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CA Foundation · Accounting · Inventories

Goods sent by Mehta Traders on consignment to an agent remain unsold at the year-end. In whose inventories should these goods be included under AS 2 principles?

Unsold consignment goods belong in Mehta Traders' inventories because the consignor remains the owner until the agent sells them. Physical possession by the agent does not transfer ownership, so the agent does not include these goods in its own inventories.

  1. AThe agent's, because the goods are in his physical possession
  2. BNeither party, until the goods are sold
  3. CThe agent's, because he has agreed to sell them
  4. DMehta Traders', because the goods are still owned by itCorrect

Explanation

Inventories are valued in the books of the owner. In consignment, the consignor retains ownership until the agent sells the goods, so the unsold goods are the consignor's inventory even though they are physically with the agent. The agent only holds them for sale on commission.

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