Learning objectives of this article:
- Define and explain unsold stock or
closing stock on consignment.
- How is it calculated?
Definition and Explanation:
When all the goods sent on consignment
have not been sold by the consignee at the
time of preparing final accounts by the
consignor the unsold stock is brought into
books by means of the following journal
entry:
Consignment stock account |
Dr. |
Consignment account |
Cr. |
The consignment stock account is an asset
and will be shown in the balance sheet. Next
year it will be transferred to the debit
side of the consignment account. The
principle of valuing stock "cost price or
market price whichever is lower" applies to
consignment also. Cost price means original
cost of the unsold stock plus proportionate
amount of the expenses which are necessary
to put the goods. In their present value
place and condition such as freight, octroi
duty, insurance, forwarding charges,
carriage up to consignee's godown etc.
Generally all expenses incurred till the
goods reach consignee's godown etc.
Generally all expenses incurred till the
goods reach consignee's godown etc are
treated as part of the cost whether incurred
by the consignee or consignor. Expenses
incurred in storage and selling the goods
after the goods reach consignee's godown are
not to be considered in the cost of the
unsold stock (closing stock).
Example:
S & Co. of Chicago consigned 500 units of
goods to R & Co. of New York, the cost price
of units is $8000. S & Co paid the following
expenses:
(a) |
Carriage |
$2,400 |
(b) |
Marine insurance |
$960 |
(c) |
Freight |
$1,080 |
R & Co. paid the
following expenses:
(a) |
Dock charges to consignee's
warehouse |
$150 |
(b) |
Import duty |
$450 |
(c) |
Carriage to the buyer's
warehouse |
$500 |
(d) |
Commission |
$160 |
(e) |
Expenses on goods sold |
$100 |
(f) |
Warehouse rent |
$50 |
Out of 500 units 400
units were sold up to date. Find out the
value of the closing stock on
consignment.
Solution:
Total expenses
incurred by consignor: (2,400 +
960 + 1,080) |
$4,440 |
Expenses
incurred by consignee till the
goods reach godown: (150 + 450)
|
$600 |
|
|
|
$5,040 |
|
|
Unsold units:
100
Cost of unsold
units: (100
×
8,000)/500 = $1,600
Expenses to be
included: (100
×
5,040 )/500 = $1,008
Value of
unsold stock: $1,600 + $1,008 =
$2,608
The following expenses have
been ignored in the calculation
of the value of unsold stock
because these expenses have been
incurred after the goods have
been reached to consignee's
godown:
Carriage to the buyers
warehouse, commission, expenses
on goods sold and warehouse
rent. |
|
Note:
Where details regarding the
nature of expenses is not given in the
question, the expenses incurred by the
consignor will be taken into account for
the valuation of closing stock. Expenses
incurred by the consignee will be
ignored.
|