Financial Accounting · Consignment

Valuation of Unsold Stock and Invoice Price Method in Consignment

Updated 10 October 2026 · Fact-checked

Closing stock on consignment is valued at cost or net realisable value, whichever is lower, with a proportionate share of the consignor's direct expenses added. If goods are sent at invoice price, you remove the loading (the extra profit loaded over cost) from stock, goods sent, and loss figures so that profit is not recognised before sale.

Understand Valuation of Unsold Stock and Invoice Price Method

A consignor sends goods to a consignee who sells them for a commission. Until the consignee sells, the goods still belong to the consignor. So unsold goods at the end of the period are the consignor's closing stock, and they must be valued correctly. Wrong stock value means wrong profit.

The rule is the usual one: cost or net realisable value, whichever is lower. Cost here is not just the price of the goods. It includes the direct expenses that bring the goods to their present location and condition, up to the consignee's godown. Examples are freight, packing, cartage, insurance in transit and unloading into the godown, whether paid by the consignor or the consignee. Selling costs such as the consignee's commission, godown rent and selling expenses are not part of the stock value.

Only a proportionate part of direct expenses goes into the closing stock. If 100 units were sent and 20 are unsold, then 20/100 of the direct expenses on the whole lot is added to the stock. Expenses incurred once the goods are in the consignee's godown, such as godown rent, are generally treated as selling-type charges and are not carried into stock, unless the question says otherwise. Abnormal loss is separate: it is valued at cost including proportionate expenses up to the point of loss, and it is covered in its own topic.

Sometimes the consignor sends goods at invoice price, which is above cost (for example cost plus 25%). The extra amount is the loading. It is not real profit, because the goods are not yet sold. So the consignor records the goods at invoice price in the books, then removes the loading from the unsold stock by creating a stock reserve (or by reducing the stock to cost). The loading on goods sold stays in the books as part of the profit.

The idea is simple. Show goods sent at invoice price, then adjust the loading out so that the consignment account shows the profit on goods actually sold. The adjustment is needed for closing stock, for goods lost, and for goods sent at invoice price that are still with the consignee.

Key rules to remember

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.

How to solve Valuation of Unsold Stock and Invoice Price Method questions

Use this order for any consignment question that has unsold stock or invoice price. It keeps the figures clean and shows each step to the examiner.

1Read the question and list units sent, units sold, units lost (normal and abnormal) and units unsold. Check that they add up.
2Find out whether goods were sent at cost or at invoice price. If invoice price, find the loading from the wording and decide whether it is on cost or on invoice price.
3Compute the cost of the goods sent: at cost price if given, otherwise Invoice price × 100 ÷ (100 + loading % on cost).
4Split expenses into direct (freight, packing, insurance, cartage up to the consignee's godown) and others (commission, godown rent, selling expenses). Only direct expenses go into stock.
5Work out the unsold units and the proportionate direct expenses per unit. Compare cost with net realisable value, if given, and take the lower.
6If goods were sent at invoice price, choose one method. Reserve method: credit the Consignment A/c with the loading on goods sent (Goods Sent on Consignment A/c Dr), show closing stock at invoice price of unsold goods plus proportionate direct expenses, and debit the Consignment A/c with the stock reserve for the loading on unsold goods. Cost method: show closing stock at cost and make no reserve entry in the account.
7Prepare the Consignment A/c, with closing stock on the credit side and the balancing figure as profit or loss. Show the stock reserve in the Balance Sheet if you used the reserve method.
8Check your answer: profit on consignment should equal profit on goods sold less selling costs, with no profit on unsold goods.

Quickest way: Working in cost terms from the start

When to use it: Use this when the question gives goods at invoice price and asks only for consignment profit or loss, not the full ledger entries.

