Consignment & Joint Venture

CONSIGNMENT & JOINT VENTURE

CONSIGNMENT

Consignment- It is a form of the business under which the entrepreneur appoints an agent to sell the goods. In

consideration the agent gets commission.

RELATED PARTIES

Consignor: He is the owner of the goods. He consigns the goods to the agent to sell on his behalf.

Consignee: He is the agent appointed by the consignor to sell the goods on his behalf. He gets commission on

sales at a specified rate.

TYPES OF COMMISSION

Ordinary commission: This commission is paid in each case. It is generally paid on sale price. But sometime it

is paid on invoice price (I.P.).

Del-credre commission: This commission is paid when consignee agrees to bear bad debts. In this case bad

debt is the loss of the consignee not of the consignor. So bad debt is not shown in the Consignment A\C. But

consignee shows it in his book by passing the following entry-

Commission Earned A\C Dr.

To Bad Debt A\C

Special commission:

i. Based on profit -Sometime consignee is paid some portion of profit as commission.

ii. Over-riding commission -Some time consignee gets extra commission if

he sells the good over and above I.P.

Types of losses

Normal Loss- No accounting treatment is required for it . It is just deducted (in quantity) from total quantity to

calculate the value of consignment stock (closing stock).It occurs regularly in the business.

Abnormal Loss-This is the loss which occurs accidentally and which does not occur regularly.

Types of Expenses

Recurring Expenses- Expenses which are incurred for more than once on any particular lot of goods are called

recurring expenses. In other words, expenses incurred after the goods arrive at the consignee’s godown are called recurring expenses. Ex. Godown rent, selling expenses, advertisement, carriage outward, salesmen’s commission etc.

Non-recurring Expenses- Expenses which are incurred only once on any particular lot of goods, are called nonrecurring expenses. In other words, expenses incurred till the goods arrive at the consignee’s godown. Ex. Loading expenses, unloading expenses, handling expenses, carriage to godown, dock dues, custom duty and clearingcharges etc.

Note- Accounting treatment for it has been discussed later.

Books of Consignor- In the books of consignor following accounts are prepared	Books of Consignee
1. Consignment A\c ( Nominal A\C) 2. Consignee A\C ( Personal A\C) 3. Abnormal Loss A\C ( nominal A\C) 4. Goods Sent on Consignment A\c ( Nominal A\C) 5. Consignment Stock A\c (Real A\C) 6. Stock Reserve A\c ( Nominal A\C)	1.Consignee A\C 2. Commission A\C

Computation of abnormal loss and value of closing stock Rs.

Cost of goods sent                                         ****

Add.Cosignor’s Expenses                             ********

Less- Abnormal loss                                     **** ****

Add. Consignee’s non-recurring expenses   ****

JOURNAL ENTERIES:

Books of Consignor

i. For goods sent on consignment - Consignment a/c Dr To Goods sent on consignment a/c ii. For expenses paid by the consignor. Consignment a/c Dr To Bank a/c iii. For exp. paid by the consignee Consignment a/c Dr To Consignee iv. For commission payable to consignee Consignment a/c Dr To Consignee v. For sale Consignee a/c (cash) Dr Consignment Debtros (credit) Dr To consignment a/c vi. For Bad debts Consinment a/c Dr To Consignee ( If no consignment debtor a\c is maintained) To Consignment debbts A/c ( If consignment debtor a\c is maintained) vii. For Abnormal Loss Abnormal Loss a\c Dr. To Consignment a\c viii. For Insurance Claim Received Consignee a\c Dr. (If received by the consignee) Bank a\c Dr. ( If received by the consignor) ix. For discount on bill transfer to consignment a\c consignment a/c Dr To Abnormal loss xix. For stock reserve (Loading on consignment stock) Consignment a/c Dr To Stock recerve a/c Some more enteries in case, Consignment Debtors a\c is maintained xx. For collection from debtors Consignee a\c Dr. (If received by the consignee) Bank a\c Dr. (If received by the consignor)

Consignment a\c Dr. To Discount on bill a\c Note: Discount on bill may alternatively be debited to Profit & Loss A\C in place of debiting to Consignment A\C. CLOSING ENTRIES x. For transfer of goods sent on consignment Trading a/c Dr (if consignor is a manufacturer) Purchases a/c Dr (if consigner is not a manufacture) To Goods sent on consignment a/c xi. For abnormal coss Profit & Loss a\c Dr To Abnormal Loss a\c xii. For closing stock Consignment stock a/c Dr To consignment a/c xiii. For profit on consignment Consignment a/c Dr To Profit & Loss a/c xvi. For loss on consignment a/c Profit & Loss a/c Dr To Consignment a/c Some more entries only in case of goods are sent at I.P. xvii. For cancellation of loading on goods sent Goods sent on consignment a/c Dr To Consignment a/c xviii. For cancellation of loading on abnormal loss To Consignment Debtors a\c xxi. For bad debts Consignment a\c Dr. To Consignment Debtors a\c xxii. For bill receivable received by from the debtor Bills receivable a\c Dr. To Consigmnment Debtors a\c

Note: If consignee is paid del-credre commission, Consignment Debtor A\c is not maintained in the book

of the consignor but it is maintained in the books of the consignee.

