Fundamentals of Financial and Cost Accounting · Consignment

Valuation of Stock and Treatment of Expenses in Consignment

Updated 10 October 2026 · Fact-checked

Unsold consignment stock is valued at the lower of cost and net realisable value. Cost is the cost of goods plus the consignor's direct expenses and the consignee's direct expenses up to the godown, all in proportion to unsold units. Normal loss is absorbed in cost. Abnormal loss is valued at cost and credited out.

Understand Valuation of Stock and Treatment of Expenses

In consignment, the consignor sends goods to the consignee, who sells them on commission. At the end of the period some goods are often unsold. These are the closing stock. Their value must be carried forward, because their cost belongs to the next period and must not reduce this period's profit.

Stock is valued at cost or net realisable value, whichever is lower. Cost has more than the invoice price of goods. It includes the direct expenses needed to bring the goods to their present location and condition. These are packing, freight, cartage and insurance paid by the consignor. They also include the consignee's expenses up to the point of receiving the goods, such as unloading and octroi.

Expenses are of two kinds. Direct expenses are incurred up to the godown. The consignor's direct expenses are spread over the good units sent. The consignee's direct expenses are spread over the units actually received by the consignee, which are already after any loss in transit. So the unsold units carry their share. Indirect expenses are incurred after the goods reach the godown. They include selling and distribution costs such as the consignee's godown rent for storage, salesmen's pay and advertising. They are not added to stock value. They are charged to the Consignment Account.

Losses are of two kinds. Normal loss is unavoidable, such as evaporation, shrinkage or breakage in transit. It has no separate entry. Its cost is spread over the good units, so the cost per unit rises. Abnormal loss is avoidable and unusual, such as theft, fire or accident. It is valued at its proportionate cost up to the point of loss. This includes the consignor's expenses and any consignee's expenses incurred before the loss. It is not compared with net realisable value. The Consignment Account is credited with the abnormal loss at cost, and the Abnormal Loss Account is debited. Any insurance claim is dealt with in the Abnormal Loss Account, and the balance goes to the Profit and Loss Account.

Non-recurring expenses, such as those arising from a fire or a loss, are not part of the cost of stock. Charge them to the Consignment Account or the loss account, as the question directs.

Key formulas to remember

Value of closing stock: Closing stock = (Cost of goods sent + Consignor's direct expenses) × Unsold units ÷ (Units sent − Normal loss units) + Consignee's direct expenses × Unsold units ÷ Units received; Use the lower of this cost and net realisable value. Where there is no normal loss, units sent less normal loss is simply units sent. Units received means the units actually received by the consignee, which are already after any transit loss.
Cost per unit with normal loss: Cost per unit = Total cost ÷ (Units sent − Normal loss units); Normal loss is not valued. Its cost is spread over the good units.
Abnormal loss: Abnormal loss = (Total cost up to the point of loss) × Abnormal loss units ÷ Units available at that point; Include only the expenses incurred up to the time of loss. For a loss in transit, this means the cost of goods and the consignor's direct expenses only. Expenses after the loss are not charged to the lost units. Abnormal loss is valued at this proportionate cost and is not compared with net realisable value. Credit the Consignment Account with this cost. Deal with any insurance claim in the Abnormal Loss Account.
Stock at net realisable value: Stock value = Lower of (Cost, Net realisable value); Net realisable value = Expected selling price − Expected selling expenses.
Treatment of indirect expenses: Indirect expenses → debit Consignment Account only; Not added to stock value or abnormal loss.

How to solve Valuation of Stock and Treatment of Expenses questions

Work out unit counts first, then costs, then values. Follow the same order every time.

1Write down units sent, units sold, units lost (normal or abnormal) and units unsold.
2Classify each expense as direct (up to godown) or indirect (after godown).
3Compute total cost of goods sent plus the consignor's direct expenses.
4Handle normal loss by dividing the consignor's cost by units sent less normal loss, so the good units carry its cost. Value abnormal loss at its proportionate cost up to the point of loss.
5Divide the consignee's direct expenses by units received, and add this to the consignor's cost per unit to find the total cost per unit.
6Multiply cost per unit by unsold units for closing stock. Compare with net realisable value and take the lower.
7Debit the Consignment Account with indirect expenses and credit it with abnormal loss (at cost) and closing stock. Deal with any insurance claim in the Abnormal Loss Account, not in the Consignment Account.
8Find the profit or loss as the balancing figure and check the arithmetic.

Quickest way: Cost per unit shortcut

When to use it: Use this for MCQs that ask for closing stock or abnormal loss value with simple numbers.

