Expenses on Consignment and Valuation of Unsold Stock

Every consignment involves expenses beyond the cost of the goods themselves — freight, insurance, carriage, loading and unloading charges, octroi or entry-tax, clearing charges, godown rent, advertisement, and the consignee's own commission. Whether or not a particular expense is added while VALUING the goods that remain unsold at the year-end depends entirely on WHEN, in the goods' journey, that expense was incurred.

Non-recurring (direct) expenses are those incurred in bringing the goods to the point where they are ready for sale — freight and insurance while the goods are in transit, carriage paid by the consignee on taking delivery, loading and unloading charges, octroi, customs duty, and clearing charges. These expenses genuinely add to the cost of getting EVERY unit (sold or unsold alike) into a saleable condition, exactly the way "carriage inward" is added to the cost of unsold inventory in an ordinary trading business — so they MUST be included, proportionately, while valuing the unsold stock.

Recurring (indirect or selling) expenses, by contrast, are incurred AFTER the goods are already in a saleable condition, and relate to the effort of actually finding a buyer and closing the sale — godown rent while the goods await a buyer, insurance of the stock while stored, advertisement, a salesman's salary, and the consignee's commission itself. Goods that are STILL UNSOLD have not yet benefited from any of this selling effort, so none of these expenses is added while valuing them; including them would wrongly inflate the value of stock that has not actually been sold.

Value of unsold stock (no loss of any kind) = [(Total cost of goods sent + Total non-recurring expenses of the consignor AND the consignee) ÷ Total units sent on consignment] × Units remaining unsold …