Question of Consignment Accounts.

Q. Ali consigned 100 cases of candles to Khalid costing Rs.50 per case. He incurred expenses -packing – Rs.100, carriage - Rs.150 and rail freight - Rs.200. Some cases were damaged in transit and consignee took delivery of 90 cases. Consignee spent Rs.50 for cartage and Rs.300 towards warehouse rent. Khalid sold 70 cases at Rs.60 per case. He sent net amount payable to consignor after deducting his expenses and commission at the rate of 5% of sale. Consignor received Rs. 300 from railway for damages. Show Consignment Account and Consignee A/c in the book of consignor.

asked Jan 19, 2015 in Consignments by aslam (107 points) 10,320 views

1 Answer

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answered Jan 19, 2015 by jbsclasses (3,971 points)
suppose if the goods were not losted during transit to consignee then the cartage paid by consignee will be added in abnormal  loss or not ???
If goods were lost at the premises of the consignee, then while calculating abnormal loss, the proportionate share of cartage paid by consignee would be included in the abnormal loss.
thanks a lot its really help full to me
Sir, why in this question Rs.300 received from railways is credited to P&L and not to Consignment A/c
Consignment account is prepared to know the profit or loss made on the consignment.  Since abnormal loss is not a regular phenonemena, the cost of such goods is subtracted from the cost of the consignment (that is why consignment account is credited with abnormal loss).  Journal entry for this is:

Abnormal Loss A/c            Dr.  545

   To Consignment A/c                          545

As cash is received from Railways against the abnormal loss the journal entry for that will be:

Cash A/c                             Dr.  300

   Abnormal Loss A/c                           300

Debit balance left is Abnorma Loss is Rs.245, it will be closed to Profit and Loss A/c will be:

Profit & Loss A/c                Dr.  245

   To Abnormal Loss A/c                     245

Second scheme of journal entries can be:

When cash is received from Railways:

Cash A/c                             Dr.  300

   To Profit & Loss A/c                           300

Full amount of abnormal loss is closed to Profit & Loss A/c"

Profit & Loss A/c                Dr.  545

   To Abnormal Loss A/c                      545
Sir But generally we credit the Insurance claim in consignment A/c. For example if there is loss of Rs.5000 & Insurance Co. admitted claim of Rs. 3000 then journal entry will be:

Insurance Co.-Dr.

P&L A/c-Dr.

To Consignment A/c

Actually Sir I have little bit confusion. In the study material of ICAI (Page 7.10 of Accounting book) it is written to credit insurance amount to consignment A/c as written above but in e-learning portal insurance amount is credited to abnormal loss A/c as you written. Please clarify this......
Let me clear your doubt.  The most important point is that the COSTof abnormal loss should be subtracted from the COST of Consignment because we want to know the profit or loss on Consignment.  Now the question arises, if this loss is to be subtracted then where it should be added.  The obvious answer is Profit & Loss A/c.  Now there can be two approaches to debit the Cost of Abnormal Loss to Profit and Loss A/c.  Following are two approaches:

1. Do not open an Abnormal Loss A/c, directly debit the irrecovdrable loss to P & L A/c. For example abnormal loss is Rs.5000 and Insurance Co. has admitted a claim of Rs.2000.  In this case we will pass the following journal entry:

Insurance Co. A/c            Dr.  2000

Profit & LOss A/c              Dr.  3000

  To Consignment A/c                             5000

2.  Second approach is to open an Abnormal A/c.  The total abnormal loss is debited to Abnormal A/c and then whatever is received from Insurance Company is credited to Abnormal A/c.  The irrecovered amount is in last debited to Profit & Loss A/c  as shown by me in my comments above.

Abnormal Loss A/c         Dr.   5000

   To Consignment A/c                            5000

Insurance Co. A/c/Cash A/c   Dr.   2000

Profit & Loss A/c                       Dr.   3000

   To Abnormal Loss A/c                                  5000

Both the approaches are correct.  You will notice that in both the approaches:

(a) Consignment A/c has been credited with Rs.5000 i.e. the Cost of Abnormal Loss.

(b)  Profit & Loss A/c has been debited with Rs.3000.

I hope I have made the point clear.

Thanks! Sir, But there is still a confusion in my mind.

For Example: A send 100 units costing 100,000 to B.. 10 Units get damaged in trasit costing Rs. 10,000. Insurance co. paid Rs. 5000. B received 90 good units + 10 damaged units. B sold 90 good units at Rs. 120/unit.  B also sold 10 damaged units @ 120/unit, after incurring Repairing expenses amounting Rs. 2000. B is entitled to 2% commision on sale. 

Sir, please tell how entries will be made in this type of question.

Please let me know whether the goods were sold @ Rs.120/unit or Rs.1200/unit.  My reason for asking this is because the cost price is Rs.1000/unit.
Yes Sir, It is Rs. 1200/Unit

Damaged goods are sold for Rs.12,000 and they cost you Rs.12,000 including repairing expenses.  Since there is no loss, you would not get any claim from the Insurance Company.  Even in such a case we have to take out the expenses and income relating to damaged goods out of Consignment A/c because we don’t want to vitiate the profitability of that particular consignment.  The journal entry for this will be:


1.  Abnormal Loss A/c         Dr.  10,000

        To Consignment A/c                             10,000


2.  Abnormal Loss A/c         Dr,    2,000

        To Cash A/c                                            2,000


3.  Cash A/c                          Dr.  12,000

        To Abnormal Loss A/c                          12,000

It means if goods get partially damaged then all the expense related to damaged goods is charged to Abnormal Loss A/c. such as repair expenses, commision etc. and any sale made, insurance co. amount received  is credited to abnormal loss A/c. & the balance will be trnsfd. to P& L A/c.

These expenses or sales will be not be debited or credited to Consignment A/c, Only abnormal Loss amount will be credited to consignment A/c.
You are absolutely right.