- 1. CONSIGNMENT AND JOINT VENTURE ACCOUNTING ASPECTSby :DR. T.K.
JAIN AFTERSCHO OLcentre for social entrepreneurshipsivakamu
veterinary hospital road bikaner 334001 rajasthan, india FOR
PGPSE/CSEPARTICIPANTSmobile : 91+9414430763
2. My words.... Here I present basic aspects of consignment and
joint venture accounting aspects .I wish that more people should
become entrepreneurs. An ordinary Indian entrepreneur wishes to
remain an honest entrepreneur and contribute to the development of
nation,let us support entrepreneurs.. 3. What is consignment ?When
a business person sends his goods to someone else so that the other
person can sell it out. It is consignment. The first person remains
the owner, but the second person takes the possession and sells out
the goods on behalf of the first person. 4. Who is consignor /
consignee?Cosignor = the person who sends the goods. He is the
owner of the goods. He bears the risks related to goodsConsignee =
who receives the goods. He tries to sell the goods on behalf of
consignor 5. What is the difference between sale and consignment
?In sale, there is transfer of ownership. But in consignment, goods
are sent, but ownership remains with the consignor and the
consignee tries to sell the goods.In case of sale, goods generally
dont come back. In consignment, unsold goods are taken back by
consignor. 6. What is proforma invoice ?It is prepared by
consignorit accompanies goods when goods are sent to consignee 7.
What is account sales ?It is prepared by consignee.It shows the
sales undertaken by consignee 8. What is the benefit to consignee
?Consignee gets commission on goods sold. Suppose rate of
commission is 10%, and consignee sells out goods of Rs. 4 lakhs.
The commission of consignee is Rs. 40000. Consignor is bound to pay
this commission 9. What are consignment expenses ?There are many
expenses incurred in the process of consignment. When goods are
despatched, there are carriage, freight, insurance and other
expenses. All the expenses are borne by consignor . 10. What is
over-riding commission ?Over-riding commission is allowed by the
consignor to the consignee to promote sale at higher price than
specified or to encourage consignee to put more work in introducing
new product in the market. 11. How to valuate stock ?Stocks
(inventory) have to be valued at cost. Generally consignment is
sent at invoice price. But the stocks have to be shown at cost. So
when consignor is preparing final accounts, adjustment has to be
made from the stock to arrive at cost price. 12. Example : A sent
goods of invoice price 1200 to B. Which are lying in godown of B.
What inventory will you show on 31/3/10? Invoice price is 20% above
cost.Here we have to prepare stock reserve account to adjust for
the profit element in stock.20/120 * 1200 = 200so 200 will be
transferred to stock reserve account. Thus inventory will be of
(1200 200) = 1000 only in real terms (at cost). 13. What accounts
are prepared by consignor ?He prepares 2 accounts :1. consignment
to XYZ account 2. consignee account 14. What accounts are prepared
by consignee ?1. consignor account2. conignment inward book 15.
What entries are made by consignor while despatching goods
?consignment account Dr. To Goods sent on consignment account 16.
What entries are made by consignor when consignee sells goods
?Consignee a/c debitto consignment a/c 17. What entry is made by
consignor when expenses are incurred by consignee ?Consignment a/c
debitto consignee a/c credit 18. What entry is made by consignor
when he himself incurs expenses ?Consginment a/c debitto bank a/c
credit 19. What are the contents of consignment a/c ?
- All the expenses, details of goods sent,
- Expenses incurred by consignee
20. What are the contents of consignee account ?
- Details of goods sold by consignee (consignment a/c )
- Bank / cash payments received from consignee
21. What accounting entry will be made when consignee receives
goods from consignor ?No accounting entry is required the consignee
is not the owner of the goods, hence, no accounting entry is
required.However, there is a book maintained by consignee, which
shows the arrival of the goods. This is called consignment inward
book. 22. What accounting entry is required when consignee sells
the goods (in the books of consignee) ?Bank a/c Debit or Cash a/c
debitto consignor a/c credit 23. What accounting entry is required
when consignee spendsmoney on behalf of consignor (in the books of
consignee) ?Consignor a/c debitto bank / to cash ac credit 24. What
accounting entry is required for closing stock(in the books of
consignor) ?Stock in consignment a/c debitto consignment a/c credit
25. What accounting entry is required for closing stock(in the
books of consignee) ?No entry is required (as these goods are the
property of consignor ) 26. Solve this questionEekshwanku sent to
Eklavya 1,000 pieces of goods on consignment basis; one piece
costing Rs. 230. Eekshwanku sent Rs. 200 on packing, Rs. 400 on
freight and Rs. 1,000 on insurance in transit. Eklavya paid octroi
duty amounting to Rs. 1,200 and cartage Rs. 1,300 to bring goods to
his godowns. In course of time Eklavya also spent Rs. 1,500 on
insurance and rent of godown and paid Rs. 4,000 as salaries to
salesman. Just before close of accounting period, Eklavya reported
that he had sold 800 pieces at Rs. 300 per piece. Eklavya is
entitled to a commission @ 5% of gross sales. 27. Consignment
account
- To goods sent on consignment 230000
- To consignee (commission)
- (see next slide for valuation)
28. Consignee account
- To consignment a/c(sale)240000
- By consignment a/c (expenses)8000
- By balace / bank (if he pays) (balancing figure) 230800
29. Calculation of closing stockWhile calculating closing stock,
we add all the non-recurring expenses in the value of closing
stockcost of stock 200*230 =46000 (200+400+1000+1200+1300)4100 *
200/1000 =820 total cost =46820 30. How to handle loss ?
