loading on goods sent = invoice value of goods sent × same fraction.
  4. Cost of goods sent = invoice value − loading. Work out profit using cost values only.
  5. Check the options. Wrong answers often come from using the loading on the wrong base.

Common mistakes in Invoicing Goods at Higher Price and Stock Reserve

  • Taking 25% loading on cost as 25% of invoice price.

    Students apply the percentage to the invoice value without checking the base.

    Fix: If the loading is on cost, divide by 125, not 100. Loading is 25/125 = 1/5 of invoice price.

  • Forgetting to remove loading on goods sent.

    The first entry is at invoice price, and the adjustment entry is easy to miss.

    Fix: Always follow the invoice entry with the adjustment: debit Goods Sent on Consignment A/c, credit Consignment A/c.

  • Leaving loading in closing stock.

    Students value closing stock at invoice price plus expenses.

    Fix: Take the stock at cost plus expenses, or create a stock reserve for the loading. Do not do both.

  • Ignoring opening stock reserve.

    The previous year's reserve is not stated clearly in the question.

    Fix: Look for opening stock and its loading. Debit Stock Reserve A/c and credit Consignment A/c for that loading.

  • Not removing loading from goods returned.

    Returns are recorded at invoice price, so students stop there.

    Fix: Pass two entries. First, record the return at invoice price: debit Goods Sent on Consignment A/c (or Goods Returned A/c) and credit Consignment A/c. Then remove the loading on the returned goods: debit Consignment A/c and credit Goods Sent on Consignment A/c. This works when the loading on all goods sent, including the returned goods, has already been removed. The net credit to Consignment A/c for the returns is then at cost. If you remove loading only on goods sent net of returns, the second entry is not needed.

Worked examples

Example 1

Anil Traders of Pune sent 1,000 units to Ravi of Nagpur at an invoice price of ₹150 per unit. The cost was ₹120 per unit. Ravi sold 800 units. Find the stock reserve at the end of the period and the loading on goods sent.

Show the solution
  1. Invoice price of goods sent = 1,000 × ₹150 = ₹1,50,000.
  2. Cost of goods sent = 1,000 × ₹120 = ₹1,20,000.
  3. Loading on goods sent = ₹1,50,000 − ₹1,20,000 = ₹30,000.
  4. Unsold units = 1,000 − 800 = 200 units.
  5. Invoice price of unsold stock = 200 × ₹150 = ₹30,000.
  6. Loading per unit = ₹150 − ₹120 = ₹30. Stock reserve = 200 × ₹30 = ₹6,000.

Answer: Loading on goods sent is ₹30,000 and the stock reserve is ₹6,000.

Example 2

A consignor sent goods costing ₹80,000 to an agent at cost plus 25%. The agent sold three-fourths of the goods for ₹90,000. The agent's commission was ₹4,500 and the consignor paid expenses of ₹2,000 on the goods sent. Find the profit on consignment, ignoring any share of expenses in stock.

Show the solution
  1. Invoice price = ₹80,000 × 125 ÷ 100 = ₹1,00,000.
  2. Loading on goods sent = ₹1,00,000 − ₹80,000 = ₹20,000.
  3. Unsold stock at invoice price = ¼ × ₹1,00,000 = ₹25,000.
  4. Stock reserve = ₹25,000 × 1/5 = ₹5,000. So unsold stock at cost = ₹25,000 − ₹5,000 = ₹20,000.
  5. Cost of goods sold = ₹80,000 − ₹20,000 = ₹60,000.
  6. Expenses = ₹2,000 and commission = ₹4,500 so total = ₹6,500.
  7. Profit = Sales ₹90,000 − cost of goods sold ₹60,000 − expenses ₹6,500 = ₹23,500.
  8. Check, with stock taken at cost ₹20,000 (no separate reserve): debit side is ₹80,000 cost of goods sent + ₹2,000 + ₹4,500 = ₹86,500. Credit side is sales ₹90,000 + stock at cost ₹20,000 = ₹1,10,000. Profit = ₹1,10,000 − ₹86,500 = ₹23,500.

Answer: The profit on consignment is ₹23,500.

Exam tips

  • Read the loading base first. The words 'on cost' and 'on invoice price' give different answers.
  • In MCQs, work out the loading fraction and apply it to unsold stock. This often gives the answer in two lines.
  • Check if the question asks for the stock reserve, the closing stock value, or the profit. Each uses a different figure.
  • Look for opening stock and its reserve. If it is present, the reserve must be reversed.
  • Because there is no negative marking, eliminate options that leave loading in stock, and then guess among the rest.

Practice questions from Consignment

Invoicing Goods at Higher Price and Stock Reserve in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Invoicing Goods at Higher Price and Stock Reserve: frequently asked questions

What is loading in consignment?

Loading is the amount by which the invoice price is above cost. It is not real profit until the goods are sold. So the consignor removes it from the books through an adjustment entry.

Why is a stock reserve created?

Unsold goods with the consignee still carry loading, and that is unrealised profit. The stock reserve removes it from the profit of the current period. The reserve is reversed next period when the goods are sold.

How do I find cost if loading is 25% on cost?

Divide the invoice price by 125 and multiply by 100. For invoice price ₹1,25,000, cost is ₹1,00,000. The loading is ₹25,000.

Is the stock reserve an expense?

It is an adjustment to profit, not a normal business expense. It reduces the profit shown on consignment. In the Balance Sheet it is deducted from the value of stock.