Convert invoice price of goods sent to cost: Invoice price × 100 ÷ (100 + loading % on cost).
Add all direct expenses to get total cost of the consignment.
Find cost per unit including direct expenses, and multiply by unsold units to get closing stock.
Write the Consignment A/c with debit items: cost of goods, expenses, commission. Credit items: sales and closing stock at cost.
The balancing figure is profit or loss at cost basis, which already excludes loading on unsold goods.
If the ledger entries are also asked, state the loading on goods sent and the stock reserve separately, using Loading = Invoice price − Cost.

Common mistakes in Valuation of Unsold Stock and Invoice Price Method

Adding the consignee's commission or godown rent to closing stock.
Students treat every consignment expense as part of cost.
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.
The stock looks like it should carry the whole expense amount.
Fix: Multiply total direct expenses by unsold units ÷ total units sent. Use units, not rupees.
Using the wrong loading fraction when invoice price is cost + 25%.
Students apply 25% to the invoice price instead of to cost.
Fix: If the loading is on cost, Loading ÷ Invoice price = 25 ÷ 125 = 1/5. Always rewrite the wording as a fraction of invoice price first.
Calculating stock reserve on stock that already includes direct expenses.
Students take the full closing stock figure and apply the loading fraction to it.
Fix: Loading exists only on the invoice price of the goods. Apply the loading fraction to the invoice value of the unsold goods, and exclude direct expenses.
Forgetting to remove loading on goods sent, so profit is overstated.
Students show goods sent at invoice price in the Consignment A/c and skip the adjustment.
Fix: Pass the entry Goods Sent on Consignment A/c Dr, To Consignment A/c, for the loading on goods sent. Then create the stock reserve for the loading on unsold goods.
Ignoring net realisable value when it is lower than cost.
Students value everything at cost out of habit.
Fix: Whenever the question gives an expected selling price less selling expenses, compare it with cost and use the lower.

Worked examples

Example 1

Anil Traders of Pune consigned 500 units to Rohan & Co. of Nagpur at a cost of ₹200 per unit. Anil paid freight and insurance of ₹5,000 and packing of ₹2,500. Rohan paid godown rent of ₹1,800 and selling expenses of ₹3,000. Rohan sold 400 units at ₹300 per unit and is entitled to commission of 5% on sales. Find the closing stock and the profit on consignment.

Show the solution

Cost of goods = 500 × ₹200 = ₹1,00,000.
Direct expenses = ₹5,000 + ₹2,500 = ₹7,500. Godown rent and selling expenses are not direct expenses for stock.
Unsold units = 500 − 400 = 100. Proportion unsold = 100 ÷ 500 = 1/5.
Closing stock = (₹1,00,000 + ₹7,500) × 1/5 = ₹1,07,500 × 1/5 = ₹21,500.
Sales = 400 × ₹300 = ₹1,20,000. Commission = 5% × ₹1,20,000 = ₹6,000.
Debit side of Consignment A/c: goods ₹1,00,000 + freight and insurance ₹5,000 + packing ₹2,500 + godown rent ₹1,800 + selling expenses ₹3,000 + commission ₹6,000 = ₹1,18,300.
Credit side: sales ₹1,20,000 + closing stock ₹21,500 = ₹1,41,500.
Profit = ₹1,41,500 − ₹1,18,300 = ₹23,200.

Answer: Closing stock is ₹21,500 and profit on consignment is ₹23,200.

Example 2

Meera Textiles of Surat consigned 400 units to Kiran of Indore at an invoice price of ₹150 per unit, which is cost plus 25%. Meera paid freight of ₹4,000. Kiran paid unloading of ₹800 and godown rent of ₹1,200. Kiran sold 300 units at ₹180 per unit and is entitled to commission of 4% on sales. Prepare the Consignment A/c using the stock reserve method, and show the loading adjustments.