- There are two types of loss : 1 normal 2abnormal loss
- we have separate accounting for these
31. How to adjust normal loss in consignment ?While calculating
the value of stock on consignment, the cost is inflated to cover
the normal loss. 32. 1,000 tonnes of limestone is consigned @20 per
tonne, freight thereon being Rs. 4,000. the quantity sold is 600
tonnes and that unsold is 350 tonnes,there is a normal of loss 50
tonnes. Here cost of closing stock will be inflated as under
:(cost) * unsold goods / total goods for sale=(20000+ 4000) * 350 /
950= 8843 answer 33. How to handle abnormal loss ?There are two
possibilities:1. loss is insured2. loss is not insuredif loss is
insured, the insurance company will pay the money. So create an
abnormal loss account and close it from the money received from
insurance company. If there is no insurance, the entire loss must
betransferred to Profit and loss account 34. What is joint venture
?When two or more firms / individual join together to work on a
project, it is called joint venture. It is not partnership, as it
is just a project on which they are working together. 35. What is
the difference between joint venture and partnership ?Partnership
has a new firm, with new name, new set up Partnership is lasting,.
Partnership enables firm to have a consolidated financial
systemJoint venture is temporary association and it doesnt have a
new firm 36. What are the systems of accounting in joint venture
?There are 2 possibilities :1. when separate books are maintained 2
when separate books are not maintained 37. when separate books are
maintained Each party in the joint venture must have following
accounts :1. Joint Venture account2. Joint venture party account
(personal account of the other party) 38. Memorandum methodHere
each party maintains following accounts :1. Memorandum joint
venture account2. joint venture party account (personal account of
the other party) 39. ExampleOn 1st January 2007 B and C entered
into a joint venture sharing the profits in the ratio of 3:2 after
allowing a salary of Rs. 2000 p.m. to C. B sent out of his stock of
goods costing Rs.5,00,000 to be sold by the latter and incurred
expenses amount to Rs. 10,700. On 3rd January, 2007, C accepted a
bill of exchange at 2 months for Rs. 3, 00,000 drawn by B. By 31st
March, 2007 C had sold goods for Rs. 6, 00,500 after incurring
expenses amounting to Rs. 11,450. C agreed to take over the
remaining goods for Rs. 20,000. C forwarded a cheque immediately to
settle the account. Show the Journal and Ledger Account in the
books of B and C. 40. Joint venture accoung in the books of B
- To goods sent / Trading / purchase 5 lakh
41. Joint venture party a/c C's personal account (in the books
of B )
- Joint venture (Sale)600500
- Joint venture (stock taken over) 20000
- By bill receivable 3 lakh
- By joint venture (expenses+salary) 17450
- Bank : 266110 (balancing figure to be paid by C to B )
42. When separate books of accounts are maintained for joint
venture ?Here there are separate books of joint venture account.
These books are maintained in the joint venture itself. Thus each
party need not maintain complete accounts.Here we have following
accounts :1. joint venture account 2. joint bank account 3.
personal account of the joint venture party 43. Details of the
accounts :Joint Venture Account: just like Trading and Profit and
Loss Account for the venture showing purchase of goods, expenses,
sale of goods etc. Balance of this account will show profit or loss
of business and is distributed between co-venturers.Joint Bank
Account: separate bank account opened in the joint names showing
receipts and payment of cash.Personal Accounts of Co-venturers: It
is the capital accounts of the co-venturers showing, investment,
entitlements, receipts and drawing by the co-venturers. 44. Example
:A and Bentered into a joint venture to construct a building of a
new company. Profit and loss were to be shared in the ratio of 3:2.
A invested Rs. 2,00,000 and BRs. 1,00,000. The money was deposited
to a joint bank account with arrangement of overdraft of Rs.
2,00,000. A also supplied materials valued Rs. 35,000 and Bpaid the
architects fees of Rs. 15,000. Balso supplied a machine valued Rs.
25,000. Building materials valued Rs. 4,00,000 and wages Rs.
1,00,000.They collected Rs 100000 from the joint venture. 45. Joint
venture account
46. Joint bank account
47. JOINT VENTURERS A/CA
48. JOINT VENTURERS A/CB
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