Loss of Goods on Consignment: It is possible that a portion of the consignment stock may be stolen or

otherwise lost (may be in transit or in the consignees godown). The consignor will have to bear the loss, but not the consignee. There may also be some inevitable normal losses. In accounting for consignment, losses are classified as normal and abnormal.

Accounting for Normal losses: Normal losses are inevitable or unavoidable. These may arise due to natural
causes like breaking in bulk, evaporation, leakage, drying, etc. No effort can prevent these losses. Normal loss is treated by ignoring loss. It means that the value of remaining stock absorbs this loss. Therefore, when there is some normal loss, the value of the remaining goods is artificially inflated to cover the normal loss. For example, a consignment of 100 units costing @ ` 95 per unit is sent. Due to normal loss, the consignee receives 95 units. The value of stock will become ` 100 per unit. (Instead of the actual price of ` 95 per unit). Therefore, when there is not stock remaining unsold, there will be no treatment for normal loss. But where there is some stock remaining unsold, the value of the stock on consignment will be ascertained by applying the following formula:

Value of the goods before the normal loss Net Qty. of goods in units (after normal loss)

Unsold goods (in units)

Accounting for Abnormal losses: Abnormal losses in consignment may arise owing to reason such as,
theft, fire etc. Again, these may occur either in transit or at the consignees place. Normal loss in unavoidable but abnormal loss can be avoided. To ascertain the true profit on consignment, abnormal losses are eliminated from the consignment Account. Therefore, abnormal losses should be charged to the General Profit and Loss Account and Consignment Account should be given due credit for the value of the goods lost abnormally.

Abnormal Loss Calculation

Particulars Original cost of goods lost Add: Proportionate expenses of consignor Add: Proportionate expenses of consignee (Non-recurring Expenses) (if abnormal loss occurs after consignee receives goods) Rs. *** *** *** **** **

Cost of Abnormal Loss

Less: Insurance claim admitted by insurance co.

Abnormal Loss
Journal Entry: Bank A/c Dr. Insurance Co.s A/c Dr. General P & L A/c Dr.

**

(Amount received from scrap or claim received from Insurance Co.) (When Insurance co. admitted the claim and claim amt. not received yet) (Abnormal Loss amount)

To Consignment A/c. (Cost of Abnormal Loss)