AC 511 CONSIGNMENTS

NATURE OF CONSIGNMENT
a. Physical transfer of goods by their owner(consignor) to another party(consignee)
b. Legal title to the goods being retained by the owner until their sale
c. Consignee having possession of the goods for the purpose of sale as specified in the arrangement
d. Consignor holds the consignee accountable for goods transferred until the goods are sold to a third party
e. When the goods are sold the consignor recognizes a transfer of title to the goods and also revenue from the sale
f. The consignee cannot regard consigned goods as his own property; nor is there any liability to the consignor other
than an accountability for consigned goods
g. The relationship between the consignor and consignee is one of principal and agent (Law on Sales and Agency
transactions)

ADVANTAGES of CONSIGNMENT
a. Wider marketing area can be secured by a producer, manufacturer, or distributor
b. Selling specialists may be obtained by the consignor. Compensation for such service is frequently a commission
c. The retail selling price of consigned goods can be controlled by the consignor who still owns the goods
d. The consignee is protected from the risk of failure to move the product or its sale at a loss
e. The risk of physical deterioration as well as of price fluctuation is avoided by the consignee
f. Working capital requirements are reduced, the cost of the consignment inventory being carried by the consignor

CONSIGNMENT OUT
DEBITS CREDITS
Expenses paid originally by consignee Consignment Sales
Expenses paid originally by consignor Returns
Commission
Cost of consigned good

CONSIGNMENT IN
DEBITS CREDITS
Expenses paid consignee Consignment Sales
Commission Return

INCOME DETERMINED SEPARATELY

TRANSACTIONS CONSIGNEEs BOOKS CONSIGNORs BOOKS

Shipment of 10 transistors on (Memorandum entry) Consignment-out 2,000

Consignment, cost is P200 each Merchandise shipments on
Consignment 2,000

Consignor paid freight to NO ENTRY Consignment-out 600

consignee P600 Freight on consignment 600

Expenses of consignee chargeable to Consignment-in 125

account of consignor: Cartage P125 Cash 125

Sales of sets for cash, 10 at P400 Cash 4,000

Consignment-in 4,000

20% Commission on sales Consignment-in 800 Cash 3,075

and Remittance by the consignee Commission on Consignment 800 Consignment-out 925
in settlement of account Consignment-out 4,000

Consignment-in 3,075 Consignment-out 475

Cash 3,075 Consignment profit/loss 475

PROBLEM SOLVING
PROBLEM 1
The postings to the Consignment out account and the Account Sales submitted by MIKAELA ANGELA are
presented below:

CONSIGNMENT OUT
DEBITS CREDITS
50 sony tv shipped P65,000 Advances P10,000
Freight out 1,000 Returns 6,500
Insurance upon shipment 4,000 Remittance 51,000

The Account Sales of MIKAELA ANGELA contains the following information:

Sales at P1,800/unit P72,000

Commission P 7,200
Cartage 1,000
Advertising 2,000
Delivery Expense 800 11,000
P61,000
Less: Advances 10,000
Remittance P51,000

How much is the consignment profit/loss? _________________

What is the cost of inventory out on consignment? ____________________

PROBLEM 2
On November 2, 2008, BAMBOO aka AMAGO CO. paid P5,000 for the insurance of consigned goods, while in
transit, shipped to consignee LOTR KIM PRUDU Co. and P7,000 for the freight. Bamboo advance P5,000 as part of
the commission that will be due when the consignee sells the goods. The consigned goods cost P50,000 and will
be sold for a total amount of P80,000.

What is the total amount of inventory should BAMBOO aka AMAGO Co. report for the consigned goods
on November 2, 2008? _________________

PROBLEM 3
On June 10, 2008, POPOY Company consigned 40 freezers to BASHA Company for sale at P1,000 each and paid
P800 in transportation costs. On December 30, 2008, BASHA Company reported the sale of 10 freezers and
remitted P8,500. The remittance was net of the agreed 15% commission.

What amount should POPOY recognized as consignment sales revenue for 2008?