Addis Ababa University

College of Business and Economics

School of Commerce

Department of Accounting and Finance

Assignment on Advanced Accounting

Prepared by: Bezawit Abrham

ID No.: BEE/1370/09

Sec: E4A1

Submitted to: Instructor Kiros E.

May, 2020

Addis Ababa, Ethiopia

1. Consignment is a specialized kind of transaction between consignor and consignee,
whereby consignor sends goods to consignee to be sold by the latter on behalf of the
former for a mutually agreed commission. The goods consigned to the agent cannot be
treated as sales at the time of the consignment; they are treated as sales only when those
are sold by the consignee. In a consignment transaction, the consignor sends goods to the
consignee and makes a bill called Proforma Invoice.
Difference between Sale and Consignment
1. When goods are sold by one to another, the property in the goods immediately passes
to the buyer, whereas when goods are sent on consignment, the property in the goods
remains with the consignor. Only the possession is transferred to the consignee.
2. When goods are sold by one to another, it becomes a relationship of a buyer and seller
or a debtor and a creditor between the two persons, whereas when goods are consigned
by one to another, it becomes a relationship of a principal and an agent between the
consignor and the consignee.
3. When goods are sold, the buyer cannot return the goods to the seller whereas when
goods are sent on consignment the goods are returnable, if they remain unsold.
4. The risk in the goods is not transferred to the consignee despite the transfer of
possession of goods. Any damage or loss to the goods is therefore borne by consignor.
But in the case of sale, the risk is immediately transferred to the buyer even when the
goods are still in the possession of the seller.
5. The expenses, in respect of freight, cartage, insurance, etc. Are met by the consignor in
a consignment transaction, but in the case of sale the expense are borne by the purchaser
unless otherwise provided in the agreement.
6. The transfer of possession (i.e. Delivery of goods) is essential in a consignment
transaction. In a sale, however, the goods may be delivered at a later date. The consignee
will be treated as a debtor only when goods or part of them have been sold by him. But if
goods remain unsold, the consignee will send them back to the Consignor and the
Consignor will pay the Consignee all the expenses he has incurred in keeping the goods
in safety and in attempting to push the goods in the market.
2. Del Credere Commission:- Ordinarily the consignee is not responsible to the consignor
for the payment of money by the purchasers but sometime he undertakes to guarantee
payment due for all the goods he sells on credit and cash whether his customers pay him
or not. In consideration of this warranting the solvency of the buyers, he is paid an extra
commission called a Del Credre Commission. The consignee will pay the consignor
whether he himself receives payment from debtors or not. The commission is payable on
total proceeds.

Valuation of Unsold Stock in Consignment:-Where all consigned goods are not sold
by the end of the consignor‘s financial year, it is necessary to obtain an ‘account sales’
from the consignee. This is a document detailing particulars of transactions and the
quantity of unsold stock on hand at that date. Unsold stock is valued to enable the profit
on the consignment up to balance sheet date to be ascertained, and included with revenue
from other trading activities. The basis for valuation of this stock is cost price unless
deterioration or obsolescence requires the adoption of net realizable value. Determination
of cost price involves a consideration not only of the original purchase price of the goods
but also of any expenses in transporting the goods to the place of sale-the consignee‘s
store. Thus it is proper to include the following in valuing unsold stock: (carriage and
freight, loading charges, customs duty, clearing charges, dock dues, carriage paid up to
the godown and unloading charges).
 Purchase price
 Inward charges to the consignor‘s place of business
 Outward charges related to the dispatch to the consignee
 Inward charges incurred by the consignee
Expenses incurred by the consignee in selling the goods such as advertisement,
salesman‘s salaries and commission, storage, insurance against fire or theft are not
included in the valuation of unsold stock. These expenses do not relate to the goods
unsold and are recorded as marketing expenses. In other words it can be said that all
direct expense or all expenses made whether by the consignor or by the consignee in
placing the goods in a saleable condition (all expenses till the goods reach the go down of
expenses of both the consignor and the consignee to be added to purchase price is
calculated as a proportion of the total relevant expenses of the whole consignment. The
balance of consignment stock account is a current asset (appears in the asset side of
Balance Sheet). At the commencement of the next financial period, consignment stock
will be transferred to the consignment account, as a debit to enable the profit or loss on
 the sale of the remainder of the consignment to be determined the consignee) will be
taken into account while valuing the closing stock.
3. Account sales of 100 TVs received from Sony to be sold on Yared’s account on his
account at risk
100 TVs at 2500 250,000
Less: Expenses
Unloading expenses 600
Selling expenses 900 1500
Commission at 10% of sales 25,000 26,500
223,500
Less: Bill given as an advance on Jan. 10, 2020 20,000
Balance 203,500
Journal Entries in the Books of SONY (Consignor)
Consignment A/c 150,000
To goods sent on Consignment A/c 150,000
Consignment A/c 3,000
To Bank 3,000
Bills receivable A/c 20,000
To Yared 20,000
Bank Account 20,000
To bills Receivable A/c 20,000
Consignment A/c 1,500
To Yared 1,500
Yared 250,000
To Consignment A/c 250,000

Consignment A/c 25,000

To Alok 25,000

Bank A/c 203,500

To Alok 203,500
Consignment A/c
To Profit & Loss A/c 300
Goods sent on consignment A/c 150,000
To Trading A/c 150,000

Ledger Consignment Account

Dr. Cr.

Particulars Birr Particulars Birr

To good sent on consignment A/c 150,000 By Yared (Sales) 250,000
To Bank A/c (Exp) 3000
To Yared (Expenses) 1500
To Yared (Commission) 25,000
To Profit transferred to profit & 70,500
loss a/c
250,000 250,000

Yared

Particulars Birr Particulars Birr

To consignment A/c (Sales) 250,000 By bills recievable 20,000
By consignment (Expense) 1500
By consignment A/c
(Commission) 25,000
By Bank A/c 203,500

250,000 250,000

Entries in the Books of Yared (Consignee) Journal

Sony 20,000
To Bills payable A/c 20,000
Sony 1500
To bank A/c 1,500
Bills payable A/c 20,000
To Bank A/c 20,000

Bank A/c 250,000

To Sony 250,000

Sony 25,000

To Commission A/c 25,000

Sony 203,500

To Bank A/c 203,500

Sony

Particulars Birr Particulars Birr

To bills payable A/c 20,000 By Bank A/c (Sales) 250,000
To Bank A/c (Expenses) 1500
To Commission 25,000
To Bank A/c 203,500

250,000 250,000