Books of Consignee

i. For goods received No Entry ii. For payment of consignment of consignment of consignment expenses Consignor a\c Dr. To Baqnk iii. For commission receivable Consignor a\c Dr. To Commission a\c iv. For collection from debtors Bank Dr. To Consignor a\c

v. For bad debts Consignor a\c Dr. ( if del-credre commission is not paid) Bad Debts a\c Dr. (if del-credre commission is paid ) To Consignment Debtors a\c vi. For final remittance to consignor Consignor a\c Dr. To Bank a\c To Bills payable a\c

Joint venture

Joint venture- It is a very short duration business entered into by two or more than two persons jointly. It may be limited to one transaction or may extend to a number of transactions. It may be even for specified period of time.

Separate set of books:-Under this method three accounts are opened. Accounts are maintained jointly in the book of ventures.

Journal entries

i. For capital invested by ventures Joint Bank a/c Dr To co- venture’s a/c ii. For expenses paid and purchase of goods. Joint venture a/c Dr To joint Bank a/c (if paid through joint Bank) To co-venture’s a/c (if paid personally) Dr iii. For purchase of goods on credit Joint venture a/c Dr To creditor’s a/c iv. For purchase returns Creditors a/c Dr (if return out of credit purchase) Joint Bank a/c Dr (if return out of cash purchase) To joint venture a/c v. For Cash paid to creditors To Debtors a/c x. For insurance claim received J/B a/c Dr. To J/v a/c xi. For goods or assets taken over by the venturers Venturer’s a/c Dr To J/V a/c xii. For commission or interest payable to venturers J/V a/c Dr To venture’s a/c xiii. For profit J/V a/c Dr To Venturer’s a/c xiv. For loss Venturer’s a/c Dr To J/V a/c xv. For refund of capital Venturer’s a/c Dr To J/B a/c xvi. For cash remittance by one venture to another. Receiving venturer a/c Dr To paying venturer a/c xvii. For B/R drawn on debtor. B/R a/c Dr To Debtors a/c xviii. For Bill discounted J/B a/c Dr Discount on bill a/c Dr To B/R a/c xix. For transfer of discount on bill J/V a/c Dr To discount on bill a/c Notes- No entries are required for (i) Goods remittance from one venturer to another. (ii) Goods destroyed or spoilage Same set of books Recording own transactions and transactions of co-venturer as well:- Under this method each venture maintains his own book preparing two accounts (i) Joint venture a/c (ii) Co-venturer a/c Note:- No joint bank a/c is opened but all the payments are made by the ventures personally. Journal entries :- 1. For payment of expenses and goods purchased. J/V a/c Dr To Bank (own transactions) To Co- venturer’s a/c (co-venture’s transaction)

Creditors a/c Dr To J/B (if paid through J/B) To co-venture (if paid by co-venture) vi. For sale J/B a/c Dr (cash sale) Debtor a/c Dr (credit sale) To J/V vii. For sales return J/V a/c Dr To J/B (if return out of cash sale) To Debtors (if return out of credit sale) viii. For payment received from debtors J/B a/c Dr (if receipt deposited into J/B) Co-venture a/c Dr (if received by co- venture) To Debtors a/c ix.For discount Allowed or bad debts J/V a/c Dr. 2. For goods supplied out of existing business. J/V a/c Dr To Purchases a/c (own) To Co-venturers a/c 3. For sale of goods Bank a/c Dr Co-venturer a/c Dr To J/v a/c 4. For cash remitted to co-venturer. Co-venturer a/c Dr To Bank a/c 5. For cash received from co-venturer. Bank a/c Dr To Co-venturer a/c 6. For B/R drawn on co-venturer B/R a/c Dr To Co-venturer a/c 7. For B/P drawn by co-venturer Co-venturer a/c Dr To B/P a/c 8. For B/R discounted. Bank a/c Dr. J/V a/c (amount of discount) Dr. To B/R a/c 9. For goods or assets drawn by self Purchases a/c Dr. Assets a/c Dr. To J/V a/c 10. For goods or assets drawn by co-ventures Co-venturer a/c Dr. To J/V II. For interest or commission payable to ventures J/V a/c Dr. To Interest/Commission a/c (own) To Co-venturer a/c 12. For insurance claim received Bank a/c Dr. Co-venturer A/c Dr. To J/V a/c 13. For profit J/V a/c Dr. To P/L a/c (own) To Co-venturer a/c 14. For Loss P/L a/c Dr. Co-venturer a/c Dr. To J/V a/c 15. For final remittance to co-venture. Co-venturer a/c Dr. To Bank 15. For final receipt from co-venturer. Bank a/c Dr. To Co-venturer a/c

Memorandum Joint Venture

Under this method accounts are maintained under same set of books. But venturers record own transactions only. They do not record the transactions made by the co-venturer. At the end they prepare Memorandum Joint Venture jointly putting all the transactions made by all the venturers.

Note- Journal entries are passed under same set of books as above.