day of the accounting year.
Receipts and payments account is prepared on the
cash in hand
Receipts and payments account opening balance indicates last year and cash at bank.
year closing cash in hand
Receipts and payments account closing balance means
and cash at bank. '
system.
Cash book is a book of account within the
Income and expenditure account is an account within the
Non-profit seeking concerns final accounts consist of
In income and expenditure account
system.
and
are recorded on debit side, whereas
• are recorded on credit side.
Excess of incomes over expenditures indicates .
Excess of expenditures over incomes indicates .
Surplus or deficit of non-profit seeking concern is ascertained by — Income and expenditure-account if shows debit balance it indicates
Income and expenditure account if shows credit balance it indicates
In income and expenditure account only transactions are recorded.
and
both transactions are
In income and expenditure account recorded.
account.
The balance of income and expenditure account is transferred to
Income and expenditure account start with any opening balance.
Income and expenditure account is a — account.
means loss on account of use of an asset.
If the date of purchase of asset is not mentioned, depreciation should be charged formonths.
Sale proceeds of assets
be included in income and expenditure account.
Sale proceeds of assets are
receipts.
Sale proceeds of assets will be credited to - account, in non-profit making
organisation.
expenditure and sale of newspaper is a
Purchases of newspaper is a
receipt.
to income and expenditure account and sale of
to income and expenditure account
Purchase of sports material issports material is
income.
The monthly or annual subscription paid by members is a Institutions with activities other than trade are known as —
system.
Non-trading concerns usually maintain their accounts byNon-profit seeking organizations are established for
purposes.
The method of preparing final accounts by non-profit making organizations and profit makingorganizations are
Friday, April 10, 2009
Thursday, April 9, 2009
Accounting problem
In examination problems depreciation is usually mentioned at certain percent per annum (% p.a.) on Ac cost of asset. If an asset is purchased in the current year, depreciation is to.be charged for the period from the date of purchase up to the end of the year. If the almirah is purchased on 1.10.2005, depreciation 3 to be charged for 3 months (Oct. to Dec.) on'31.12.2005. So the amount of depreciation will be Rs. 25 10 3
'°XTOOX12
. If the date of purchase is not mentioned, depreciation should be charged for 6 months,
^n the assumption that the asset has been purchased in the middle of the year. A note to that effect must be added.
2. SALE OF ASSETS:
Sale proceeds of assets will not be included in Income and Expenditure Account, since it is not a revenue item. But in the event of profit or loss on sale, loss will be debited to Income and Expenditure Account, but profit will not be taken to the credit of Income and Expenditure Account - it being capital mcome, will be credited to Capital Fund Account. If, however, the amount of profit is small, it may be credited to Income and Expenditure Account, since it will not affect the annual result in any significant onnner.
3. PURCHASE AND SALE OF NEWSPAPER:
Purchase of newspaper does not result in acquisition of any asset - so it is revenue expenditure. "Vhen purchased, it is debited to Income and Expenditure Account, When old newspapers are sold, the reatment is just the reverse.
4. PURCHASE AND SALE OF SPORTS MATERIALS:
Sports materials, viz. bat, ball etc. are spoiled in a very short time - so they are treated as revenue expenditure. Their sale or purchase will be dealt with in the same manner as "Purchase and Sale of Newspaper". However, if depreciation charged on sports material, then depreciation on sports material will be debited to income and expenditure account and the balance is shown in balance sheet on asset side.
5. SUBSCRIPTION:
The monthly or annual subscription paid by members is revenue income and hence credited to Income & Expenditure Account. The amount of subscription received hi this year may include subscription for last year or next year, which are to be excluded. Again, current year's subscription may be accrued or it might have been received last year in advance. Since these two items of subscription relate to current year, they are to be included. Thus we see that the following four adjustments are necessary for subscription:
With the amount of
subscription received
Last year's subscription received this year Next year's subscription received this year Current year's subscription received last year Current year's subscription not yet received
1. 2. 3. 4. HINTS:
this year
Deduct
Deduct
Add
Add
If the item relates to current year, add to subscription received this year; if the item does not relate to current year, deduct.
'°XTOOX12
. If the date of purchase is not mentioned, depreciation should be charged for 6 months,
^n the assumption that the asset has been purchased in the middle of the year. A note to that effect must be added.
2. SALE OF ASSETS:
Sale proceeds of assets will not be included in Income and Expenditure Account, since it is not a revenue item. But in the event of profit or loss on sale, loss will be debited to Income and Expenditure Account, but profit will not be taken to the credit of Income and Expenditure Account - it being capital mcome, will be credited to Capital Fund Account. If, however, the amount of profit is small, it may be credited to Income and Expenditure Account, since it will not affect the annual result in any significant onnner.
3. PURCHASE AND SALE OF NEWSPAPER:
Purchase of newspaper does not result in acquisition of any asset - so it is revenue expenditure. "Vhen purchased, it is debited to Income and Expenditure Account, When old newspapers are sold, the reatment is just the reverse.
4. PURCHASE AND SALE OF SPORTS MATERIALS:
Sports materials, viz. bat, ball etc. are spoiled in a very short time - so they are treated as revenue expenditure. Their sale or purchase will be dealt with in the same manner as "Purchase and Sale of Newspaper". However, if depreciation charged on sports material, then depreciation on sports material will be debited to income and expenditure account and the balance is shown in balance sheet on asset side.
5. SUBSCRIPTION:
The monthly or annual subscription paid by members is revenue income and hence credited to Income & Expenditure Account. The amount of subscription received hi this year may include subscription for last year or next year, which are to be excluded. Again, current year's subscription may be accrued or it might have been received last year in advance. Since these two items of subscription relate to current year, they are to be included. Thus we see that the following four adjustments are necessary for subscription:
With the amount of
subscription received
Last year's subscription received this year Next year's subscription received this year Current year's subscription received last year Current year's subscription not yet received
1. 2. 3. 4. HINTS:
this year
Deduct
Deduct
Add
Add
If the item relates to current year, add to subscription received this year; if the item does not relate to current year, deduct.
Wednesday, April 8, 2009
Cash receipts and cash payments
Cash receipts and cash payments of both capital and revenue nature are recorded here.
Only cash transactions are recorded here.
It will generally show debit balance. In case of bank overdraft balance, however, its netbalance may be credit. Again, it may also show nil balance but such occasion is rare.
Its closing balance indicates closing cash in hand and closing cash at bank.
It is not an account within the Double Entry System if is a statement only.
(8) It is prepared on the last day of the accounting year.ADVANTAGES:
The following advantages are derived from Receipts and Payments Account;
Total receipts and total payments under various heads are available at a glance.
The amount of cash in hand at the year-end can be ascertained.
The correctness of Cash Book can be verified through it, The total of Debit side of CashBook will agree with that of Receipts side of Receipts and Payments Account. On the other hand, the totalof Credit side of Cash Book will agree with that of Payments side of Receipts and Payments Account. .
METHOD OF PREPARATION:
Receipts and Payments Account is prepared with all the cash receipts and cash payments of the whole year. The net result of cash receipts and cash payments of a fixed period of time is determined through this account. So it's heading will bei
Receipts and Payments Account for the year ended 31.12.2005 (If accounting year ends on 31.12.2005)
Its left-hand side is called "Receipts" and right-hand side "Payments". On the left-hand (i.e. Receipts) side all cash receipts are recorded, while on the right-hand (i.e. Payments) side all cash payments are written, arranged in a classified form. It starts with last year's closing cash in hand and cash at bank and closes with current year's closing cash in hand and cash at bank. In other words, its opening balance indicates last year's closing cash in hand and cash at bank, while its closing balance means current year's closing cash in hand and cash at bank.
DISTINCTION BETWEEN CASH BOOK AND RECEIPTS AND PAYMENTS ACCOUNT
In fact Receipts and Payments Account is the Cash Book in a summarized form. Yet certain distinctions are observed between the two
Only cash transactions are recorded here.
It will generally show debit balance. In case of bank overdraft balance, however, its netbalance may be credit. Again, it may also show nil balance but such occasion is rare.
Its closing balance indicates closing cash in hand and closing cash at bank.
It is not an account within the Double Entry System if is a statement only.
(8) It is prepared on the last day of the accounting year.ADVANTAGES:
The following advantages are derived from Receipts and Payments Account;
Total receipts and total payments under various heads are available at a glance.
The amount of cash in hand at the year-end can be ascertained.
The correctness of Cash Book can be verified through it, The total of Debit side of CashBook will agree with that of Receipts side of Receipts and Payments Account. On the other hand, the totalof Credit side of Cash Book will agree with that of Payments side of Receipts and Payments Account. .
METHOD OF PREPARATION:
Receipts and Payments Account is prepared with all the cash receipts and cash payments of the whole year. The net result of cash receipts and cash payments of a fixed period of time is determined through this account. So it's heading will bei
Receipts and Payments Account for the year ended 31.12.2005 (If accounting year ends on 31.12.2005)
Its left-hand side is called "Receipts" and right-hand side "Payments". On the left-hand (i.e. Receipts) side all cash receipts are recorded, while on the right-hand (i.e. Payments) side all cash payments are written, arranged in a classified form. It starts with last year's closing cash in hand and cash at bank and closes with current year's closing cash in hand and cash at bank. In other words, its opening balance indicates last year's closing cash in hand and cash at bank, while its closing balance means current year's closing cash in hand and cash at bank.
DISTINCTION BETWEEN CASH BOOK AND RECEIPTS AND PAYMENTS ACCOUNT
In fact Receipts and Payments Account is the Cash Book in a summarized form. Yet certain distinctions are observed between the two
Tuesday, April 7, 2009
Balance Sheet
Balance Sheet
Assets
Rs.
Liabilities
Rs.
Furniture
250
Capital Fund
757
Less Depreciation @ 10 %
25
225
(Excess of income over
Books
300
Expenditure)
Less Depreciation @ 10 %
25
275
Creditors (Rafi & Co.)
50
Cash in hand
302
Subscription received
Accrued Subscription
45
in advance
20
Prepaid Rent
40
Outstanding Salaries
60
887
887
RECEIPTS AND PAYMENTS ACCOUNT
Generally, in examination problems an account styled "Receipts & Payments Account" and some additional information are given with the help of which Final Accounts are to be prepared. Now let us see what Receipts & Payments Account is? All the information necessary for preparation of this account is available from Cash Book. Various cash receipts and cash payments during the whole year find place in this account in a classified manner. Its closing balance indicates cash in hand and cash at bank at the year-end. It may be noted that Receipts & Payments Account cannot disclose the true result of a concern - it is ascertained through Income & Expenditure Account. =-DEFINirrONS:
"A Receipts and payments Account is a summarized Cash Book (cash and bank) for a given period".— Spicer and Pegler.
"This (Receipts and Payments Account) is simply a summary of the cash transactions as in the CashBook, analyzed and classified under suitable headings, including the opening and closing balances".— R.N. Carter.
Thus the account which is prepared at the year end in a summarized form with all the cash receipts and cash payments during the year arranged in a classified form, is called Receipts and Payments Account.
CHARACTERISTICS:
The following are the features of Receipts and Payments Account:
It is an abridged edition of Cash Book it is, in effect, a summary of Cash Book.
All cash receipts during the whole year are recorded on its left-hand (i.e., Debit) side, whileall cash payments during the whole year are written on its right-hand (i.e. Credit) side,arranged in a classified form.
Assets
Rs.
Liabilities
Rs.
Furniture
250
Capital Fund
757
Less Depreciation @ 10 %
25
225
(Excess of income over
Books
300
Expenditure)
Less Depreciation @ 10 %
25
275
Creditors (Rafi & Co.)
50
Cash in hand
302
Subscription received
Accrued Subscription
45
in advance
20
Prepaid Rent
40
Outstanding Salaries
60
887
887
RECEIPTS AND PAYMENTS ACCOUNT
Generally, in examination problems an account styled "Receipts & Payments Account" and some additional information are given with the help of which Final Accounts are to be prepared. Now let us see what Receipts & Payments Account is? All the information necessary for preparation of this account is available from Cash Book. Various cash receipts and cash payments during the whole year find place in this account in a classified manner. Its closing balance indicates cash in hand and cash at bank at the year-end. It may be noted that Receipts & Payments Account cannot disclose the true result of a concern - it is ascertained through Income & Expenditure Account. =-DEFINirrONS:
"A Receipts and payments Account is a summarized Cash Book (cash and bank) for a given period".— Spicer and Pegler.
"This (Receipts and Payments Account) is simply a summary of the cash transactions as in the CashBook, analyzed and classified under suitable headings, including the opening and closing balances".— R.N. Carter.
Thus the account which is prepared at the year end in a summarized form with all the cash receipts and cash payments during the year arranged in a classified form, is called Receipts and Payments Account.
CHARACTERISTICS:
The following are the features of Receipts and Payments Account:
It is an abridged edition of Cash Book it is, in effect, a summary of Cash Book.
All cash receipts during the whole year are recorded on its left-hand (i.e., Debit) side, whileall cash payments during the whole year are written on its right-hand (i.e. Credit) side,arranged in a classified form.
Monday, April 6, 2009
CONSIGNMENT ACCOUNTS
CONSIGNMENT ACCOUNTS
In today's world of business, every manufacturer or exporter or wholesaler tries his best to sell his products in his own country and abroad to a larger extent. But it is not an easy task, because a businessman cannot have the exact information about the demand of his product in different parts of the country and abroad. There are two methods by which businessmen can increase the sale of their products, (1) by opening their own branches in different parts of the country and abroad (2) by appointing agents in their own country as well as abroad. The first method is very expensive because a large sum of money is spent on the establishment of a branch and a number of persons are required as, manager, clerks, accountant etc. to carry out different operations of the branch. Inspite of spending such a heavy amount, the branch may prove un-successful or the profit earned by the branch may be very small as compare to the amount invested in the branch.
So far as the second method is concerned, the manufacturer or wholesaler just appoints an agent who sells goods on behalf and on the risk of the former. The agent is paid commission which is generally a percentage of sales made by him. This is comparatively a cheaper method by which sales can be promoted. This arrangement proves very useful due to the knowledge of the agent of the local conditions. The agent will try to sell the goods in the best possible manner and will remit the sale proceeds of the goods after deducting expenses and his own commission to the manufacturer or wholesaler.
Consignment is an act of sending the goods by the owner (manufacturer or whole sailer) to his agent, who agrees to collect, store and sell them on the risk and behalf of the owner on commission basis. The manufacturer or wholesaler who sends his good for sale is known as 'Consignor' and the person to whom the goods are sent is known as the 'Consignee*. The relationship between consignor and consignee is that of 'Principal and Agent* and not that of seller and buyer. It should be noted, carefully, that the consignee is not the buyer, he merely possesses the goods on behalf of the consignor. He is liable to make the payment to the consignor only to the extent the goods he has sold. Unsold goods belong to the consignor and are held by the consignee at the risk of the consignor.
When goods are dispatched by the consignor to the consignee, it will be a 'Consignment Outward' from consignor's view point and 'Consignment Inward' from consignee's view point.
A consignor may have a number of agents in different parts of the country or abroad to whom he sends good for sale. So, it will be very useful for him to maintain a separate subsidiary register (journal) with a view to keep full record of the goods consigned. This special register is named as 'Consignment Outward Book or Journal'. Accounting treatment of this book is similar to that of a sales book. On the other hand, a consignee may have a number of consignors from whom he receives goods for sale, so it will be very convenient for him to maintain a separate subsidiary register named as 'Consignment Inward Book'. However for solving the problems in the examination Journal is used for recording consignment transactions.
When goods are sent by the consigner to the consignee, he has to incurred some expenses on the goods consigned, such as carriage, dock dues, import duty, transportation, godown rent, Insurance etc. It should be remembered that generally all the expenses either paid by the consignor himself or by the consignee are borne by the consignor. The consignee will neither bear any expense or loss nor he will share iie profit made on the sale of goods. He will just receive his commission from the consignor.
In today's world of business, every manufacturer or exporter or wholesaler tries his best to sell his products in his own country and abroad to a larger extent. But it is not an easy task, because a businessman cannot have the exact information about the demand of his product in different parts of the country and abroad. There are two methods by which businessmen can increase the sale of their products, (1) by opening their own branches in different parts of the country and abroad (2) by appointing agents in their own country as well as abroad. The first method is very expensive because a large sum of money is spent on the establishment of a branch and a number of persons are required as, manager, clerks, accountant etc. to carry out different operations of the branch. Inspite of spending such a heavy amount, the branch may prove un-successful or the profit earned by the branch may be very small as compare to the amount invested in the branch.
So far as the second method is concerned, the manufacturer or wholesaler just appoints an agent who sells goods on behalf and on the risk of the former. The agent is paid commission which is generally a percentage of sales made by him. This is comparatively a cheaper method by which sales can be promoted. This arrangement proves very useful due to the knowledge of the agent of the local conditions. The agent will try to sell the goods in the best possible manner and will remit the sale proceeds of the goods after deducting expenses and his own commission to the manufacturer or wholesaler.
Consignment is an act of sending the goods by the owner (manufacturer or whole sailer) to his agent, who agrees to collect, store and sell them on the risk and behalf of the owner on commission basis. The manufacturer or wholesaler who sends his good for sale is known as 'Consignor' and the person to whom the goods are sent is known as the 'Consignee*. The relationship between consignor and consignee is that of 'Principal and Agent* and not that of seller and buyer. It should be noted, carefully, that the consignee is not the buyer, he merely possesses the goods on behalf of the consignor. He is liable to make the payment to the consignor only to the extent the goods he has sold. Unsold goods belong to the consignor and are held by the consignee at the risk of the consignor.
When goods are dispatched by the consignor to the consignee, it will be a 'Consignment Outward' from consignor's view point and 'Consignment Inward' from consignee's view point.
A consignor may have a number of agents in different parts of the country or abroad to whom he sends good for sale. So, it will be very useful for him to maintain a separate subsidiary register (journal) with a view to keep full record of the goods consigned. This special register is named as 'Consignment Outward Book or Journal'. Accounting treatment of this book is similar to that of a sales book. On the other hand, a consignee may have a number of consignors from whom he receives goods for sale, so it will be very convenient for him to maintain a separate subsidiary register named as 'Consignment Inward Book'. However for solving the problems in the examination Journal is used for recording consignment transactions.
When goods are sent by the consigner to the consignee, he has to incurred some expenses on the goods consigned, such as carriage, dock dues, import duty, transportation, godown rent, Insurance etc. It should be remembered that generally all the expenses either paid by the consignor himself or by the consignee are borne by the consignor. The consignee will neither bear any expense or loss nor he will share iie profit made on the sale of goods. He will just receive his commission from the consignor.
Sunday, April 5, 2009
Accounting Exam Paper 2009 100%work
[CH.2J THE ACCOUNTS OF NON-PROFIT MAKING ORGJ
Non-profit seeking organizations are also known as
Profit seeking organizations are also known as------
Non-profit making organizations do not deal in----
Receipts and payments account is a--------------------
account.
Income and expenditure account is usually prepared at the end of----------------- —.
Subscription received for previous year and next year should be---------------------------
year subscription.
----- is collected from members over and above the regular subscript
special purposes.
Special subscription is------------------------ to special fund account.
- is paid by a new member at the time of admission in non-] organizations.
Generally, admission fee is regarded as a------------------- income and------------
income and expenditure account.
----------------------- refers to property received by virtue of a will of a person after his <
Legacy is a •
----------------- receipt.
----------------------- is paid to become the life member of non-profit making organizati
The portion of the life membership fee which is used in current year is------------------
and the remaining portion is regarded as---------- --------- income.
The amount paid to lecturers invited by club is known as —------------------- .
Subscription received in advance is a------------------------ .
side of balance sheet.
Subscription outstanding is shown onCapital fund is also known as----------
Donations Rs. 10000, 60% capitalized ----------- ------------ will be credited t
expenditure account.
Life membership fee, 10% credited to income and expenditure account--------------
credited to capital fund.
Choose the most appropriate answer from the following four ans
Non-profit making organizations
(a) Buy goods (b) Manufacture goods
(c) Sell goods (d) None of these
Example of non-profit making organization
(a) Fan factory (b) Sugar industry
(c) Hospital (d) . Shoe factory
Non-profit making organizations are established for
(a) Profit (b) Charitable or religious purpos
(c) To manufacture goods (d) To help the rich people
Non-profit seeking organizations are also known as
Profit seeking organizations are also known as------
Non-profit making organizations do not deal in----
Receipts and payments account is a--------------------
account.
Income and expenditure account is usually prepared at the end of----------------- —.
Subscription received for previous year and next year should be---------------------------
year subscription.
----- is collected from members over and above the regular subscript
special purposes.
Special subscription is------------------------ to special fund account.
- is paid by a new member at the time of admission in non-] organizations.
Generally, admission fee is regarded as a------------------- income and------------
income and expenditure account.
----------------------- refers to property received by virtue of a will of a person after his <
Legacy is a •
----------------- receipt.
----------------------- is paid to become the life member of non-profit making organizati
The portion of the life membership fee which is used in current year is------------------
and the remaining portion is regarded as---------- --------- income.
The amount paid to lecturers invited by club is known as —------------------- .
Subscription received in advance is a------------------------ .
side of balance sheet.
Subscription outstanding is shown onCapital fund is also known as----------
Donations Rs. 10000, 60% capitalized ----------- ------------ will be credited t
expenditure account.
Life membership fee, 10% credited to income and expenditure account--------------
credited to capital fund.
Choose the most appropriate answer from the following four ans
Non-profit making organizations
(a) Buy goods (b) Manufacture goods
(c) Sell goods (d) None of these
Example of non-profit making organization
(a) Fan factory (b) Sugar industry
(c) Hospital (d) . Shoe factory
Non-profit making organizations are established for
(a) Profit (b) Charitable or religious purpos
(c) To manufacture goods (d) To help the rich people
Consigment
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 ihever is lower" applies in this case also. However, cost price means original cost of the unsold stock plus proportionate amount of the expenses ih are necessary to put the goods In their present place and condition such as freight, octroi, duty, insurance in transit, forwarding charges, carriage •p to consignee's godown etc. Generally all expenses incurred till the goods reach consignee's godown are seated as part of the cost whether incurred by the consignor or consignee. Expenses incurred in storage »nd selling the goods, after the goods reach consignee's godown are not to be iied in the cost of the stock. Instances of the latter type of expenses are godown rent and insurance for the godown and interest etc.
