Consignment question.

Okay, a good question...

Now lets just consider the situation. We have to deal with 3 issues.

1. The Consignor's expenses will not reflect in the goods sent to the consignee... I mean its an expense that the consignor has to charge to his P&L a/c. So, The consignment stock will not have consigner's expenses added to it.

2. Then there arises the doubt about the inclusion of consignee's selling expenses in the cons. stock value.. Beware.. The expense incurred in selling some goods will in no way affect the goods that have not been sold. [If you're curious, such expenses would be normally charged by the consignee to the P&L a/c maintained by him]. In short, Selling Expenses should not be added to the value of the consignment stock. (eg. commission paid by consignee to a person to get the goods sold.)

3. Lastly, the non-selling expense is something that is incurred by the consignee whether or not he sold the consigned goods. An example of this expense can be said to be the expense incurred to bring the stock from storage area to the point of sale(freight & carriage expense), so on. [So this is normally recovered by the consignee by increasing the sale price of consigned goods above the invoice price, so as to absorb this expense.] Hence this is one expense you can add to the value of consignment stock.

So getting back to the question...

The invoice price of the consignment stock = (100 Bags x Rs500) = Rs50,000

But wait, like I said above, the non-selling expense has already been incurred and now needs to recovered.. So its added to the value of stock.

So we have..

So the Value of stock on Consignment at Invoice price= 50000+1000= Rs51000.

[This is my way of logic of arriving at the answer.]

Hope I helped in giving you an understanding of the concept..

All the very best