RBSE Solutions Class 12 Accountancy Chapter 8 Consignment Accounts

RBSE Class 12 Accountancy Chapter 8 Textbook Questions

RBSE Class 12 Accountancy Chapter 8 Multiple Choice Questions

 

Question 1. What is the nature of consignment account?
(a) Real account
(b) Personal account
(c) Nominal account
(d) Agent account
Answer: (c) Nominal account
In simple words: A consignment account helps record all incomes and expenses related to goods sent for sale by one party to another. It is a temporary account used to find profit or loss.

🎯 Exam Tip: Remember that nominal accounts are used for income, expenses, gains, and losses, making them perfect for tracking consignment profitability.

 

Question 2. What is the relation between consignor and consignee?
(a) Owner and employee
Answer: (a) Owner and employee
In simple words: The consignor is the owner of the goods, and the consignee acts as their agent, much like an employee, selling the goods on their behalf. This means the ownership of the goods does not transfer.

🎯 Exam Tip: Clearly state the roles: consignor is the principal (owner), and consignee is the agent (seller).

 

Question 3. The statement of account which is sent by the consignee after selling goods is known as :
(a) Invoice
(b) Statement of Sale
(c) Account of Sale
(d) Performa Invoice
Answer: (c) Account of Sale
In simple words: An 'Account of Sale' is a report sent by the agent (consignee) to the owner (consignor) that shows how much was sold, how much commission was earned, and other expenses. It helps the consignor understand the final sales figures and net proceeds.

🎯 Exam Tip: Distinguish between an invoice (for direct sales) and an account of sale (for consignment sales), focusing on who sends it and its purpose.

 

Question 4. In consignment, while valuing remaining unsold stock with consignee, which proportionate expenses of consignee is added?
(a) Octroi and freight
(b) Godown rent
(c) Advertisement
(d) Sales
Answer: (a) Octroi and freight
In simple words: When calculating the value of unsold goods, only direct expenses like octroi and freight that bring the goods to the consignee's warehouse are included. These are considered non-recurring expenses.

🎯 Exam Tip: Remember that only non-recurring expenses (like freight, octroi, import duty) that add value to the stock until it reaches the consignee's godown are included in valuing unsold stock, not recurring expenses like godown rent or advertising.

 

Question 5. Consignor sent goods on consignee to consignment, consignor paid 5% commission on invoice price and 20% above on invoice price. Consignor sent goods worth Rs 80,000 at an invoice price of Rs 1,00,000, which is sold in Rs 1,10,000. The amount of commission for agent:
(a)Rs 7,000
(b)Rs 8,000
(c)Rs 10,000
(d)Rs 5,800
Answer: (a)Rs 7,000
In simple words: The agent gets two types of commission: one for the regular sale amount and another for selling above the original invoice price. We calculate both parts and add them up to find the total commission.

🎯 Exam Tip: When calculating commission, always identify the base for each commission type (invoice price or excess over invoice price) and apply the correct percentage.

 

Question 7. B/R received from consignee Rs 10,000 consignor discounted it from bank for Rs 9,600. What will be passed for discounting the bill?
(a) Bank A/c Dr. 9,600 Discount A/c Dr. 400 To B/R A/c 10,000
(b) Bank A/c Dr. 9,600 To Consignment A/c 400 To B/R A/c 10,000
(c) Bank A/c Dr. 9,600 Consignment A/c Dr. 400 To B/R A/c 10,000
(d) Bank A/c Dr. 9,600 Discount A/c Dr. 400 To Consignment A/c 10,000
Answer: (c) Bank A/c Dr. 9,600 Consignment A/c Dr. 400 To B/R A/c 10,000
In simple words: When a bill of exchange is discounted, the bank gives less money than the bill's face value. The difference is a discount charge, which is an expense for the consignor and is charged to the Consignment Account.

🎯 Exam Tip: Remember that bill discounting charges are treated as an expense to the consignment, reducing its overall profit.

 

Question 8. Ramesh sent 250 cycles @ Rs 200 per cycle at invoice price to Naresh on consignment. It includes 25% profit on cost price, consignor paid expenses Rs 2,000. Consignee informed that 50 cycles remain unsold, those cycles can sell at Rs 190 per cycle, what will be value of unsold stock?
(a)Rs 9,900
(b)Rs 9,500
(c)Rs 8,400
(d)Rs 8,000
Answer: (c)Rs 8,400
In simple words: To value unsold stock, we first calculate the original cost per cycle, then add a fair share of the consignor's direct expenses. This helps determine the true cost of the cycles still with the consignee.

🎯 Exam Tip: Always value unsold stock at cost or market price, whichever is lower, and include only proportionate direct expenses incurred by both the consignor and consignee until the goods reach the point of sale.

 

Delcredere commission: To increase sales and encourage the consignee to make credit sales, the consignor provides an additional commission called delcredere commission.

 

Overriding Commission: It is an extra commission allowed by the consignor to the consignee to promote sales at a higher price than the invoice price.

 

Question 2. What is account sale? Who prepare it?
Answer: An account sale is a statement sent by the consignee (agent) to the consignor (owner) after goods have been sold. This statement details the sales made, expenses incurred, commission earned by the consignee, and the net amount due to the consignor. It is prepared by the consignee. This document is crucial for the consignor to reconcile their accounts and calculate profit or loss on the consignment.
In simple words: An account sale is a report from the selling agent to the owner, showing what was sold, how much was spent, and how much money is left. The agent makes this report.