EXAMPLE:
Salman & Sons of Lahore consigned 500 units of goods to Ramzan of Nairobi, the cost price of i is Rs. 8,000. Salman & Sons paid the following expenses:
(a) Carriage Rs. 2,400 (b) Marine insurance Rs. 960 1 Freight Rs. 1,080. Ramzan incurred the following expenses:
Rs.
(d) Carriage from docks to consignee's warehouse 150
(e) Import duty 450(0 Carriage to the buyer's where house 500(g) Commission 160(h) Expenses on goods sold 100(i) Warehouse rent (consignee) 50
Out of 500 units 400 units were sold up to date. Find out the value of the closing stock on [•Msignment.
Solution:
Expenses mentioned from (a) to (e) have been incurred in making the goods saleable at the consignee's warehouse. The total (2,400 + 960 + 1,080 + 150 + 450) Rs. 5,040 should be added to the cost "unsold stock in such proportion that the unsold stock bears to the whole stock.
Total goods sent 500 units, goods unsold 100 units.
.'. Proportion of unsold stock to whole stock 5 : 1 or unsold stock is one-fifth of the total goods on consignment.
Rs.
Thus l/5th cost of goods sent on consignment 1,600
Add: l/5th expenses 1,008
Value of stock on consignment 2,608
Expenses connected with sales
Carriage to buyer's warehouse
Commission
(h) Expenses on goods sold.
(i) Warehouse rent are to be ignored for the purpose of valuation of closing stock.
EXAMPLE:
Salman & Sons of Lahore consigned 500 units of goods to Ramzan of Nairobi, the cost price of i is Rs. 8,000. Salman & Sons paid the following expenses:
(a) Carriage Rs. 2,400 (b) Marine insurance Rs. 960 1 Freight Rs. 1,080. Ramzan incurred the following expenses:
Rs.
(d) Carriage from docks to consignee's warehouse 150
(e) Import duty 450(0 Carriage to the buyer's where house 500(g) Commission 160(h) Expenses on goods sold 100(i) Warehouse rent (consignee) 50
Out of 500 units 400 units were sold up to date. Find out the value of the closing stock on [•Msignment.
Solution:
Expenses mentioned from (a) to (e) have been incurred in making the goods saleable at the consignee's warehouse. The total (2,400 + 960 + 1,080 + 150 + 450) Rs. 5,040 should be added to the cost "unsold stock in such proportion that the unsold stock bears to the whole stock.
Total goods sent 500 units, goods unsold 100 units.
.'. Proportion of unsold stock to whole stock 5 : 1 or unsold stock is one-fifth of the total goods on consignment.
Rs.
Thus l/5th cost of goods sent on consignment 1,600
Add: l/5th expenses 1,008
Value of stock on consignment 2,608
Expenses connected with sales
Carriage to buyer's warehouse
Commission
(h) Expenses on goods sold.
(i) Warehouse rent are to be ignored for the purpose of valuation of closing stock.
Saturday, April 4, 2009
Accounting Accounts
account will be debited and
When goods are sold on credit by consignee
account will be credited in consignee's book.
account will be debited and
When goods are sold on credit by consignee -
— — account will be credited in consignor's book.
For commission in consignment — — account will be credited and
be debited in consignee's book.
account will be debited and
For commission in consignment
be credited in consignor's book.
For Del-credere commission
account will be credited and
will be debited in consignee's book.
account will be debited and
For Del-credere commission in consignment
will be credited in consignor's book.
For the goods.taken over by the consignee for personal use— will be credited in consignee's book.
will be debited and
For the goods taken over by the consignee for personal use
and account will be credited in consignor's book.
When cash is received from debtors by consignee -
account will be credited in consignee's book.
account will be debited
account will be debited and
In case of bad debts, if the consignee does not receive the Del-credere commission
account will be debited and — — account will be credited in consignee's book.
In case of bad debts, if the consignee receives the Del-credere commission
debited and account will be credited in consignee's book.
will be
account will be debited
account will be debited and
For unsold stock with the consignee
account will be credited in consignor's book.
For Abnormal loss of goods, the value of goods damaged,
and
account will be credited in consignor's book.
For the amount of insurance claim receivable, due to abnormal loss,
be debited and —:— account will be credited in consignor's book.
account will
When damaged goods are sold for cash by consignee
account will be credited in consignee's book.
account will be debited and
For final payment in cash to consignor by consignee —account will be credited in consignee's book.
For final payment in cash by consignee to consignor —
— account will be credited in consignor's book.
account will be debited and
account will be debited and
account
will be
account will be credited in consignor's book.
account will be debited and account will
•-
For final payment by accepting a bill by consignee in favour of consignor
will be debited and account will be credited in consignee's book.
For final payment by accepting a bill by consignee in favour of consignor
debited and account will be credited in consignor's book.
For profit earned on consignment For loss on consignment
be credited in consignor's book.
When goods are sold on credit by consignee
account will be credited in consignee's book.
account will be debited and
When goods are sold on credit by consignee -
— — account will be credited in consignor's book.
For commission in consignment — — account will be credited and
be debited in consignee's book.
account will be debited and
For commission in consignment
be credited in consignor's book.
For Del-credere commission
account will be credited and
will be debited in consignee's book.
account will be debited and
For Del-credere commission in consignment
will be credited in consignor's book.
For the goods.taken over by the consignee for personal use— will be credited in consignee's book.
will be debited and
For the goods taken over by the consignee for personal use
and account will be credited in consignor's book.
When cash is received from debtors by consignee -
account will be credited in consignee's book.
account will be debited
account will be debited and
In case of bad debts, if the consignee does not receive the Del-credere commission
account will be debited and — — account will be credited in consignee's book.
In case of bad debts, if the consignee receives the Del-credere commission
debited and account will be credited in consignee's book.
will be
account will be debited
account will be debited and
For unsold stock with the consignee
account will be credited in consignor's book.
For Abnormal loss of goods, the value of goods damaged,
and
account will be credited in consignor's book.
For the amount of insurance claim receivable, due to abnormal loss,
be debited and —:— account will be credited in consignor's book.
account will
When damaged goods are sold for cash by consignee
account will be credited in consignee's book.
account will be debited and
For final payment in cash to consignor by consignee —account will be credited in consignee's book.
For final payment in cash by consignee to consignor —
— account will be credited in consignor's book.
account will be debited and
account will be debited and
account
will be
account will be credited in consignor's book.
account will be debited and account will
•-
For final payment by accepting a bill by consignee in favour of consignor
will be debited and account will be credited in consignee's book.
For final payment by accepting a bill by consignee in favour of consignor
debited and account will be credited in consignor's book.
For profit earned on consignment For loss on consignment
be credited in consignor's book.
Friday, April 3, 2009
CAPITAL KINDS
AUTHORIZED CAPITAL:
It is the amount of capital with which the company is registered. This capital is memorandum of association. A mention is also made of the number of shares into which fl divided, and of the par value of shares. In later years, if the company wants to either inci this capital, certain legal requirements must be met. This capital is also known as nt registered capital.
ISSUED CAPITAL:
Shares offered to the general public for contribution are known as shares issued. T of such shares is called issued capital. To begin with, a company seldom offers all subscription. Therefore, the amount of issued capital is generally less than the author company has an authorized capital of Rs. 10,00,000 divided into 10,000 shares of Rs.. decide to offer 5,000 shares to the general public. In this case the issued capital is said ti divided into 5,000 shares of Rs. 100 each/The remainder, that is, the difference between t issued capital is known as unissued capital.
SUBSCRIBED CAPITAL:
Out of the total number of shares offered (issued) by the company, that number < taken up by the public is known as shares subscribed. The total par value of such shares is capital. For example, out of the 5,000 shares issued by the company, if the public takes ui subscribed share capital is Rs. 4,50,000 (4,500 shares x Rs. 100 par value of each share).
CALLED-UP CAPITAL:
A company may require payment of the par value either in instalments or in on amount is known as the called-up capital. For example, for each of the 4,500 shares take the company may require a payment of Rs. 70 per share (the remainder Rs. 30 per shar asked for by the company. In this case the called-up capital of the company is Rs. 3,15,p( per share called-up). The difference between the subscribed capital and the called-up c un-called capital. In this case the un-called capital is Rs. 1,35,000 (Rs. 4,50,000 subscr Rs. 3,15,000 called-up capital or 4,500 shares subscribed x Rs. 30 per share uncal Companies Ordinance, 1984, shares are always issued at full price (full amount is called i Therefore, there is no difference between subscribed and called capital.
PAID-UP CAPITAL:
The total amount received by the company out of the total called-up amount is k up capital. Assuming that of Rs. 3,15,000 called-up capital the company received Rs. 3 up capital is in the amount of Rs. 3,00,000. The remainder of Rs. 15,000 is known as call: arears. Now-a-days the total par value is collected at the time of application and as sue are no calls in arrears. Presently, therefore, the subscribed, called-up and paid-up capifc amount.
RESERVE CAPITAL:
It is the portion of the subscribed capital which the company, through a special r to call in the event of winding up. Assume that 4,500 shares Rs. 100 are subscribed, thf to c; 11 Rs. 70 per share and passed a special resolution to the effect that Rs. 30 per share the event of winding up. The company is said to have reserve capital of Rs. 1,35,000 (-share). Reserve capital cannot be turned into ordinary capital without leave of the com dealt with or charged by creditors.
It is the amount of capital with which the company is registered. This capital is memorandum of association. A mention is also made of the number of shares into which fl divided, and of the par value of shares. In later years, if the company wants to either inci this capital, certain legal requirements must be met. This capital is also known as nt registered capital.
ISSUED CAPITAL:
Shares offered to the general public for contribution are known as shares issued. T of such shares is called issued capital. To begin with, a company seldom offers all subscription. Therefore, the amount of issued capital is generally less than the author company has an authorized capital of Rs. 10,00,000 divided into 10,000 shares of Rs.. decide to offer 5,000 shares to the general public. In this case the issued capital is said ti divided into 5,000 shares of Rs. 100 each/The remainder, that is, the difference between t issued capital is known as unissued capital.
SUBSCRIBED CAPITAL:
Out of the total number of shares offered (issued) by the company, that number < taken up by the public is known as shares subscribed. The total par value of such shares is capital. For example, out of the 5,000 shares issued by the company, if the public takes ui subscribed share capital is Rs. 4,50,000 (4,500 shares x Rs. 100 par value of each share).
CALLED-UP CAPITAL:
A company may require payment of the par value either in instalments or in on amount is known as the called-up capital. For example, for each of the 4,500 shares take the company may require a payment of Rs. 70 per share (the remainder Rs. 30 per shar asked for by the company. In this case the called-up capital of the company is Rs. 3,15,p( per share called-up). The difference between the subscribed capital and the called-up c un-called capital. In this case the un-called capital is Rs. 1,35,000 (Rs. 4,50,000 subscr Rs. 3,15,000 called-up capital or 4,500 shares subscribed x Rs. 30 per share uncal Companies Ordinance, 1984, shares are always issued at full price (full amount is called i Therefore, there is no difference between subscribed and called capital.
PAID-UP CAPITAL:
The total amount received by the company out of the total called-up amount is k up capital. Assuming that of Rs. 3,15,000 called-up capital the company received Rs. 3 up capital is in the amount of Rs. 3,00,000. The remainder of Rs. 15,000 is known as call: arears. Now-a-days the total par value is collected at the time of application and as sue are no calls in arrears. Presently, therefore, the subscribed, called-up and paid-up capifc amount.
RESERVE CAPITAL:
It is the portion of the subscribed capital which the company, through a special r to call in the event of winding up. Assume that 4,500 shares Rs. 100 are subscribed, thf to c; 11 Rs. 70 per share and passed a special resolution to the effect that Rs. 30 per share the event of winding up. The company is said to have reserve capital of Rs. 1,35,000 (-share). Reserve capital cannot be turned into ordinary capital without leave of the com dealt with or charged by creditors.
Thursday, April 2, 2009
Accounting Answers
10. What do you understand by proforma invoice?
11. What is abnormal loss of stock?
12. What is normal loss of stock?
13. What is a consignment account?
14. What is the accounting treatment for abnormal loss of stock and normal loss of stoc
15. How the value of unsold stock with the consignee can be calculated?
16. What will be the entries in consignor arid consignee books for goods sent on consig
17. Pass the entries for expenses paid by consignor in consignor and consignee books.IS. What entries will have to be made for receiving advance from consignee in
consignee books? ,
19. Pass the entries if the consignee has accepted a bill of exchange as an advance iiconsignee books.
20. Show the entries for expenses paid by consignee in the consignor and consignee bo
21. For goods sold by consignee, pass the entries in consignor and consignee books.
22. Show the entries for goods sold on credit by consignee in consignor and consignee
23. What will be the entries for commission in consignor and consignee books?
24. - Pass the entries for del-credre commission in consignor and consignee books.
25. Pass the entries for goods taken over by consignee for personal use -in consigncbooks.
26. Show the entries for payment of expenses by consignee personally in consignobooks.
27. Pass the entries for bad debts if the consignee receives the del-credre commissionconsignee books.
28. Pass the entries for bad debts .if the consignee does not receive the del-credriconsignor and consignee books.
29. Show the entries for unsold stock with the consignee in consignor and consignee b
30. What will be the entry for abnormal loss of goods in consignor book, if it is not ins
31. Pass the entries for final payment by consignee to consignor in cash or bank draftconsignee books.
32. What entries will have to be made for final payment by accepting a bill of exchaiin consignor and consignee books?
33. Pass the entries for profit earned on consignment in consignor and consignee book
34. Show the entries for loss on consignment in consignor and consignee books.
35. , What will be the entry when the goods sent on consignment transferred to tr;
consignor book?
36. Show the formula to calculate the value of adjusted per unit cost in case of normal
37. Show one specimen for account sales.
38. Calculate the value of unsold stock in consignment from the following particuli200 @ Rs. 75 each; expenses paid by consignor Rs. 550; unloading expenses pRs. 200; total cases sent on consignment 600.
39. Calculate the value of adjusted per unit cost in case of normal loss from the follov
(a) Original cost of goods consigned Rs. 300,000
(b) Direct expenses Rs. 5,000
(c) Total units of goods Rs. 1,000Units sold
11. What is abnormal loss of stock?
12. What is normal loss of stock?
13. What is a consignment account?
14. What is the accounting treatment for abnormal loss of stock and normal loss of stoc
15. How the value of unsold stock with the consignee can be calculated?
16. What will be the entries in consignor arid consignee books for goods sent on consig
17. Pass the entries for expenses paid by consignor in consignor and consignee books.IS. What entries will have to be made for receiving advance from consignee in
consignee books? ,
19. Pass the entries if the consignee has accepted a bill of exchange as an advance iiconsignee books.
20. Show the entries for expenses paid by consignee in the consignor and consignee bo
21. For goods sold by consignee, pass the entries in consignor and consignee books.
22. Show the entries for goods sold on credit by consignee in consignor and consignee
23. What will be the entries for commission in consignor and consignee books?
24. - Pass the entries for del-credre commission in consignor and consignee books.
