CMA Foundation · Fundamentals of Financial and Cost Accounting · Consignment
Sharma Ltd. consigned goods to Iyer & Sons. Total sales were ₹4,00,000. Iyer is entitled to 4% ordinary commission on total sales and a del credere commission of 1% on total sales. Credit sales of ₹60,000 proved to be a bad debt. Who bears the bad debt and what is the total commission credited to the consignee?
The consignee bears the bad debt and gets total commission of ₹20,000. Because a del credere commission is paid, the consignee takes the credit risk. Ordinary 4% plus del credere 1% on ₹4,00,000 equals ₹20,000, and the consignor does not record the bad debt.
- AConsignor bears bad debt; commission ₹16,000
- BConsignee bears bad debt; commission ₹20,000Correct
- CConsignee bears bad debt; commission ₹16,000
- DConsignor bears bad debt; commission ₹20,000
Explanation
Del credere commission compensates the consignee for bearing bad debts, so Iyer bears the ₹60,000 loss and the consignor records no bad debt. Total commission = 4% + 1% = 5% of 4,00,000 = ₹20,000. Option with ₹16,000 omits the del credere commission.
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