CMA Intermediate · Financial Accounting · Consignment
A consignor sent 1,000 units at cost Rs 60 each, with freight of Rs 5,000 paid by him. Of the units sent, 100 were lost in transit due to a normal cause such as evaporation. How is the loss treated in valuing the remaining stock?
A normal loss in transit is not shown separately. Its cost is absorbed by the remaining good units, which raises their per-unit cost for valuing stock and for computing consignment profit. Only abnormal loss is credited to the Consignment Account and charged to Profit and Loss.
- ACharged to the consignee's account as a loss
- BDebited to the Profit and Loss Account as an abnormal loss
- CIgnored, and the cost of the remaining units is spread over the good units, increasing per-unit costCorrect
- DCredited to the Consignment Account as a gain
Explanation
A normal loss is not separately written off. Its cost is absorbed by the good units, so the per-unit cost rises (total cost 65,000 over 900 units). Charging it to Profit and Loss is the treatment for abnormal loss.
Did you get it right without looking?
One question tells you little. A timed set on Consignment shows your real accuracy, how long you take and where you lose marks.
More Consignment questions
- In the books of a consignor, which of the following correctly describes the Consignment Account?
- In consignment accounts, the main difference between an ordinary commission and a del credere commission paid to a consignee is that the del…
- Nair Exports consigned 1,000 units to Pillai at an invoice of Rs 150 each. Pillai sold 800 units at Rs 200 each, all for cash. Commission is…
- In a consignment arrangement, who owns the goods while they are held by the consignee, unsold?
- Mehta Traders consigned goods to Rao & Co. Rao sold goods for Rs 4,00,000, of which Rs 1,00,000 was on credit. Commission is 5% on total sal…
- Iyer Mills consigned 2,000 units to Das at an invoice price of Rs 100 (cost Rs 80). Das sold 1,500 units at Rs 130 each. Commission is 5% on…