Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Consignment

Under the accounting treatment of consignment transactions, at what value is the unsold stock lying with the consignee at the end of the period shown in the consignor's books?

Unsold consignment stock is valued at cost or net realisable value, whichever is lower. Cost includes the proportionate direct expenses such as freight and insurance incurred to bring goods to the consignee's godown. Valuing at selling or invoice price would record unearned profit, so it is wrong.

  1. AAt selling price fixed by the consignor
  2. BAt cost (including proportionate direct expenses) or net realisable value, whichever is lowerCorrect
  3. CAt market price plus consignee's commission
  4. DAt invoice price charged to the consignee

Explanation

Closing stock on consignment follows the general rule of cost or net realisable value, whichever is lower. Cost includes the proportionate consignor's expenses (freight, insurance) and the consignee's non-recurring expenses up to the point of sale. Selling price or invoice price would anticipate profit, which is not allowed.

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.

Practise ConsignmentFree diagnostic mock

More Consignment questions