Question

How valuation is done for unsold stock with consignee?

Answer 1

Calculation of valuation, unsold stock with consignee is as follows:

1. Inventories will be valued at cost or market value whichever is lower.
2. All expenses incurred by consignor should be added in the cost of unsold stock in proportionately.
3. All expenses incurred by consignee, for reaching goods to godown will added.

But expenses incurred by consignee after the reached goods to godown are not treated a part of the cost of goods purchase for valuation of inventories in hand.
(i) Valuation of Unsold Stock:

(ii) Alternative Method:

Answer 2

If all the goods are not sold by the Consignee within the accounting period, then the unsold stock is brought into account by the Consignor. As usual, the unsold stock in the hands of the consignee should be valued on cost price or market price whichever is less.

Here the cost means the cost at the moment when the goods reached the Consignee’s godown. The cost includes by adding proportionate non-recurring expenses incurred by the consignor as well as the consignee.

Formula: Calculation of Value of Unsold Stock:

It is calculated as follows:

(a) The proportionate Cost Price and

(b) Proportionate direct expenses i.e. the expenses incurred by the Consignor and Consignee till the goods reached the godown of the Consignee.

Expenses incurred by the Consignee after the goods have been brought to the shop/godown are not considered. Correct profit or loss can be ascertained by the proper valuation of unsold stock which is credited to Consignment Account.

Value of unsold stock = Cost Price of Closing Stock + Proportionate non-Recurring Expenses

Three Accounts Maintained by Consignor:

ADVERTISEMENTS:

The Consignor usually maintains three accounts:

1. Consignment Account:

It is a nominal account. It is in fact a Special Trading and Profit and Loss Account. The balance, in this Account, represents either profit or loss on consignment which is finally transferred to General Profit and Loss Account.

2. Consignee’s Personal Account:

It is a personal account. It is mainly prepared to ascertain the amount due from the Consignee.

3. Goods Sent on Consignment Account:

It is a real account. It is closed by trans­ferring its balance to Purchase Account or sometimes credit side of Trading Account.

Illustration:

Mr. Ram Manohar of Bombay sent 100 bicycles, which cost Rs 900 each, to Gopal of Madras on consign­ment basis. Ram Manohar paid freight of Rs 1,200, Cartage Rs 300 and Insurance Rs 400. In Madras, Gopal has spent Rs 100 as cartage, loading and unloading Rs 50.

The bicycles have been kept in a godown at a rent of Rs 100 p.m. At the end of accounting period, 20 bicycles remained unsold. The selling price of the bicycle is Rs 1,000 at Madras. What should be the value of stock unsold?

HOPE SO IT IS CLEAR.