🎯 Exam Tip: Remember that an Account Sale provides a comprehensive summary of the consignment transaction from the consignee's perspective, essential for final settlement.

 

Question 3. Give two differences between invoice and proforma invoice?
Answer: The main differences between an invoice and a proforma invoice are:

In simple words: An invoice shows that goods have been sold and ownership has changed, while a proforma invoice is just a draft bill for goods being sent on consignment, where ownership stays with the sender.

🎯 Exam Tip: Clearly state that ownership transfer is the key distinguishing factor between an invoice (ownership transfers) and a proforma invoice (ownership does not transfer).

 

Question 4. An agent is entitled to get delcredere commission, what entry he will pass, if bad debts due to credit sales occurs?
Answer: If an agent is entitled to delcredere commission, it means they are responsible for any bad debts from credit sales. Therefore, if bad debts occur, the agent will pass the following entry:
Cash A/c Dr. (Received from debtors)
This means the agent records the cash received from debtors, and any amount that becomes a bad debt is borne by the agent themselves, not passed on to the consignor. The delcredere commission compensates the agent for taking on this risk.
In simple words: If the agent gets a delcredere commission and a customer doesn't pay, the agent handles the loss themselves. They will only record the cash they actually receive from other customers.

🎯 Exam Tip: Highlight that delcredere commission makes the consignee solely responsible for bad debts, so the consignor is unaffected by such losses.

 

Question 5. Jitu sent goods on consignment at a cost Rs 10,000. He paid Rs 1,000 for carriage and insurance. Agent paid Rs 2,500 for octroi and Rs 400 for selling expenses. Agent sold 80% goods. Calculate value of unsold stock.
Answer:
Valuation of Unsold Stock:
Goods sent on Consignment at Cost = Rs 10,000
Add: Expenses Paid by Consignor (Carriage & Insurance) = Rs 1,000
Add: Non-Recurring Exp. Paid by Consignee (Octroi) = Rs 2,500
Total Cost of Goods (100%) = Rs \( 10,000 + 1,000 + 2,500 = 13,500 \)
Value of Unsold Stock (20%) = \( 13,500 \times \frac { 20 }{ 100 } = \) Rs 2,700
(Note: Selling expenses paid by the agent are recurring expenses and are not included in the valuation of unsold stock.)
In simple words: To find the value of unsold goods, add up the original cost of all goods and the direct costs paid by both the sender and the agent to get the goods ready for sale. Then, figure out what percentage of goods are still left and calculate that portion of the total cost.

🎯 Exam Tip: When valuing unsold stock, only include direct expenses incurred to bring the goods to the consignee's warehouse; selling expenses are typically excluded as they are recurring.

 

Question 6. Goods sent on consignment at cost plus 20%. Calculate the invoice value of goods costing Rs 12,000.
Answer:
Cost Price = Rs 12,000
Add: 20% Profit on Cost Price = \( 12,000 \times \frac { 20 }{ 100 } = \) Rs 2,400
Invoice Price of Goods sent on Consignment = \( 12,000 + 2,400 = \) Rs 14,400
The invoice price is higher than the cost price to ensure a margin of safety for the consignor and to calculate agent commission more accurately.
In simple words: To find the invoice price, we start with how much the goods cost and then add a specific percentage of profit to that cost. This gives us the final price that will be shown on the invoice.

🎯 Exam Tip: Clearly differentiate between cost price and invoice price, remembering that profit is added to the cost price to arrive at the invoice price.

 

Question 7. Anil sent 50 fans box Rs 1,000 per fan to Sunil on consignment and paid Rs 5,000 for consignment expenses. On the way 5 fans was stolen. Sunil took the delivery of remaining fans and paid freight Rs 800. Calculate the value of abnormal fans.
Answer:
Calculation of Value of Abnormal Loss:
Cost of 5 fans @ Rs 1,000 per fan = \( 1,000 \times 5 = \) Rs 5,000
Add: Proportionate Non-recurring Expenses Paid by Anil (Consignor) = \( \frac { 5,000 \times 5 }{ 50 } = \) Rs 500
Value of Abnormal Loss by Theft = \( 5,000 + 500 = \) Rs 5,500
Abnormal loss occurs due to unusual events like theft and is calculated by adding the proportionate direct expenses to the cost of lost goods.
In simple words: To calculate the loss from stolen fans, take the original cost of the stolen fans and add a fair share of the initial shipping costs paid by the sender. This gives you the total value of what was lost.

🎯 Exam Tip: Abnormal loss is calculated by taking the cost of the goods lost plus the proportionate direct expenses incurred up to the point of loss.

 

Question 8. If consignee is not entitled for delcredere commission and Rs 1,500 due to debtors become bad-debts,
Answer: If the consignee is not entitled to delcredere commission and Rs 1,500 due from debtors become bad debts, then this loss of Rs 1,500 will be borne by the consignor. In such a scenario, the consignor will pass the following journal entry:
Bad Debts A/c Dr. 1,500
To Consignment A/c 1,500
(Being bad debts transferred to consignment account)
This shows that without delcredere commission, the risk of credit sales defaults remains with the consignor, impacting the consignment's profitability.
In simple words: If the agent doesn't get special commission for bad debts, and a customer doesn't pay, the owner (consignor) has to bear that loss. They record it as an expense for the consignment.

🎯 Exam Tip: Always remember that without delcredere commission, bad debts on consignment sales are the responsibility of the consignor, not the consignee.

 

Question 9. Goods lost from consignee godown worth Rs 10,000. Insurance Co. accepted the claim for Rs 9,000. In which account such difference will be transferred?
Answer: The goods lost from the consignee's godown were worth Rs 10,000, and the Insurance Company accepted a claim for Rs 9,000. The difference in amount, which is Rs \( 10,000 - 9,000 = \) Rs 1,000, represents the uninsured portion of the loss. This difference of Rs 1,000 will be debited to the Profit & Loss Account as a net loss. The journal entry for this would be:
Insurance Company A/c Dr. 9,000
Profit & Loss A/c Dr. 1,000
To Abnormal Loss A/c 10,000
(Being transfer of abnormal loss and insurance claim received)
This ensures that the actual financial impact of the abnormal loss is correctly reflected in the business's overall profitability.
In simple words: If goods worth Rs 10,000 are lost and insurance pays only Rs 9,000, the remaining Rs 1,000 is a loss. This Rs 1,000 loss is then moved to the Profit & Loss account to show the business's actual profit.

🎯 Exam Tip: When an insurance claim is less than the abnormal loss, the difference is debited to the Profit & Loss Account, as it represents an unrecovered loss.

 

Question 10. 2,000 kg Guru sent on consignment @Rs 20 per kg, 100 kg became abnormal loss. 1,500 kg goods sold by consignee. Calculate the value of unsold stock.
Answer:
Total quantity sent = 2,000 kg
Rate per kg = Rs 20
Cost of goods sent = \( 2,000 \times 20 = \) Rs 40,000
Abnormal loss = 100 kg
Goods sold = 1,500 kg
Units of unsold goods = Total units - Abnormal loss - Units sold
Units of unsold goods = \( 2,000 - 100 - 1,500 = 400 \) kg
Value of unsold stock = \( \frac { \text{Cost of goods sent on consignment} \times \text{Units of unsold goods} }{ \text{Total units - Unit of normal loss} } \)
Value of unsold stock = \( \frac { 40,000 \times 400 }{ 2,000 - 0 } = \frac { 1,60,00,000 }{ 2,000 } = \) Rs 8,000
(Note: Assuming no normal loss occurred in this problem, as not mentioned).
In simple words: First, find out how many goods are actually left after accounting for lost and sold items. Then, calculate the total cost of all goods sent. Finally, use a simple ratio to find the value of the remaining stock based on its proportion to the original good units.

🎯 Exam Tip: Always deduct abnormal loss units from total units when calculating the denominator for proportionate cost allocation to unsold stock.

RBSE Class 12 Accountancy Chapter 8 Short Answer Questions

 

Question 1. What are the difference between consignment and sales?
Answer: The key differences between consignment and sales are as follows:

In simple words: In consignment, one person sends goods to another to sell, but the sender still owns the goods and takes the risk, paying the seller a commission. In a sale, ownership and risk immediately pass to the buyer, and the seller makes a profit.

🎯 Exam Tip: Emphasize that in consignment, ownership and risk remain with the consignor until the goods are sold to a third party, unlike a regular sale where they transfer immediately to the buyer.

 

Question 2. Give two examples of normal loss and abnormal loss?
Answer:
Normal Loss: This refers to any loss of goods that occurs due to natural causes, which cannot be avoided. These are expected losses that are part of the normal business process. For example, evaporation of liquids, drying of goods, or minor breakage during transport are considered normal losses. The cost of normal loss is absorbed by the remaining good units, increasing their per-unit cost.
Abnormal Loss: This refers to any loss of goods that occurs due to unusual or unexpected causes, which can generally be avoided with careful management. Examples include loss of goods by fire, theft, or flood, or significant damage due to carelessness. Abnormal losses are treated as a separate expense and charged to the Profit & Loss Account. This is because they are not considered a regular cost of doing business.
In simple words: Normal loss is something expected, like water drying up, and can't be stopped. Abnormal loss is unexpected, like fire or theft, and could have been avoided.

🎯 Exam Tip: Clearly state that normal loss is inherent to the process and cannot be prevented, while abnormal loss is preventable and arises from unforeseen circumstances or negligence.

 

Question 3. What are the difference between consignment and joint venture?
Answer: The differences between consignment and joint venture are:

In simple words: Consignment is when an owner sends goods to an agent to sell, and only the owner profits. A joint venture is when two or more parties come together for a specific project, sharing both profits and risks, acting more like partners.

🎯 Exam Tip: Highlight that in consignment, there's a principal-agent relationship and no profit sharing, whereas a joint venture involves co-venturers who share both profits and losses.

 

Question 4. What are the difference between invoice and proforma invoice?
Answer: The differences between an invoice and a proforma invoice are:

In simple words: A proforma invoice is like a draft bill sent with goods on consignment, where ownership doesn't change. An actual invoice is a final bill sent after a sale, where ownership has been transferred to the buyer.

🎯 Exam Tip: Focus on the legal implications: a proforma invoice is a mere declaration, while an invoice creates a legal obligation for payment and ownership transfer.

 

Question 6. Chandra sent goods worth Rs 5,000 at invoice price to Shakuntla by adding 25% profit on cost. Expenses for sending the goods worth Rs 1,000 and Shankuntla spent Rs 2,000 for receiving the goods. Consignor sold 4/5 part of goods received by him. Calculate the value of unsold stock.
Answer:
To calculate the value of unsold stock, we first need to determine the cost price of the goods and the total non-recurring expenses.
Invoice Price of goods = Rs 5,000
Profit on cost price = 25%. If cost is 100, then invoice price is 125. So, profit on invoice price = \( \frac{25}{125} \).
Unrealised Profit included on Cost Price = \( 5,000 \times \frac { 25 }{ 125 } = \) Rs 1,000
Cost Price of Goods = \( 5,000 - 1,000 = \) Rs 4,000

Consignor's expenses = Rs 1,000
Consignee's non-recurring expenses (for receiving goods) = Rs 2,000

Goods sold = 4/5 part
Unsold part = \( 1 - \frac { 4 }{ 5 } = \frac { 1 }{ 5 } \) part

Value of Unsold Stock:
Cost of unsold goods = \( 4,000 \times \frac { 1 }{ 5 } = \) Rs 800
Add: Proportionate Consignor's Non-Recurring Exp. = \( 1,000 \times \frac { 1 }{ 5 } = \) Rs 200
Add: Proportionate Consignee's Non-Recurring Exp. = \( 2,000 \times \frac { 1 }{ 5 } = \) Rs 400
Total Value of Unsold Stock = \( 800 + 200 + 400 = \) Rs 1,400
(Note: The solution provided in OCR seems to have a different interpretation/calculation of total goods and expenses, resulting in 8,600. I will follow the logical calculation based on the problem statement).
The total cost of goods in consignment, including direct expenses, is then spread across all units, and the unsold portion is valued accordingly.
In simple words: First, find the actual cost of the goods by removing the profit margin from the invoice price. Then, add the sender's and agent's direct costs for the goods. Since a part of the goods is unsold, calculate that same part of the total cost and direct expenses to get the value of the remaining stock.

🎯 Exam Tip: When goods are sent at invoice price, always adjust for unrealized profit to find the cost price before valuing unsold stock. Include only proportionate non-recurring expenses.

 

Question 7. Vivek paid to Bhavesh 5% general commission on sales and 2.5% delcredere commission. Bhavesh sold goods worth Rs 60,000 including Rs 40,000 on credit sales. What amount of commission Bhavesh will received?
Answer:
Calculation of Commission for Bhavesh:
1. General Commission on Total Sales: 5% of Rs 60,000 = \( 60,000 \times \frac { 5 }{ 100 } = \) Rs 3,000
2. Delcredere Commission on Credit Sales: 2.5% of Rs 40,000 = \( 40,000 \times \frac { 2.5 }{ 100 } = \) Rs 1,000
Total Commission for Bhavesh = General Commission + Delcredere Commission = \( 3,000 + 1,000 = \) Rs 4,000
This total commission compensates Bhavesh for both the sales effort and the risk taken on credit sales. Delcredere commission is specifically for covering bad debts from credit sales.
In simple words: First, calculate the regular commission on all sales. Then, calculate the special delcredere commission only on the credit sales. Add both these amounts together to get the agent's total commission.

🎯 Exam Tip: Remember to calculate general commission on total sales (cash + credit) and delcredere commission specifically on credit sales, unless otherwise specified.

 

Question 8. 100 ton coal sent on consignment for Rs 1,300 per ton at invoice price and Rs 800 per ton at cost price and consigner paid Rs 20,000. Agent sold 76 ton coal and paid Rs 8,000 for sales expenses. It is informed that 5 tones coal is found less. Calculate the value of remaining stock with agent.
Answer:
Calculation of Value of Remaining Stock (Unsold Stock):
Total quantity sent = 100 tons
Quantity lost = 5 tons
Quantity sold = 76 tons
Remaining stock with agent = Total quantity - Quantity lost - Quantity sold = \( 100 - 5 - 76 = \) 19 tons

Cost price per ton = Rs 800
Invoice price per ton = Rs 1,300
Consignor's expenses (non-recurring) = Rs 20,000

Cost of remaining stock at cost price = 19 tons \( \times \) Rs 800/ton = Rs 15,200

Proportionate Consignor's Expenses for remaining stock:
Total quantity after abnormal loss = \( 100 - 5 = \) 95 tons
Proportionate expense for 19 tons = \( \frac { 20,000 }{ 95 } \times 19 = \) Rs 4,000

Value of Remaining Stock with Agent = Cost of remaining stock + Proportionate Consignor's Expenses
Value of Remaining Stock with Agent = \( 15,200 + 4,000 = \) Rs 19,200
(Note: Sales expenses are recurring and are not included in the valuation of unsold stock. The problem provides both cost and invoice prices; valuation of unsold stock is typically done at cost price adjusted for expenses.)
In simple words: First, figure out how many tons of coal are left after accounting for lost and sold amounts. Then, take the cost of these remaining tons and add a fair share of the initial shipping costs paid by the sender. This total will be the value of the unsold coal.

🎯 Exam Tip: When calculating unsold stock value, use the cost price (not invoice price) and only include the proportionate non-recurring expenses paid by the consignor. Also, adjust the total units for any abnormal losses before calculating the proportion.

 

Question 9. Mr. Harish of Mumbai consigned sent 20 items to Chandigarh of Jaipur at Rs 1,800 per item at cost. He spent Rs 2,000 on consignment. On the way 4 items are destroyed. Insurance Co. accepted 80% claim. Consignee sold destroyed goods at Rs 1,000. Calculate the value of abnormal loss.
Answer:
Calculation of Value of Abnormal Loss:
Cost of 4 items destroyed = \( 4 \times 1,800 = \) Rs 7,200
Add: Proportionate Non-Recurring Expenses Paid by Harish (Consignor)
Total units sent = 20
Total consignor's expenses = Rs 2,000
Proportionate expenses for 4 items = \( \frac { 2,000 }{ 20 } \times 4 = \) Rs 400
Total Cost of Abnormal Loss = \( 7,200 + 400 = \) Rs 7,600

Less: Insurance Co. accepted 80% Claim = \( 7,600 \times \frac { 80 }{ 100 } = \) Rs 6,080
Loss after Insurance Claim = \( 7,600 - 6,080 = \) Rs 1,520

Less: Destroyed goods sold by consignee = Rs 1,000
Net Cost of Abnormal Loss (to be debited to P&L A/c) = \( 1,520 - 1,000 = \) Rs 520
This calculation ensures that all recoveries from insurance and scrap sales are accounted for, showing the true net loss from the abnormal event.
In simple words: First, figure out the total cost of the items lost, including the sender's direct expenses. From this total loss, subtract what the insurance company paid. Then, if the damaged goods were sold for some money, subtract that too. The final amount is the actual loss suffered by the business.

🎯 Exam Tip: Always remember to subtract both the insurance claim and any salvage value from the gross abnormal loss to arrive at the net loss to be charged to the Profit & Loss Account.

 

Question 10. Ramesh sent 400 TV @ Rs 1,500 per TV at invoice price to Naresh on consignment. It includes 25% of cost. Ramesh paid Rs 2,000 for sundry expenses. Naresh sold 350 TV at Rs 1,800 per TV. Naresh paid Rs 1,000 sales expenses and Rs 2,000 advertisement expenses. Calculate the value of unsold stock.
Answer:
Calculation of Value of Unsold Stock:
Total units sent = 400 TV
Units sold = 350 TV
Unsold Units = \( 400 - 350 = \) 50 TV

Invoice Price per TV = Rs 1,500
Profit is 25% of cost. So, if Cost = 100, Profit = 25, Invoice Price = 125.
Cost Price per TV = \( \text{Invoice Price} \times \frac { 100 }{ 125 } = 1,500 \times \frac { 100 }{ 125 } = \) Rs 1,200

Cost of 50 TV sets (Unsold Stock at Cost Price) = \( 50 \times 1,200 = \) Rs 60,000

Add: Proportionate Non-Recurring Expenses Paid by Consignor (Ramesh)
Consignor's Sundry Expenses = Rs 2,000
Proportionate expenses for 50 unsold TVs = \( \frac { 2,000 }{ 400 } \times 50 = \) Rs 250

Value of Unsold Stock = \( 60,000 + 250 = \) Rs 60,250
(Note: Sales expenses and advertisement expenses paid by Naresh are recurring expenses and are not included in the valuation of unsold stock.)
This detailed calculation provides a fair valuation for the remaining inventory, considering only the direct costs incurred.
In simple words: First, find the actual cost of each TV by removing the profit from its invoice price. Then, multiply this cost by the number of TVs remaining unsold. Finally, add a fair share of the initial costs paid by the sender for those remaining TVs to get the total value of the unsold stock.

🎯 Exam Tip: Always convert invoice price to cost price if the profit margin is given on cost, and include only proportionate non-recurring expenses for accurate unsold stock valuation.

RBSE Class 12 Accountancy Chapter 8 Essay Type Questions

 

Question 1. Accounting Treatment of Consigned Goods at Invoice Price: Generally, consignor goods sent to consignee at cost price if some profit added or goods sent on invoice price, in this situation journal entry in goods sent on consignment, opening and closing balance, abnormal loss etc. included profit because they are shown on invoice price. To calculate correct net profit & loss on consignment, profit included in goods should be adjusted. In consignor books necessary journal entry will made.
Answer:
**Meaning of Consignment:** When the owner of goods (principal) sends goods to an agent (consignee) to sell on their behalf, with the understanding that the agent will receive a commission for their services. The ownership of the goods remains with the consignor, who bears all risks, expenses, and losses related to the consignment. This arrangement allows the consignor to expand their market reach without setting up their own sales infrastructure.

**Commission:** Commission is the payment made by the consignor to the consignee for the services provided in selling the consigned goods. Commissions can be of different types, depending on the agreement:
(i) **Ordinary Commission:** This is the basic commission, typically a fixed percentage of the gross sales proceeds. It is paid to the consignee regardless of whether the sales are cash or credit. This type of commission does not protect the consignor from bad debts.
(ii) **Delcredere Commission:** This is an additional commission provided by the consignor to encourage the consignee to make credit sales and bear the risk of bad debts. If bad debts occur, the consignee, having received delcredere commission, will bear the loss, not the consignor. This shifts the risk of credit sales from the consignor to the consignee.
(iii) **Overriding Commission:** This is an extra commission given by the consignor to the consignee to motivate them to promote sales at a price higher than the specified invoice price or to push new products. It can be calculated on total sales or on the difference between the actual selling price and the invoice price.

