Lesson Notes By Weeks and Term - Senior Secondary 3

Term: 1^st Term

Week: 6

Class: Senior Secondary School 3

Age: 17 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Consignment account II

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Describe the format of a consignment account
2. Solve exercises on consignment account

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on consignment account	Students pay attention
STEP 2 EXPLANATION	She describes the format of a consignment account	Students pay attention and participates
STEP 3 DEMONSTRATION	She solves some exercises on consignment account	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

 

NOTE

CONSIGNMENT ACCOUNT

EXAMPLE 1

The following transactions were derived from the books of FUMI CO. for the month of August 2022. You are required to prepare entries into the books of consignor in tabular form.

Transactions for FUMI CO.

Date	Transaction	Amount (₦)
08/01/2022	Received consignment of goods	200,000
08/05/2022	Sold goods from consignment	50,000
08/07/2022	Sold goods from consignment	30,000
08/10/2022	Sold goods from consignment	20,000
08/12/2022	Sold goods from consignment	25,000
08/15/2022	Returned unsold goods to consignor	70,000
08/20/2022	Sold goods from consignment	40,000
08/25/2022	Sold goods from consignment	35,000
08/28/2022	Sold goods from consignment	15,000
08/31/2022	Sold goods from consignment	10,000

Answer:

Entries in the Books of Consignor

Date	Transaction	Debit (₦)	Credit (₦)
08/01/2022 08/05/2022 08/07/2022 08/10/2022 08/12/2022 08/15/2022 08/20/2022 08/25/2022 08/28/2022 08/31/2022 Total	Consignment sent to FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO. Goods returned from FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO. Cash received from FUMI CO.	- 50,000 30,000 20,000 25,000 70,000 40,000 35,000 15,000 10,000 285,000	200,000 - - - - - - - - - 200,000

Note:

• In a consignment arrangement, the consignor (seller) sends goods to the consignee (buyer) to sell on their behalf.
• The consignor records the goods sent to the consignee as inventory in their books until the goods are sold.
• When the consignee sells the goods, they remit the proceeds (less commission) to the consignor.
• If any unsold goods are returned by the consignee, they are returned to the consignor, who can then sell them to another buyer or retrieve them as inventory.

 

EXAMPLE 2

Riaz Sugar Factory of Multan, consigned to Mr. Shahid of Lahore 400 bags of sugar at $25 per bag. They also paid cartage, freight, etc. $250. The consignor drew on consignee as an advance against the consignment at 3 months for $6,000 which they discounted at their bank at 5 percent. The consignee sold off the goods and rendered an account sales showing that the goods realized $12,000, out of which he deducted his charges amounting to $80 and his commission at 5 percent.

Required: Make journal entries in respect of the above transactions in the books of consignor as well as the consignee

 

Solution:

Consignor’s Books

JOURNAL ENTRIES

	Dr.	Cr.
	$	$
Consignment to Lahore account	10,000
To Goods sent on consignment account		10,000
Consignment to Lahore account	250
To Bank account		250
Bills receivable account	6,000
To Shahid Ali		6,000
Bank account	5,925
Discount account	75
To Bills receivable account		6,000
Shahid Ali	12,000
To Consignment to Lahore account		12,000
Consignment to Lahore account	680
To Shahid Ali		680
Bank	5320
To Shahid Ali		5320
Consignment to Lahore account	1,070
To Profit and loss account		1,070
Goods sent on consignment account	10,000
To Trading account		10,000

 

LEDGER ACCOUNTS

Consignment to Lahore Account

	$		$
Dr.		Cr.
To Goods sent on consignment	10,000	By Shahid Ali – Sales Proceeds	12,000
To Bank expenses	250
To Shahid Ali	680
To Profit and loss account	1,070
	12,000		12,000

Goods Sent on Consignment Account

	$		$
Dr.		Cr.
To Trading account	10,000	By Consignment to Lahore	10,000

Bank Account

Dr.		Cr.
	$		$
To Bills receivable	5,925	By Consignment to Lahore	250
To Shahid Ali	5,320

Shahid Ali (Consignee)

Dr.		Cr.
	$		$
To Consignment to Lahore	12,000	By Bills receivable	6,000
		By Consignment to Lahore	680
		By Bank account	5,320
	12,000		12,000

Bills receivable Account

Dr.		Cr.
	$		$
To Shahid Ali	6,000	By Bank	5,925
		By Discount	75
	6,000		6,000

Discount Account

Dr.		Cr.
	$		$
To Bills receivable	75	By Profit and loss account	75

Profit and Loss Account

Dr.		Cr.
	$		$
		By Consignment to Lahore	1,070

Trading Account

Dr.		Cr.
	$		$
		By Goods sent on consignment	10,000

 

Consignee’s Books

JOURNAL ENTRIES

	Dr.	Cr.
	$	$
Riaz sugar factory	6,000
To Bills payable account		6,000
Riaz sugar factory	80
To Bank account		80
Bank account	12,000
To Riaz sugar factory		12,000
Riaz sugar factory	600
To Commission account		600
Riaz sugar factory	5,320
To Bank account		5,320
Bills payable	6,000
To Bank account		6,000

 

LEDGER ACCOUNTS

Riaz Sugar Factory (Consignor)

Dr.		Cr.
	$		$
To Bills payable	12,000	By Bank account	12,000
To Bank – expenses	80
To Commission	600
To Bank – Balance	5,320
	12,000		12,000

 

Bank Account

Dr.		Cr.
	$		$
To Riaz sugar factory	12,000	By Riaz sugar factory	80
		By Riaz sugar factory	5,320
		By Bills payable	6,000

 

Commission Account

Dr.		Cr.
	$		$
To Profit and loss account	600	By Riaz sugar factory	600

 

Bills Payable Account

Dr.		Cr.
	$		$
To Bank	6,000	By Riaz sugar factory	6,000

 

EVALUATION:

1. 1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at an invoice cost of $150 each. A & Co., paid freight $10,000 and insurance $1,500. During transit 100 motors were completely destroyed. Bashir took delivery of the remaining motors and paid $14,400 as duty.

Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later sent an account sale showing that 800 motors were sold at $220 each. Expenses incurred by Bashir on godown rent and advertisement etc., amounted to $2,000. Bashir is entitled to commission of 5 per cent.

Required: Prepare consignment account and Bashir’s account in the books of A & Co., assuming that nothing has been recovered from the insurance company due to defect in the policy.

 

2. Rashid of city A sends 100 sewing machines on consignment to Malik of city B. The cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives the consignment and immediately accepts Rashid’s draft for $8000. Subsequently, Malik informs Rashid that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight $600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6 per cent on sales and 1-1/2 percent as del credere commission.

Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:

 

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively