Consignment Sales Understanding the Consignment Sales Process

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On 31st March, 2012 Ramji Dayalji P. Ltd., a trading organisation owned inventory costing Rs 3 lakhs of which inventory valued Rs 1 lakh was with consignees. It also had in its possession inventory valued at Rs 10 lakhs belonging to its own principals. The retail price per magazine is $10 and the price charged by Company A selling to the retailers is $5.

But to find out the actual profit or loss,
the sale proceeds must be compared with the actual profit. The final step is to disclose consignment inventory in your financial statements. According to IFRS, you should provide enough information for users of your financial statements to understand the nature and extent of your inventory and the related risks and uncertainties. By following these steps, you can report and disclose consignment inventory in your financial statements under IFRS in a comprehensive and accurate manner. When the consignor sends goods to the consignee, a journal entry is not needed. However, when the consignee sells the goods received, they pay the consignor a predetermined sale amount.

Why is Consignment not a Sale?

Normal Loss − Normal loss may occur due to inherent characteristics of goods like evaporation, drying up of goods, etc. It is not separately shown in the consignment account, but included in the cost of goods sold and the closing stock by inflating the rate per unit. To calculate the value of unsold stock, following formula is used. Ltd., manufacturers and dealers in edible oil, consigned to their Bangalore agent, 250 crates of oil (each crate containing 12 one-kilo sachets) in March, 2012. The consignment was sent at 20% over the cost price of Rs 120 per kilo. A bill was drawn on the agent for 80% of the value of the consignment which was met on presentation.

consignment accounting

The insurance company settled the loss claim for Rs 2,500. Dass took delivery of the consignment on the 10th January. Were sold at Rs 600, the expenses being on godown rent Rs 30,000, on advertisement Rs 40,000 and on salesmen’s salaries Rs 64,000. Dass is entitled to a commission of 3 per cent plus 1½ per cent del credere.


Kale received the consignment on 14th December, 2011 and accepted a 3 months’ draft drawn upon him by H. Kale paid Rs 1,050 as rent and Rs 250 as insurance and by 31st March had disposed of 40 pressure cookers at Rs 1,640 each. Kale is entitled to a commission of 5 per cent on sales including a del credere commission of 1%. Kale sold 10 pressure cookers son credit and was not able to recover sale proceeds of one pressure cooker because of insolvency of the debtor. T. Nu sent a bank draft to Roy & Co. for Rs 50,000 as advance payment and later sent an account sales showing that 800 toys had been sold at Rs 220 each.

consignment accounting

Throughout the month of January, the retailers manage to sell 50,000 copies (the retailers notify Company A on January 30th). Therefore, there were 50,000 unsold magazines, which the retailers returned to Company A on January 31st. Additionally, each magazine costs Company A $1 to make.

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In this article, you will learn how to report and disclose consignment inventory in your financial statements under IFRS. A del credere commission is paid by the consignor to his agent for taking additional risk of recovery of debts from the consignee on an account of credit sales made by him (agent) on consignor’s behalf. In a consignment arrangement, the consignor continues to own the goods until they are sold, so the goods appear as inventory in the accounting records of the consignor, not the consignee. When the consignor receives this payment from the consignee, it records the cash as revenue. To increase the sale and to encourage the consignee to make credit sales, the consignor provides an
additional commission generally known as del-credere commission. This additional commission
when provided to the consignee gives a protection to the consignor against bad debts.

  • However, there are some differences in how consignees and consignors measure consignment inventory.
  • (vi) It is also usual for the agent to give an advance to the principal in the form of cash or a bill
    of exchange.
  • Exe sent on 1st July, 2011 to Wye goods costing 50,000 and spent 1,000 on packing etc.
  • It is obvious that the relationship between Disposal Goods Co. and Sunderam is that of principal and agent.
  • Later Fancy Stores, Delhi, report that the entire consignment has been sold for Rs 78,000.
  • Online auction sites are a form of consignment arrangement, since a third party is undertaking the sales role.

(vi) It is also usual for the agent to give an advance to the principal in the form of cash or a bill
of exchange. It is adjusted against the sale proceeds of the goods. Hence, the consignee does not treat the consignor as his creditor.

Disadvantages of a Consignment Arrangement

(ii) Sundaram has incurred 850 on clearing 850 cases, i., 1 per case; while valuing closing
Inventories with the agent ` 1 per case has been added to cases in hand with the agent. Miss Rakhi lodged a claim with the insurance company which was admitted at ` 35,000. Show
the Consignment Account and Miss Geeta’s Account in the books of Miss Rakhi.

How do you record accounting for consignment?

The consignor will make a journal entry for the goods received. The journal entry for the consignment accounting will have a credit and a debit. It is recorded as a debit for the consignment inventory, and a credit for the store's inventory. The consignee does not make an entry.

Kanpur Cycle Co. is entitled to a commission of 5% on invoice price and 25% on any surplus of sale price over invoice price. When the consignee eventually sells the consigned goods, it pays the consignor a prearranged sale amount. The consignor records this prearranged amount with a debit to cash and a credit to sales. It also purges the related amount of inventory from its records with a debit to cost of goods sold and a credit to inventory.

Consignment: Problem and Solution # 5.

The Swastik Oil Mills paid Rs 2,00,000 for packing, freight and insurance. Were accidentally destroyed for which the insurers paid, directly to the consignors, Rs 45,000 in full settlement of the claim. This method is a mixture of both cost price and invoice
price method. Two columns are made to record the cost price and the invoice
price of the goods consigned. There is no need for passing the entries for
removal of both loading as both invoice and cost values are shown in the
separate columns.

consignment accounting


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