CONSIGNMENT

Meaning of Consignment : When goods are sent by the owner or the Principal to his agent or any other representative on the condition of
selling goods on his behalf for which the later will be given commission at a specified rate as remuneration, it is called consignment. The person
who sends goods is called consignor. He is responsible for all profits and losses along with all expenses and risk, if any.

Characteristics of Consignment ankur roy9836021833

1. The goods are sent by the consignor to the consignee for the purpose of sale.

2. The relationship between the consignor and the consignee is that of Principal and Agent.

3. Consignment is not sale of goods.

4. Consignee acts as per the instructions of the consignor.

5. Consignee has the right to receive commission on goods sold.

6. The rightful owner of goods is the consignor.

7. Consignee is the Bailee of goods. Security of goods is his responsibility.

Some main terms in Consignment

1. Consignment- When goods are sent by Consignor to Consignee for the purpose of sale on which he will be entitled to receive commission it is
called Consignment. In this , goods sent by consigner to consignee is called as outward consignment and for consignee, it is inward
consignment.

2. Consignor- The person who sends goods to the agent for the purpose of sale is called Consignor or the Principal.

3. Consignee- The person to whom goods are sent on Consignment is called Consignee.

4. Commission- On sale of goods the consignee is entitled to receive consideration called Commission. It is of three types-

(a) Ordinary Commission- Consignee is given commissions on the selling Price of goods sold or it’s Invoice price at a specified percentage. It is
the remuneration of the consignee for work done. Ankur roy9836021833

(b) Delcredere Commission- If Consignee has been given the right to sell goods on credit by the Consignor , there is the possibility of bad debts
in such a case. This Loss is to be borne by the Consignor. In case the consignee undertakes the responsibility for collecting the debts and to bear
the loss of bad debt, or in such a case, he will receive additional commission at a certain rate, which is called Del credere Commission. This
commission is also calculated on total sale in the absence of any clear information.

(c) Over-riding Commission- If consignor gives right to consignee to sell the goods above invoice price, then a commission is given on excess
amount over actual invoice price called overriding commission.

5. Proforma Invoice – When goods are sent to the consignee, a Proforma Invoice in the form of an Invoice is sent wi by the consignor. It
contains particulars as regards name of goods, number or quantity or weight/measurement, marking, packing etc, to identify the same. The
necessary instructions are also given in it for selling goods at Invoice price or at higher than invoice price along with the rate and type of
commission.

6. Advance on consignment- If consignee sends some amount by cheque or bills receivable in advance prior to sale to the consignor, then it is
called as advance on consignment. If bills receivable is discounted by the consignor; the amount written on debit side of Consignment Account
is loss.

7. Account Sale- After selling the goods, documents containing details regarding quantity and quality of goods sold, selling price, expenses
incurred by him, his commission, details of advance given etc,. are mentioned. This document is called Account sale.

Valuation of unsold stock ankur roy9836021833

(i) Actual value of unsold stock at cost price or market price, whichever is less.
(ii) Add proportionate expenses incurred by the consignor (such as freight, carriage on purchase, export and import duties, loading
charges).
(iii) Add proportionate expenses of non-recurring nature incurred by consignee such as freight on loading and unloading , octroi ,
wages, insurance of goods in transit etc. .

Important Note:- Expenses of recurring nature (such as warehouse expenses, establishment, carriage on sales, packing expenses, Godown rent
or charges, advertisement, and other sale expenses) are not considered for valuation of unsold stock. Simple rule is all such expenses, which are
incurred to bring the goods into saleable condition and incurred by consignee for bringing the goods upto the warehouse or godown are of non-
recurring nature, which are considered for valuation of unsold stock.

Loss of goods sent on consignment

When some of the goods sent on consignment are lost on the way or in transit or damaged or stolen, its treatment in books depends on the
nature and type of loss. Accordingly the loss may be normal or abnormal.

1. Normal Loss : When Loss is incurred due to the present nature of commodity and due to inherent nature of commodity, which is unavoidable
it is called normal Loss.

Accounting treatment : No entry is required to be passed for normal loss but the cost of remaining stock (good stock) is inflated by the cost of
units lost.

2. Abnormal Loss : The loss of stock which is due to carelessness or abnormal reasons is called abnormal loss.

This loss is calculated as under :

(a) Loss in Transit : (Loss of stock that occurred before goods reached consignee’s Warehouse) - In this case, to get value of abnormal loss
proportionate share of consignor’s expenses are added in the cost of stock lost. Consignee’s expenses are not included.

(b) Loss of stock in Consignee’s Godown : In this case, value of abnormal loss is caluculated : the cost of goods destroyed by adding
proportionate expenses of the consignor as-well-as proportionate non-recurring (Direct) expenses of the Consignee.

Accounting Treatment of Abnormal Loss of stock : This Loss is to be borne by the Consignor, as such, the required entries will be passed in the
books of the Consignor only.

1) When Abnormal Loss Occurs

Abnormal Loss A/c Dr. (Amount of Abnormal Loss)

To Consignment A/c

(2) If stock is insured and insurance Company admits the claim

Insurance Company A/c Dr. (With the amount of claim admitted )

Profit & Loss A/c Dr. (With the amount not admitted)

To Abnormal Loss A/c

(3)Total amount of claim

Bank A/c Dr. (Admitted claim received from Insurance Company)