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Consignment
Accountancy
Illustration - 1) Goods sent on consignment = 50,000 Packing charge (by consignor) = 1,000 Freight (by consignee) = 2,000 Rent (by consignee) = 500 Insurance (by consignee) = 300 Goods sold = 4/5th of 50,000 Sale amount = 55,000 The expense of rent and insurance of consignment is for full goods . But in the consignment to wye ledger account, the total expense for rent and insurance are deducted for the 4/5th sale of goods. Isn't it that we have to divide the expense of insurance and rent has to be divided equally with goods? Explain pls
Answers (4)
Please note that all the costs which are incurred to bring the inventory to its present location, condition, and position form part of cost of inventory. Here, the consignor's expenses are necessary to send the goods to the consignee's location. So it is included in the cost of unsold inventory. In addition to that consignee also incurs certain freight expenses. So it will also be added to the cost of inventory. But these rent and insurance for godown( consignee's expenses ) are not necessary for the goods to be brought to their salable condition. So these do not form part of cost of inventory. They are expenses of consignee which will finally be reimbursed by the consignor
Simply put, all the costs incurred till the inventory is brought to the consignee's godown will be considered. Rent and godown insurance will take place after the inventory is brought to consignee's place. So they are excluded in the computation of closing inventory. Hope you are clear.
Sibi Srinivasan
Simply put, all the costs incurred till the inventory is brought to the consignee's godown will be considered. Rent and godown insurance will take place after the inventory is brought to consignee's place. So they are excluded in the computation of closing inventory. Hope you are clear.
Yes, I am clear. Thank you for your kind help.