**Accounting Treatment of Consigned Goods at Invoice Price:**
When goods are sent on consignment at an invoice price (which includes a profit margin over cost), the accounting entries need to be adjusted to reflect the true cost and profit. This is done to ensure that the consignment account accurately shows the net profit or loss, as if the goods were sent at cost. The profit element embedded in the invoice price needs to be removed from various accounts such as goods sent on consignment, opening stock, closing stock, and abnormal loss.

In the consignor's books, the following necessary journal entries are made for adjustment:
(1) **For profit included in goods sent on consignment:**
Goods Sent on Consignment A/c Dr.
To Consignment A/c
(Being unrealised profit included in goods sent on consignment adjusted)

(2) **For profit included in opening stock:**
Stock Reserve A/c Dr.
To Consignment A/c
(Being unrealised profit included in opening stock adjusted)

(3) **For profit included in closing stock:**
Consignment A/c Dr.
To Stock Reserve A/c
(Being unrealised profit included in closing stock adjusted)

(4) **For profit included in abnormal loss:**
Consignment A/c Dr.
To Abnormal Loss A/c
(Being unrealised profit included in abnormal loss adjusted)

**Example for Accounting Treatment:**
Prakash Store from Delhi sent 100 washing machines @ Rs 7,500 at the cost price, with an invoice value of Rs 9,375 per machine, to Ajmer Electric Stores. Prakash Store paid Rs 15,000 for freight and insurance. The consignee will get 10% commission on sales at invoice value and 25% overriding commission on sales value above the invoice price. Prakash Store paid Rs 4,000 for Octroi and Rs 5,500 for sales expenses. Ajmer Electric Stores sold 90 washing machines for Rs 9,45,000, and the remaining amount was remitted by bank draft. The goal is to prepare the consignment account in the books of the consignor (Prakash Store), assuming goods are accounted for at invoice value.

**Consignment Account in the books of Prakash Store**

In simple words: When a business sends goods to an agent for sale, it's called consignment. The owner still owns the goods and pays the agent a fee called commission. If the goods are recorded at a higher 'invoice price' instead of the actual cost, special accounting adjustments are needed to correctly calculate the real profit from the sale, by removing the extra profit shown in the invoice price. This includes adjusting for any profit hidden in the goods sent, starting stock, ending stock, or lost goods.

🎯 Exam Tip: When goods are sent at invoice price, always ensure that all profit loading elements (for goods sent, abnormal loss, and closing stock) are properly adjusted to reflect the true cost and profit of the consignment.

 

RBSE Class 12 Accountancy Chapter 8 Numerical Questions

 

Question 1. Mr. Bharat of Alwar sent goods to Kapil of Udaipur for Rs 1,00,000 on consignment and paid sundry expenses Rs 20,000. Kapil sent Rs 60,000 to Bharat in advance. Kapil paid wages and cartage Rs 4,000 and godown rent Rs 3,000. Kapil sold all the goods for Rs 1,60,000 in cash. 5% commission on sales is payable to consignee. Kapil sent remaining amount to Bharat. Prepare Journal Entries is the books of consigner and consignee and also prepare necessary ledger accounts.
Answer:
**In the Books of Bharat (Consignor)**
**Journal Entries**

**Consignment Account**

**Goods sent on Consignment A/c**

**In the Books of Kapil (Consignee)**
**Journal Entries**

In simple words: This question asks us to record all the business dealings between Mr. Bharat (the sender) and Kapil (the agent) for the goods sent on consignment. We need to write down each transaction in a journal and then put all the related amounts into their respective ledger accounts, like the Consignment Account, to see the final profit or loss.

🎯 Exam Tip: Ensure that all expenses paid by both the consignor and consignee are correctly debited to the Consignment Account, and commission is accurately calculated on sales before determining the net profit or loss.

 

Question 1. Mr. Bharat of Alwar sent goods to Kapil of Udaipur for Rs 1,00,000 on consignment and paid sundry expenses Rs 20,000. Kapil sent Rs 60,000 to Bharat in advance. Kapil paid wages and cartage Rs 4,000 and godown rent Rs 3,000. Kapil sold all the goods for Rs 1,60,000 in cash. 5% commission on sales is payable to consignee. Kapil sent remaining amount to Bharat. Prepare Journal Entries is the books of consigner and consignee and also prepare necessary ledger accounts.
Answer:

Consignment Account

Goods sent on Consignment A/c

Journal Entries in the Books of Kapil (Consignee)

Commission Account

In simple words: This question shows how to record all the transactions in the books of both the consignor (Bharat) and the consignee (Kapil). It covers sending goods, paying expenses, receiving advances, making sales, and calculating commission. Each step is shown with its journal entry and then summarized in the consignment account.

🎯 Exam Tip: Always double-check your commission calculations, especially when there are multiple types of commission or different rates for cash and credit sales.

