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.