25. Pass the entries for goods taken over by consignee for personal use -in consigncbooks.
26. Show the entries for payment of expenses by consignee personally in consignobooks.
27. Pass the entries for bad debts if the consignee receives the del-credre commissionconsignee books.
28. Pass the entries for bad debts .if the consignee does not receive the del-credriconsignor and consignee books.
29. Show the entries for unsold stock with the consignee in consignor and consignee b
30. What will be the entry for abnormal loss of goods in consignor book, if it is not ins
31. Pass the entries for final payment by consignee to consignor in cash or bank draftconsignee books.
32. What entries will have to be made for final payment by accepting a bill of exchaiin consignor and consignee books?
33. Pass the entries for profit earned on consignment in consignor and consignee book
34. Show the entries for loss on consignment in consignor and consignee books.
35. , What will be the entry when the goods sent on consignment transferred to tr;
consignor book?
36. Show the formula to calculate the value of adjusted per unit cost in case of normal
37. Show one specimen for account sales.
38. Calculate the value of unsold stock in consignment from the following particuli200 @ Rs. 75 each; expenses paid by consignor Rs. 550; unloading expenses pRs. 200; total cases sent on consignment 600.
39. Calculate the value of adjusted per unit cost in case of normal loss from the follov
(a) Original cost of goods consigned Rs. 300,000
(b) Direct expenses Rs. 5,000
(c) Total units of goods Rs. 1,000Units sold
Accounting Answers
10. What do you understand by proforma invoice?
11. What is abnormal loss of stock?
12. What is normal loss of stock?
13. What is a consignment account?
14. What is the accounting treatment for abnormal loss of stock and normal loss of stoc
15. How the value of unsold stock with the consignee can be calculated?
16. What will be the entries in consignor arid consignee books for goods sent on consig
17. Pass the entries for expenses paid by consignor in consignor and consignee books.IS. What entries will have to be made for receiving advance from consignee in
consignee books? ,
19. Pass the entries if the consignee has accepted a bill of exchange as an advance iiconsignee books.
20. Show the entries for expenses paid by consignee in the consignor and consignee bo
21. For goods sold by consignee, pass the entries in consignor and consignee books.
22. Show the entries for goods sold on credit by consignee in consignor and consignee
23. What will be the entries for commission in consignor and consignee books?
24. - Pass the entries for del-credre commission in consignor and consignee books.
25. Pass the entries for goods taken over by consignee for personal use -in consigncbooks.
26. Show the entries for payment of expenses by consignee personally in consignobooks.
27. Pass the entries for bad debts if the consignee receives the del-credre commissionconsignee books.
28. Pass the entries for bad debts .if the consignee does not receive the del-credriconsignor and consignee books.
29. Show the entries for unsold stock with the consignee in consignor and consignee b
30. What will be the entry for abnormal loss of goods in consignor book, if it is not ins
31. Pass the entries for final payment by consignee to consignor in cash or bank draftconsignee books.
32. What entries will have to be made for final payment by accepting a bill of exchaiin consignor and consignee books?
33. Pass the entries for profit earned on consignment in consignor and consignee book
34. Show the entries for loss on consignment in consignor and consignee books.
35. , What will be the entry when the goods sent on consignment transferred to tr;
consignor book?
36. Show the formula to calculate the value of adjusted per unit cost in case of normal
37. Show one specimen for account sales.
38. Calculate the value of unsold stock in consignment from the following particuli200 @ Rs. 75 each; expenses paid by consignor Rs. 550; unloading expenses pRs. 200; total cases sent on consignment 600.
39. Calculate the value of adjusted per unit cost in case of normal loss from the follov
(a) Original cost of goods consigned Rs. 300,000
(b) Direct expenses Rs. 5,000
(c) Total units of goods Rs. 1,000Units sold
11. What is abnormal loss of stock?
12. What is normal loss of stock?
13. What is a consignment account?
14. What is the accounting treatment for abnormal loss of stock and normal loss of stoc
15. How the value of unsold stock with the consignee can be calculated?
16. What will be the entries in consignor arid consignee books for goods sent on consig
17. Pass the entries for expenses paid by consignor in consignor and consignee books.IS. What entries will have to be made for receiving advance from consignee in
consignee books? ,
19. Pass the entries if the consignee has accepted a bill of exchange as an advance iiconsignee books.
20. Show the entries for expenses paid by consignee in the consignor and consignee bo
21. For goods sold by consignee, pass the entries in consignor and consignee books.
22. Show the entries for goods sold on credit by consignee in consignor and consignee
23. What will be the entries for commission in consignor and consignee books?
24. - Pass the entries for del-credre commission in consignor and consignee books.
25. Pass the entries for goods taken over by consignee for personal use -in consigncbooks.
26. Show the entries for payment of expenses by consignee personally in consignobooks.
27. Pass the entries for bad debts if the consignee receives the del-credre commissionconsignee books.
28. Pass the entries for bad debts .if the consignee does not receive the del-credriconsignor and consignee books.
29. Show the entries for unsold stock with the consignee in consignor and consignee b
30. What will be the entry for abnormal loss of goods in consignor book, if it is not ins
31. Pass the entries for final payment by consignee to consignor in cash or bank draftconsignee books.
32. What entries will have to be made for final payment by accepting a bill of exchaiin consignor and consignee books?
33. Pass the entries for profit earned on consignment in consignor and consignee book
34. Show the entries for loss on consignment in consignor and consignee books.
35. , What will be the entry when the goods sent on consignment transferred to tr;
consignor book?
36. Show the formula to calculate the value of adjusted per unit cost in case of normal
37. Show one specimen for account sales.
38. Calculate the value of unsold stock in consignment from the following particuli200 @ Rs. 75 each; expenses paid by consignor Rs. 550; unloading expenses pRs. 200; total cases sent on consignment 600.
39. Calculate the value of adjusted per unit cost in case of normal loss from the follov
(a) Original cost of goods consigned Rs. 300,000
(b) Direct expenses Rs. 5,000
(c) Total units of goods Rs. 1,000Units sold
LOSS Details
Normal LOSS of Goods: On 1st Jan. 2005, Mohsin Coal Co. of Quetta consigned to Rftinzan Ltd. of Lahore 10,000 tons of coal. The cost of coal was Rs. 40 per ton and railway charges were Rs. 10 per ton. On 25th Feb., an Account sales was received From Ram/an Ltd. showing that 5000 tons of coal sold («; Rs. 80 per ton; sales expenses Rs. 4000, Insurance Rs.
1000, commission 5 % on sales. The agent enclosed a bill for the sales proceeds less expenses and reported a shortage of 100 tons on the whole consignment. Show the consignment account In books of Mohsin Coal Co.
Ans: [Profit on consignment Rs. 122474.75}
13. Abnormal Loss: M/s Naeem Motors sent 100 cars to Haseeb on consignment. The cost of each car was Rs. 12,000. The expenses of M/s Naeem Motors were:
Freight Rs. 7,000, Insurance Rs. 3,000.
During transit one car was destroyed and the insurance company admitted Rs. 9000 towards that claim.
Haseeb sold 7 cars at Rs. 15,000 each and paid for storage and insurance Rs. 3,400. Haseeb then accepted a bill for Rs. 90,000, at 3 months drawn by M/s Naeem Motors which they discounted immediately with their bank at 6 % p.a. It was agreed that Haseeb is to get 5 % commission.
