Q.Why is a distinction made between direct (non-recurring) expenses and indirect (recurring) expenses on consignment? Illustrate with two examples of each.

The distinction matters because only direct expenses add value to the goods on their way to the point of sale, so only they are carried into the value of unsold stock; both types are still charged in full to the Consignment Account. …

The whole reason this distinction is drawn is because of how closing stock on consignment is valued: unsold stock is valued at proportionate cost plus proportionate direct expenses only. If every expense, direct or indirect, were added into stock, the value of unsold goods would be overstated, since indirect expenses (like godown rent or advertisement) relate to the process of storing and selling the goods after they have already reached a saleable condition, and do not make the goods themselves any more valuable.

Direct (non-recurring) expenses are those incurred, generally once, in bringing the goods from the consignor's premises to a point where they are ready for sale at the consignee's location — for example, freight/carriage paid by the consignor to send the goods, and insurance paid on the goods while in transit. Two more examples on the consignee's side are unloading charges and customs/octroi duty paid on receiving the goods. …