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CMA Intermediate · Financial Accounting · Consignment

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 sales plus 2% del credere on credit sales only. Rs 6,000 of the credit sales proved bad. What is the total commission debited to the Consignment Account, and how are the bad debts treated?

Total commission is Rs 22,000: 5% on Rs 4,00,000 sales gives Rs 20,000, and 2% del credere on Rs 1,00,000 credit sales gives Rs 2,000. Because del credere is payable, the consignee bears the Rs 6,000 bad debts and the consignor does not debit them.

  1. ARs 22,000; bad debts borne by the consignee, not debitedCorrect
  2. BRs 22,000; bad debts also debited to the Consignment Account
  3. CRs 28,000; bad debts borne by the consignee, not debited
  4. DRs 20,000; bad debts borne by the consignee, not debited

Explanation

Ordinary commission = 5% x 4,00,000 = 20,000. Del credere = 2% x 1,00,000 = 2,000. Total = 22,000. Since del credere is allowed, the consignee bears the Rs 6,000 bad debts, so nothing is debited to the consignment account. Debiting bad debts as well would double count the risk.

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