 

Question 2. Mr. Rakesh of Jaipur appoints Mr. Anil of Bhilwara as his selling agent. Rakesh consigned 100 mobile set @ Rs 3,000 each set sent to Anil. Rakesh paid expenses Rs 2,800 and Anil paid clearing charges Rs 1,200. Anil sold 70 mobile set @ Rs 4,000 each set in cash and 20 mobile set Rs 4,200 each sold on credit. Selling expenses per mobile set Rs 25 paid. Anil received 6% general commission and 3% delcredere commission on credit sales. Prepare necessary accounts in the books of consigner and consignee. Value of one set is being bad out of credit sales.
Answer:

Anil's Account (Consignee)

Goods sent on Consignment A/c

In the Books of Anil (Consignee) Rakesh's Account

Commission A/c

Debtors Account

In simple words: This solution details the complete accounting process for a consignment sale. It shows how the consignor (Rakesh) and consignee (Anil) record all the money, goods, expenses, and commissions. Special attention is paid to the two types of commission (general and delcredere) and how bad debts are handled when delcredere commission is involved.

🎯 Exam Tip: Remember that delcredere commission shifts the risk of bad debts from the consignor to the consignee, so the consignee will absorb any losses from credit sales if they receive this commission.

 

Question 3. Bharat Cycle Ltd. of Ajmer appointed to Chandra Cycle Store, Chittorgarh as his selling agent on the following terms :
(i) Goods to be sold at invoice price or over.
(ii) Chandra Cycle Store will be entitled to get commission of 5% on invoice price and 20% for commission on the value above invoice price.
(iii) The principal to draw a bill on the agent for 2 months of 60% of invoice price.
600 cycles were consigned to Chandra Cycle Store, Chittorgarh for Rs 200 per cycle which was at invoice price Rs 250 per cycle. Chandra Cycle Store met his acceptance on due date. Chandra Cycle Store sold 540 cycles @ Rs 280 per cycle. His selling expenses Rs 1,250 and he remitted the amount due by a bank draft. The Balance stock was valued at 80% due to damaged caused by rains. Prepare the necessary ledger accounts in the books of the both parties.
Answer:

Chandra Stores Account

Goods sent on Consignment A/c

Working Note: Calculation of Overriding Commission

In simple words: This problem involves preparing accounts for a consignment where goods are sold above invoice price and a special "overriding commission" is paid on the extra profit. The solution shows how to calculate the different types of commission and how to record all transactions, including the advance payment and final settlement. The value of unsold damaged stock is also considered.

🎯 Exam Tip: When dealing with overriding commission, always ensure it is calculated on the 'excess' amount (selling price minus invoice price) as specified in the agreement, not on the total sales value.

 

Question 4. The M Coal Co. consigned to Mr. Rakesh Sales Ltd. 1,000 quintals of coal at invoice price of Rs 40 per quintal. The company paid Rs 0.50 per quintal for loading and Rs 3.50 per quintal for railway freight, an account sales was received from Mr. Rakesh Sales Ltd. showing 800 quintals coal sold at Rs 60 per quintal. Sales expenses Rs 1,600, insurance Rs 200, brokerage @ 2% and commission @ 5%. The agent remitted the amount payable by a bank draft and reported a shortage of 20 quintals of coal on the whole consignment. Prepare the necessary accounts in the books of M Coal company.
Answer:

Abnormal Loss Account

Working Note : Valuation of Cost of Abnormal Loss by Theft & Unsold Stock

In simple words: This problem involves preparing accounts for a consignment with abnormal loss due to theft. The solution shows how to calculate the value of the abnormal loss, accounting for insurance claims, and then how to value the remaining unsold stock. All costs and commissions are properly recorded in the consignment account and abnormal loss account.

🎯 Exam Tip: Remember to always include only non-recurring expenses in the valuation of abnormal loss and unsold stock, as recurring expenses are not part of the cost to bring goods to their current location.

 

Question 5. Krishna Glass Works of Mumbai consigned 100 cases of goods to his agent Chandan at Rs 20,000. It includes 25% on cost price. They also paid freight Rs 500 and insurance Rs 1,000. In course of transit 20 cases were lost and a claim being made, a sum of Rs 3,200 was received from Insurance Company. The agent took delivery of remaining case and Chandan paid Rs 800 custom duty, Rs 80 octroi and Rs 40 for cartage. Chandan rendered to their principal an account sale showing that 60 cases were sold for Rs 14,000 and paid brokerage at 1.5%. The agent after deducting the expenses incurred by him and his commission at 5% on gross sales proceeds, remitted the balance due by bank draft. Record the above transactions in the ledger of both parties. Solution.
Answer:

Abnormal Loss Account

Chandan Account

Goods sent on Consignment Account

Commission Account

Working Note : (1) Calculation of Cost Price of 100 Cases of Goods

In simple words: This problem involves accounting for a consignment with goods sent at invoice price, abnormal loss during transit, and various expenses and commissions. The solution includes calculating the cost price, valuing the abnormal loss (after insurance claim), and preparing the consignment account, abnormal loss account, and Chandan's account.

🎯 Exam Tip: When valuing abnormal loss, remember to adjust the cost price by removing any profit margin if the goods were sent at invoice price, and add proportionate non-recurring expenses.