Give the consignment account In the books of M/s Naeem Motors. Ans: [Profit on consignment Rs. II650, Abnormal Loss Rs. 3100]
14. Bilal of Lahore consigned 100 cases of candles to Abdullah of Mardan which cost him Rs. 50 per case. He incurred the following costs: packing Rs. 100; carriage Rs. 150 and Railway freight Rs. 200. Some of the cases were damaged in transit and Abdullah took delivery of 90 cases only. Abdullah spent Rs. 50 for cartage and Rs. 300 for godown rent and sold the consignment at Rs. 60 per case. He Sent the net amount to Bilal after deducting his expenses and commission at the rate of 5% on the sale proceeds together with his Account Sales. Bilal also received Rs. 300 from the Railway for damages. Show how the consignment account would appear in books of Bilal.
Ans: [Loss on consignment Rs. 125, Abnormal Loss Rs. 245]
1000, commission 5 % on sales. The agent enclosed a bill for the sales proceeds less expenses and reported a shortage of 100 tons on the whole consignment. Show the consignment account In books of Mohsin Coal Co.
Ans: [Profit on consignment Rs. 122474.75}
13. Abnormal Loss: M/s Naeem Motors sent 100 cars to Haseeb on consignment. The cost of each car was Rs. 12,000. The expenses of M/s Naeem Motors were:
Freight Rs. 7,000, Insurance Rs. 3,000.
During transit one car was destroyed and the insurance company admitted Rs. 9000 towards that claim.
Haseeb sold 7 cars at Rs. 15,000 each and paid for storage and insurance Rs. 3,400. Haseeb then accepted a bill for Rs. 90,000, at 3 months drawn by M/s Naeem Motors which they discounted immediately with their bank at 6 % p.a. It was agreed that Haseeb is to get 5 % commission.
Give the consignment account In the books of M/s Naeem Motors. Ans: [Profit on consignment Rs. II650, Abnormal Loss Rs. 3100]
14. Bilal of Lahore consigned 100 cases of candles to Abdullah of Mardan which cost him Rs. 50 per case. He incurred the following costs: packing Rs. 100; carriage Rs. 150 and Railway freight Rs. 200. Some of the cases were damaged in transit and Abdullah took delivery of 90 cases only. Abdullah spent Rs. 50 for cartage and Rs. 300 for godown rent and sold the consignment at Rs. 60 per case. He Sent the net amount to Bilal after deducting his expenses and commission at the rate of 5% on the sale proceeds together with his Account Sales. Bilal also received Rs. 300 from the Railway for damages. Show how the consignment account would appear in books of Bilal.
Ans: [Loss on consignment Rs. 125, Abnormal Loss Rs. 245]
STOCK KINDS
ABNORMAL LOSS OF STOCK:
Any abnormal loss e.g. loss due to fire, accident, theft, negligence, etc. will be treated in the books of consignor in such a manner that consignment profit is not reduced. While calculating the value of loss, proportionate expenses up to the time of occurrence of loss are included.
NORMAL LOSS OF STOCK:
A loss which occurs due to natural causes e.g. normal leakage, loss in weight due to nature of goods, etc. is termed as 'normal loss1. Such loss inflates the value of closing stock. VALUATION OF CLOSING STOCK WITH CONSIGNEE:
Closing stock with consignee is valued at cost or market price whichever is less. To ascertain cost proportionate non-recurring expenses are included in the value of stock. Non-recurring expenses will include all such expenses, which have been incurred up to the time goods have reached to agent's selling place e.g. freight, cartage, transit insurance, octroi, import duty, customs charges, packing, etc. will be [included for stock valuation. Expenses like godown rent, godown insurance, sales expenses are not rhided in the value of stock. Market value is the net realizable value i.e. sales commission and other
ihie sales expenses are deducted from the market value on the closing date. ;{j) OVERRIDING COMMISSION:
Extra commission is normally granted by the consignor when he desires his agent to work hard to posh a new line of product in the market.
! CONSIGNOR'S BOOKS:
As already stated the goods sent by the consignor are sold on his behalf therefore he would iike to the profit earned or loss suffered from each different consignment. Before we discuss the entries in books of the consignor it is helpful to understand the nature of the following:
tNSIGNMENT ACCOUNT:
This is by nature a profit & Loss Account. One separate account is devoted to each different signment with the heading "Consignment to ... account". Actually the consignment account is a rieular Trading and Profit and Loss Account. All expenses specially related to the consignment must debited to the concerned consignment account whether incurred by the consignor or by the consignee all revenues (goods sold by the consignee and unsold goods with the consignee) should be credited to account. The difference between the two sides of this account will show the result of that particular iignment.
ISIGNEE'S ACCOUNT:
This is a personal account. It should be noted that the consignee is not the buyer. His personal it, therefore, is not debited when goods are sent to him. In cases where it is customary for the signce to send some money as an advance against the consignment the payment is merely an advance way of security) and not a part payment. Hence the advance received from the consignee should be :d to the credit side of consignee's personal account. In case part of the stock is still lying unsold the jrtionate amount of advance should be carried down as credit balance in consignee's personal account. :ase where consignor draws a bill on consignee the bill is known as a documentary bill.
Any abnormal loss e.g. loss due to fire, accident, theft, negligence, etc. will be treated in the books of consignor in such a manner that consignment profit is not reduced. While calculating the value of loss, proportionate expenses up to the time of occurrence of loss are included.
NORMAL LOSS OF STOCK:
A loss which occurs due to natural causes e.g. normal leakage, loss in weight due to nature of goods, etc. is termed as 'normal loss1. Such loss inflates the value of closing stock. VALUATION OF CLOSING STOCK WITH CONSIGNEE:
Closing stock with consignee is valued at cost or market price whichever is less. To ascertain cost proportionate non-recurring expenses are included in the value of stock. Non-recurring expenses will include all such expenses, which have been incurred up to the time goods have reached to agent's selling place e.g. freight, cartage, transit insurance, octroi, import duty, customs charges, packing, etc. will be [included for stock valuation. Expenses like godown rent, godown insurance, sales expenses are not rhided in the value of stock. Market value is the net realizable value i.e. sales commission and other
ihie sales expenses are deducted from the market value on the closing date. ;{j) OVERRIDING COMMISSION:
Extra commission is normally granted by the consignor when he desires his agent to work hard to posh a new line of product in the market.
! CONSIGNOR'S BOOKS:
As already stated the goods sent by the consignor are sold on his behalf therefore he would iike to the profit earned or loss suffered from each different consignment. Before we discuss the entries in books of the consignor it is helpful to understand the nature of the following:
tNSIGNMENT ACCOUNT:
This is by nature a profit & Loss Account. One separate account is devoted to each different signment with the heading "Consignment to ... account". Actually the consignment account is a rieular Trading and Profit and Loss Account. All expenses specially related to the consignment must debited to the concerned consignment account whether incurred by the consignor or by the consignee all revenues (goods sold by the consignee and unsold goods with the consignee) should be credited to account. The difference between the two sides of this account will show the result of that particular iignment.
ISIGNEE'S ACCOUNT:
This is a personal account. It should be noted that the consignee is not the buyer. His personal it, therefore, is not debited when goods are sent to him. In cases where it is customary for the signce to send some money as an advance against the consignment the payment is merely an advance way of security) and not a part payment. Hence the advance received from the consignee should be :d to the credit side of consignee's personal account. In case part of the stock is still lying unsold the jrtionate amount of advance should be carried down as credit balance in consignee's personal account. :ase where consignor draws a bill on consignee the bill is known as a documentary bill.
Wednesday, April 1, 2009
OBJECTIVE QUESTIONS ACCOUNTING
OBJECTIVE QUESTIONS
• True/False.