Underline the units figures and split expenses into direct and indirect. Ignore indirect expenses for stock.
Add the goods cost and the consignor's direct expenses. Divide by units sent less normal loss.
Divide the consignee's direct expenses by units received (the units actually received, already after any transit loss). Add this to the figure from step 2 to get the cost per unit for closing stock.
Multiply that cost per unit by unsold units to get closing stock.
For an abnormal loss in transit, use only the consignor's cost per unit (goods plus consignor's direct expenses, divided by units sent). Multiply it by the lost units. This is the amount credited to the Consignment Account.
Add the consignee's direct expenses to the lost units only if the loss happens after those expenses are incurred.
Check against net realisable value if the question gives a selling price lower than cost.

Common mistakes in Valuation of Stock and Treatment of Expenses

Adding the consignee's selling expenses to closing stock.
Students treat every expense as part of cost.
Fix: Add only expenses up to the godown. Selling expenses go to the Consignment Account.
Valuing normal loss separately and writing it off.
Normal and abnormal loss are mixed up.
Fix: Normal loss has no entry. Divide the cost by the good units only.
Using the invoice price instead of cost when goods are invoiced at a higher price.
Students forget the loading is not real cost.
Fix: If goods are invoiced above cost, stock must be valued at cost by deducting the loading on unsold stock. This is done through a stock reserve.
Charging the full consignee's direct expenses to abnormal loss when the loss happened earlier.
Students apply one cost per unit to every case.
Fix: Include only expenses incurred up to the time of the loss.
Ignoring net realisable value.
Cost is calculated and then taken as final.
Fix: Always compare with net realisable value and take the lower figure.

Worked examples

Example 1

Ravi of Delhi consigned 200 units costing ₹100 each to Sameer of Pune. Ravi paid freight of ₹2,000 and insurance of ₹2,000. Sameer paid unloading charges of ₹1,000 and godown rent of ₹3,000 and sold 150 units. Find the value of closing stock.

Show the solution

Units sent = 200. Units sold = 150. Unsold = 50. No loss.
Cost of goods = 200 × ₹100 = ₹20,000.
Consignor's direct expenses = ₹2,000 + ₹2,000 = ₹4,000.
Consignee's direct expense = unloading ₹1,000. Godown rent is an indirect expense, so it is excluded.
Total cost = ₹20,000 + ₹4,000 + ₹1,000 = ₹25,000.
Cost per unit = ₹25,000 ÷ 200 = ₹125.
Closing stock = 50 × ₹125 = ₹6,250.

Answer: Closing stock = ₹6,250

Example 2

Meena sent 100 units at ₹50 each to Arjun and paid freight of ₹1,000 on all 100 units at dispatch. In transit, 10 units were lost by theft. Arjun received the remaining 90 units and later paid ₹900 as direct expenses on them. Calculate the value of the abnormal loss.

Show the solution

Theft in transit is an abnormal loss.
Cost of goods = 100 × ₹50 = ₹5,000.
Freight was paid on dispatch, before the theft, so it applies to all 100 units. Total cost up to the point of loss = ₹5,000 + ₹1,000 = ₹6,000.
Cost per unit up to the point of loss = ₹6,000 ÷ 100 = ₹60.
Arjun's ₹900 was incurred after the theft, on the 90 units received. The lost units do not carry it. It is borne by the 90 good units.
Abnormal loss = 10 × ₹60 = ₹600.

Answer: Abnormal loss = ₹600

Exam tips

Read the units line first. Most MCQs here are solved by one division and one multiplication.
Check when the loss occurred. Expenses after the loss are not shared with lost units.
If the question says shrinkage or evaporation, treat it as normal loss. If it says theft, fire or accident, treat it as abnormal.
Look for a selling price lower than cost. That signals the lower of cost and net realisable value.
With no negative marking, always mark an answer. Eliminate options that include indirect expenses in stock.

Practice questions from Consignment

Valuation of Stock and Treatment of Expenses: frequently asked questions

How is closing stock valued in consignment?

It is valued at the lower of cost and net realisable value. Cost includes the cost of goods and direct expenses of both the consignor and the consignee up to the godown, in proportion to the unsold units.

What is the difference between normal loss and abnormal loss in consignment?

Normal loss is unavoidable, such as evaporation, and is absorbed in the cost of the remaining units. Abnormal loss is avoidable, such as theft or fire. It is valued at cost and credited to the Consignment Account at cost. Any insurance claim is dealt with in the Abnormal Loss Account.

How do you calculate abnormal loss in consignment?

Take the total cost incurred up to the point of loss and divide it by the units available at that point. Multiply this cost per unit by the abnormal loss units. For a loss in transit, use only the goods cost and the consignor's direct expenses. Credit this cost to the Consignment Account. In the Abnormal Loss Account, subtract any insurance claim to find the loss charged to profit and loss.

Are godown rent and selling expenses included in stock valuation?

No. Godown rent for storage and selling expenses are indirect expenses incurred after the goods reach the godown. They are charged to the Consignment Account and not added to stock.