 

Question 6. Kamal Traders consigned 2000 vegetables oil tin @ Rs 1,400 per tin at cost to Himanshi Traders and paid railway freight Rs 20,000. In course of transit 100 tin was theft. A sum of Rs 10,000 is received from insurance company as a claim. Agent took delivery of remaining goods and paid to Rs 19,000 for octroi and Rs 3,000 as selling expenses. He sold 1,700 tins @ Rs 1,500 per tin and charged Rs 20 per tin sold as commission. Prepare Consignment account and Abnormal Loss account in the books of consignor.
Answer:

Abnormal Loss Account

Working Note : Valuation of Cost of Abnormal Loss by Theft & Unsold Stock

In simple words: This solution demonstrates how to prepare consignment and abnormal loss accounts when goods are lost due to theft during transit. It involves calculating the value of the abnormal loss, adjusting for the insurance claim received, and then determining the value of unsold stock, ensuring all expenses and commissions are correctly recorded.

🎯 Exam Tip: When calculating abnormal loss, always make sure to deduct the insurance claim amount from the gross loss to find the net loss transferred to the Profit & Loss Account.

 

Question 7. Mr. Ram & Co. of Mumbai consigned 1,000 radio @ Rs 500 per radio on cost and Rs 600 per radio at invoice price to Mayank Radio Co., Ajmer. Mayank Radio Co. sold 700 radio @ Rs 750 per radio. In course of transit 50 radio damaged and agent claim to Insurance Company. Agent received commission on invoice price at
Answer:

Working Note: Calculation of Overriding Commission

In simple words: This solution details the accounting for a consignment where goods are sent at invoice price, with abnormal loss due to damage in transit and various commissions. The consignment account shows how to record sales, expenses, and different types of commission, including the overriding commission calculated on the excess selling price. It also accounts for the unrealized profit on unsold stock.

🎯 Exam Tip: Always be careful to remove the loading (profit element) from the invoice price of goods when dealing with abnormal loss or unsold stock valuation to correctly calculate the actual cost. This helps in understanding the true profit or loss on consignment.

 

Question 8. Mahesh sells goods on behalf of Vijai Sales Corporation on consignment basis. On 1 January, 2015, he had with him a stock of Rs 20,000 on consignment. Mahesh had instructions to sell the goods at cost plus 25% and was entitled to get a commission of 4% on sales in addition to 1% delcredere commission on total sales for guaranteed collection of all sale proceeds. During the year ended 31, December, 2015 cash sales were Rs 1,20,000 and credit sales Rs 1,05,000. Expenses paid by Mahesh related to the consignment Rs 3,000. Bad debts were Rs 3,000 and goods sent on consignment Rs 2,00,000. From the above particulars prepare Consignment account in the books of Vijay Sales Corporation.
Answer:

Working Note: Cost of Unsold Stock

In simple words: This problem involves preparing a consignment account with an opening stock, sales at cost plus profit, and two types of commission (general and delcredere). The solution shows how to calculate the commissions, account for bad debts (since delcredere commission covers it), and value the unsold stock at the end of the period.

🎯 Exam Tip: When delcredere commission is provided, the consignee bears the loss from bad debts, so the consignor does not record bad debts in their books. Also, remember to add opening stock and new goods sent to determine the total goods available for sale.

 

Question 9. Deepak of Delhi sent goods on consignment to Vivek of Ranchi and charge profit on proforma invoice price at 25% on cost. The agent received commission @ 7% plus 3% delcredere commission on all sales made by him. Stock with agent at the beginning of the year, 20 bales at proforma price of Rs 5,000, the following transactions took place during the year ended 31st December, 2015 :
(i) 100 bales cosigned at proforma invoice price Rs 25,000.
(ii) Freight and insurance paid by Deepak Rs 1,000
(iii) Advance received from Vivek Rs 10,000.
(iv) Sales made by Vivek
(a) 50 bales for cash Rs 12,500
(b) 40 bales for credit Rs 10,800
(v) Advertising expenses paid by agent Rs 1,200 and brokerage allowed by him Rs 500.
(vi) 15 bales were damaged in transit and Rs 1,400 received as compensation. The damaged case were sold for Rs 1,100.
(vii) Rs 1,500 could not be realised from credit sales.
(viii) The agent remitted the balance amount. Prepare necessary accounts in the books of Deepak. Solution.
Answer:

Vivek Account

Abnormal Loss Account

In simple words: This solution provides a comprehensive look at consignment accounting, including initial stock, new consignments at invoice price, expenses by both parties, sales (cash and credit), various commissions (general and delcredere), abnormal loss with insurance claims, and the final settlement. It shows the detailed entries in the Consignment Account, Vivek's Account, and Abnormal Loss Account.

🎯 Exam Tip: Remember that commission is usually calculated on the total sales value (cash and credit), unless specified otherwise. Delcredere commission is designed to cover bad debts on credit sales.

 

Question 10. Bharat store consigned goods worth Rs 80,000 at invoice price (cost price Rs 60,000) to Rajasthan Store.
Answer:

Working Note-Valuation of Unsold Stock:

In simple words: This problem shows how to prepare a consignment account when goods are sent at invoice price, which is higher than the cost price. It involves recording expenses paid by both the consignor and consignee, calculating different types of commission, and correctly valuing the unsold stock at the end of the period, making sure to adjust for the profit margin in the invoice price.

🎯 Exam Tip: Always make sure to deduct the unrealized profit from the invoice price of goods when they are sent at a value higher than cost. This ensures the profit is only recognized when goods are actually sold.

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