Show the solution

Invoice value of goods sent = 400 × ₹150 = ₹60,000.
Cost = ₹60,000 × 100 ÷ 125 = ₹48,000. Loading = ₹60,000 − ₹48,000 = ₹12,000.
Direct expenses = freight ₹4,000 + unloading ₹800 = ₹4,800, because both bring the goods to their present location. Godown rent of ₹1,200 is a post-arrival cost and is not carried into stock.
Unsold units = 100. Invoice value of unsold goods = 100 × ₹150 = ₹15,000.
Direct expenses on unsold = ₹4,800 × 100 ÷ 400 = ₹1,200. Closing stock in the account = ₹15,000 + ₹1,200 = ₹16,200 (invoice price plus proportionate direct expenses).
Stock reserve = loading in unsold goods = ₹15,000 × 1/5 = ₹3,000. No loading is applied to the direct expenses.
Sales = 300 × ₹180 = ₹54,000. Commission = 4% × ₹54,000 = ₹2,160.
The reserve method has two parts. Part 1, loading on goods sent: Goods Sent on Consignment A/c Dr ₹12,000; To Consignment A/c ₹12,000.
Part 2, loading on unsold goods: Consignment A/c Dr ₹3,000; To Consignment Stock Reserve A/c ₹3,000.
Consignment A/c debit side: goods at invoice ₹60,000 + freight ₹4,000 + unloading ₹800 + godown rent ₹1,200 + commission ₹2,160 + stock reserve ₹3,000 = ₹71,160.
Credit side: sales ₹54,000 + loading on goods sent ₹12,000 + closing stock ₹16,200 = ₹82,200.
Profit = ₹82,200 − ₹71,160 = ₹11,040.
Check using the cost method (a check only, not added to the account above): debit items at cost = ₹48,000 + ₹4,000 + ₹800 + ₹1,200 + ₹2,160 = ₹56,160. Credit = sales ₹54,000 + closing stock at cost ₹13,200 (₹12,000 + ₹1,200) = ₹67,200. Profit = ₹11,040. This matches.

Answer: Profit on consignment is ₹11,040. Closing stock in the account is ₹16,200 at invoice price plus direct expenses, and the stock reserve of ₹3,000 brings it to cost of ₹13,200.

Exam tips

In the MCQ section, look for loading wording. 'Cost plus 25%' and 'loading of 20% on invoice price' both give a loading of 1/5 of invoice price, whereas 'cost plus 20%' gives 1/6. Convert the wording to a fraction of invoice price before you calculate.
In written answers, show the loading calculation as a separate working note. Examiners give marks for the cost of goods, loading, and stock reserve even if the final profit has a slip.
Always state which expenses you added to stock and which you did not, in a short working note. This protects step marks.
Before finishing, cross-check the profit using the cost-basis method. If both agree, the loading adjustments are correct.
If the question gives net realisable value, compare it with cost per unit and mention the lower value clearly.

Practice questions from Consignment

Valuation of Unsold Stock and Invoice Price Method in other exams

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

CMA FoundationInvoicing Goods at Higher Price and Stock Reserve

Valuation of Unsold Stock and Invoice Price Method: frequently asked questions

What is loading in consignment?

Loading is the excess of the invoice price of goods over their cost. The consignor may send goods at such a price, for example for internal control. Because loading is unrealised profit, it must be removed from unsold stock so profit is not shown before sale.

Do I add the consignee's expenses to closing stock?

Only direct expenses that bring the goods to their present location, such as freight and unloading, are added, whoever paid them. Selling-type items, such as the consignee's commission, selling expenses and godown rent, are generally not added. If the question treats a particular expense as direct, follow the question.

How do I find the stock reserve?

Take the invoice value of the unsold goods and multiply by the loading fraction of invoice price. For goods at cost plus 25%, the fraction is 1/5. Do not apply it to direct expenses added to stock.

Is closing stock valued at invoice price?

No. The value used in the final accounts is cost plus proportionate direct expenses, or net realisable value if lower. In the reserve method, the consignment account shows unsold goods at invoice price plus proportionate direct expenses, and the stock reserve brings that value down to cost.