1. Consignment signifies forwarded of goods from one place to another.
2. Manufacturers acts as a principal in consignment.
3. Consignee acts as an agent in consignment.
4. The relationship between consignor and consignee is that of seller and buyer.
5. In sales, the relationship between buyer and seller is that of debtor and creditor.
6. Consignment is an act of sending goods by owner to his- agent for sale purpose.
7. Consignment outward book treatment is similar to cash book.
8. The remuneration of the consignee for selling the goods of consignor is known as con
9. Del- credre commission is calculated on total sales.
10. Stock on consignment is the asset of the consignee.
11. Stock on consignment is the unsold stock of goods with the consignee.
12. Normal loss occurs due to leakage.
13. Abnormal loss occurs due to evaporation.
14. Normal loss and abnormal loss does not affect on the working of stock on consignme
15. Account sales is prepared by consignee.
16. Proforma invoice send by consignor to the consignee,
17. Consignment account is a nominal account.
18. Goods sent on consignment is a nominal account.
19. Consignee and consignor are personal accounts.
20. Forwarding letter in consignment is known as proforma invoice.
• Kill in the Blanks.
1. -------------------- is an act of sending the goods by the owner to his agent for the purp
2. is a person who sends his goods for sale purpose in consignment
3. is a person to whom goods are consigned for sale purpose in consig
4. In consignment, generally the manufacturers or producers are the------------------- .
5. The relationship between consignor and consignee is that of-------------------- and —
6. The dispatch of goods by the consignor to the consignee will be a--------------------- 1
view point.
7. The dispatch of goods by the consignor to the consignee will be a -----
consignee's view point.
8. The book which is maintained by consignor for the goods consigned is known as -
9. The accounting treatment of consignment outward book is similar to----------------
10. The book which is maintained by consignee for goods received from differiknown as-------------------- .
• True/False.
1. Consignment signifies forwarded of goods from one place to another.
2. Manufacturers acts as a principal in consignment.
3. Consignee acts as an agent in consignment.
4. The relationship between consignor and consignee is that of seller and buyer.
5. In sales, the relationship between buyer and seller is that of debtor and creditor.
6. Consignment is an act of sending goods by owner to his- agent for sale purpose.
7. Consignment outward book treatment is similar to cash book.
8. The remuneration of the consignee for selling the goods of consignor is known as con
9. Del- credre commission is calculated on total sales.
10. Stock on consignment is the asset of the consignee.
11. Stock on consignment is the unsold stock of goods with the consignee.
12. Normal loss occurs due to leakage.
13. Abnormal loss occurs due to evaporation.
14. Normal loss and abnormal loss does not affect on the working of stock on consignme
15. Account sales is prepared by consignee.
16. Proforma invoice send by consignor to the consignee,
17. Consignment account is a nominal account.
18. Goods sent on consignment is a nominal account.
19. Consignee and consignor are personal accounts.
20. Forwarding letter in consignment is known as proforma invoice.
• Kill in the Blanks.
1. -------------------- is an act of sending the goods by the owner to his agent for the purp
2. is a person who sends his goods for sale purpose in consignment
3. is a person to whom goods are consigned for sale purpose in consig
4. In consignment, generally the manufacturers or producers are the------------------- .
5. The relationship between consignor and consignee is that of-------------------- and —
6. The dispatch of goods by the consignor to the consignee will be a--------------------- 1
view point.
7. The dispatch of goods by the consignor to the consignee will be a -----
consignee's view point.
8. The book which is maintained by consignor for the goods consigned is known as -
9. The accounting treatment of consignment outward book is similar to----------------
10. The book which is maintained by consignee for goods received from differiknown as-------------------- .
Accounting Problem
Direct expenses included in valuation of closing stock 1/5 of Rs, 1,800
LOSS OF STOCK OR GOODS
Where part of the goods sent on consignment are damaged or lost in transit the tre books of account will depend upon the nature of loss i.e. whether normal or abnormal.
NORMAL LOSS:
Loss of quantity of goods in the normal course of business and inherent and thus unavoidable, such as loss because of loading or unloading of goods, leakage, evaporation o: known as normal loss.
Treatment of normal loss is to charge it to the consignment account. The total cost olcharged to the units remaining. Value of stock is inflated to cover the normal loss or 1absorbed by the remaining units. For example, if 2000 Radio sets are consigned @ Rs. 300freight being Rs. 10,000. Owing to normal loss only 1960 Radio sets are received by the coquantity unsold at the end of the year is 500 Radio sets, the value of closing6,00,000 + 10,000 ... it,
1960
x 500 or Rs. 152500. Being normal such a loss is a part of the cost of the consi
separate entry is passed in the books of the consignor. Anyhow, such loss is considered w<> quantity of stock bears to the total quantity of goods consigned as diminished by the norma in brief valuation of stock will be made;
Original cost of goods consigned + Direct Expenses
Total units of goods-units lost AdJusted P* unlt c
Then; Adjusted per unit cost x unsold units = Value of unsold sto
ILLUSTRATION NO. 5
Nawaz Sugar Mills Ltd. Gujrat consigned 200 bags of sugar to their agent Peshawar. Each bag costing Rs. 300. They paid Rs. 1000 towards freight & insurance. 2 bags were completely damaged due to unloading and Mr. Arshad took the deliv consignment and immediately accepted a bill drawn on him for Rs. 20000 for two mo months, he reported that:
140 bags were sold @ Rs. 350.
He had incurred the following expenses; Godown rent Rs. 1400, clear!1800, carriage outwards Rs. 600.
He is entitled to a commission of 10 */• on sales. Assuming that Mr. Arshad rei by a bank draft, prepare necessary Accounts In books of the consignor.
LOSS OF STOCK OR GOODS
Where part of the goods sent on consignment are damaged or lost in transit the tre books of account will depend upon the nature of loss i.e. whether normal or abnormal.
NORMAL LOSS:
Loss of quantity of goods in the normal course of business and inherent and thus unavoidable, such as loss because of loading or unloading of goods, leakage, evaporation o: known as normal loss.
Treatment of normal loss is to charge it to the consignment account. The total cost olcharged to the units remaining. Value of stock is inflated to cover the normal loss or 1absorbed by the remaining units. For example, if 2000 Radio sets are consigned @ Rs. 300freight being Rs. 10,000. Owing to normal loss only 1960 Radio sets are received by the coquantity unsold at the end of the year is 500 Radio sets, the value of closing6,00,000 + 10,000 ... it,
1960
x 500 or Rs. 152500. Being normal such a loss is a part of the cost of the consi
separate entry is passed in the books of the consignor. Anyhow, such loss is considered w<> quantity of stock bears to the total quantity of goods consigned as diminished by the norma in brief valuation of stock will be made;
Original cost of goods consigned + Direct Expenses
Total units of goods-units lost AdJusted P* unlt c
Then; Adjusted per unit cost x unsold units = Value of unsold sto
ILLUSTRATION NO. 5
Nawaz Sugar Mills Ltd. Gujrat consigned 200 bags of sugar to their agent Peshawar. Each bag costing Rs. 300. They paid Rs. 1000 towards freight & insurance. 2 bags were completely damaged due to unloading and Mr. Arshad took the deliv consignment and immediately accepted a bill drawn on him for Rs. 20000 for two mo months, he reported that:
140 bags were sold @ Rs. 350.
He had incurred the following expenses; Godown rent Rs. 1400, clear!1800, carriage outwards Rs. 600.
He is entitled to a commission of 10 */• on sales. Assuming that Mr. Arshad rei by a bank draft, prepare necessary Accounts In books of the consignor.
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