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.