From the figures already used for Rama Rao's consignment to Suresh (1,000 units costing Rs 50 each, i.e. Rs 50,000, sent on consignment during the year), prepare the Goods Sent on Consignment Account in the books of Rama Rao, and explain why this account is finally closed by tran

Question

From the figures already used for Rama Rao's consignment to Suresh (1,000 units costing Rs 50 each, i.e. Rs 50,000, sent on consignment during the year), prepare the Goods Sent on Consignment Account in the books of Rama Rao, and explain why this account is finally closed by transfer to the Trading Account rather than to the Consignment Account.

Accepted Answer

When Rama Rao sends the 1,000 units to Suresh, the entry passed is Consignment to Vijayawada A/c Dr, To Goods Sent on Consignment A/c, Rs 50,000 — so the Goods Sent on Consignment Account is a nominal account that simply accumulates, on its credit side, the cost of every consignment despatched during the year.

| Goods Sent on Consignment A/c | Rs | | Rs |
|---|---|---|---|
| To Trading A/c (transfer at year end) | 50,000 | By Consignment to Vijayawada A/c | 50,000 |
| **Total** | **50,000** | **Total** | **50,000** |

At the close of the year, this account is closed by the entry Goods Sent on Consignment A/c Dr, To Trading A/c, Rs 50,000. It is transferred to the Trading Account, and not to the Consignment Account, because the Consignment Account has already separately received the debit for these same goods (as its opening debit entry) — transferring the amount there again would double-count it. The real purpose of routing it through the Trading Account is different: the cost of these goods is already sitting inside the year's ordinary Purchases figure (since Rama Rao purchased or manufactured them along with all his other stock), but they were never actually sold in the ordinary course of trade — they were only sent out on consignment. Crediting the Trading Account with this Rs 50,000 removes that value from ordinary Purchases for the pu …

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods sent on consignment	50,000	By Shivaji (Sales)	48,000
To Bank (consignor's expenses)	2,400	By Consignment Stock c/d	13,100
To Shivaji (consignee's expenses)	1,200
To Shivaji (commission 5% of 48,000)	2,400
To Profit transferred to P and L A/c	5,100
	61,100		61,100

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods Sent on Consignment A/c	3,00,000	By Prasad A/c (Gross Sales)	4,50,000
To Bank A/c (freight and insurance)	12,000
To Prasad A/c (unloading and godown rent)	10,000
To Prasad A/c (commission 5% of 4,50,000)	22,500
To Profit transferred to Profit and Loss A/c	1,05,500
Total	4,50,000	Total	4,50,000

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Consignment A/c (Gross Sales)	4,50,000	By Bills Receivable A/c (bill accepted)	1,00,000
		By Consignment A/c (unloading and godown rent)	10,000

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods Sent on Consignment A/c	60,000	By Karan's A/c (Sales)	50,000
To Bank A/c (Ravi's expenses)	4,000	By Stock on Consignment A/c (c/d)	32,000
To Karan's A/c (expenses)	3,000
To Karan's A/c (commission 6% of 50,000)	3,000
To Profit transferred to P&L A/c	12,000
Total	82,000	Total	82,000

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods Sent on Consignment A/c	20,000	By Arjun A/c (Sales)	30,000
To Cash A/c (freight 800 + insurance 700)	1,500
To Arjun A/c (sales expenses)	750
To Arjun A/c (commission 5% of 30,000)	1,500
To Profit transferred to Profit and Loss A/c	6,250
Total	30,000	Total	30,000

Concept understanding — Consignment Account and Related Ledger Accounts in the Consignor's Books

Working — Valuation of unsold stock

Consignment to Karimnagar Account

Karan's Account (Consignee)

Goods Sent on Consignment A/c	Rs		Rs
To Trading A/c (transfer at year end)	50,000	By Consignment to Vijayawada A/c	50,000
Total	50,000	Total	50,000

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods sent on consignment	10,000	By Mehta and Co. (Sales)	18,500
To Bank (consignor's expenses)	500
To Mehta and Co. (carriage 600 + other 400)	1,000
To Mehta and Co. (commission 5% of 18,500)	925
To Profit transferred to P and L A/c	6,075
	18,500		18,500

Dr — Particulars	Amount (₹)	Cr — Particulars	Amount (₹)
To Goods Sent on Consignment (100 x 600)	60,000	By Nikhil (Sales 80 x 800)	64,000
To Bank (Insurance 1,000 + Freight 1,000)	2,000	By Consignment Stock c/d	12,400
To Nikhil (Selling Exp. 500 + Commission 6,400)	6,900
To Profit transferred to P&L A/c	7,500
Total	76,400	Total	76,400

Particulars	Amount (₹)	Particulars	Amount (₹)
To Goods sent on consignment	30,000	By Jahnavi — Sales	22,000
To Bank — cartage & other expenses	2,000	By Consignment Stock c/d	16,000
To Jahnavi — expenses	1,200
To Jahnavi — commission (5% of 22,000)	1,100
To Profit on consignment (to P&L A/c)	3,700
Total	38,000	Total	38,000

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Goods sent on consignment (200 × 400)	80,000	By Rama Brothers — Sales (100 × 520)	52,000
To Cash — Freight & Insurance	5,000	By Consignment Stock A/c	42,500
To Rama Brothers — Expenses (2,400 + 1,300)	3,700
To Rama Brothers — Commission (10% of 52,000)	5,200
To Profit transferred to P&L A/c	600
Total	94,500	Total	94,500

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Consignment A/c	42,500	By Balance c/d	42,500
Total	42,500	Total	42,500

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Consignment A/c (sales)	52,000	By Bills Receivable (bill accepted)	50,000
To Balance c/d (due to Rama Brothers)	6,900	By Consignment A/c (expenses)	3,700
		By Consignment A/c (commission)	5,200
Total	58,900	Total	58,900
…

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