FORM FOUR BOOK KEEPING STUDY NOTES TOPIC 1-3.

TOPIC 1: BILLS OF EXCHANGE

Meaning of a Bill of Exchange

Define a bill of exchange

Bill of exchange is written order letter in which there is not any condition. Writer's sign will be in it. In this letter, order to other person is given to pay the certain sum of money to the writer of letter or to pay any other authorized person or who has this bill of exchange.

The Nature of Interest of a Bill of Exchange

Explain the nature of interest of a bill of exchange

Essential of a Bill of Exchange

1. It should be in written.
2. Unconditional order to pay.
3. Signed by writer.
4. Debtor must be a certain person.
5. Payment must be a certain amount.
6. Payment must be done on maturity of bill.
7. Acceptance must be given by debtor on this bill.

Bills of Exchange and Promissory Notes are treated alike for accounting purposes. That is, both are treated and recorded under the common account “Bills of Exchange”.

We come across four parties to a Bill:

• (a) Drawer,
• (b) Drawee (Acceptor),
• (c) Endorser, and
• (d) Endorsee.

When a drawer endorses a Bill, which he received from the Acceptor, he becomes Endorser. Endorsee is a person to whom the Bill is transferred. When the endorsee, again, endorses the Bill, he becomes an Endorser and the receiver of the endorsed Bill is an Endorsee.

A bill of exchange or Promissory Note may be treated as Bills Receivable, when payment has to be received against it. Thus, a bill of exchange is Bills Receivable for the drawer as he has to receive the amount. A bill of exchange or Promissory Note may be treated as a Bill Payable, when payment has to be made against it.

Thus, a bill of exchange is a Bill Payable for the drawee (Acceptor). Thus, it is clear that Bills of Exchange or Promissory Notes can be Bills Receivable to one party and Bills Payable to another party.

The Bill in the possession of the Creditor may be dealt with in any one of the following ways:

1. One can keep the Bill till the date of maturity and realize the payment against it.
2. One can discount the Bill with a bank before its maturity, if he is in need of money.
3. One can transfer the Bill, against a debt, to his Creditor by endorsing it.
4. One can send the Bill to the bank for collection of amount against it.

We shall discuss the accounting treatment of transactions:

Bill Recieved

Account for bill received

Accrued Interest; Default of Bill; Default or Dishonor ; The Discounting of a Bill of Exchange

Account for: Accrued interest; Default of bill; Default or dishonor; The discounting of a bill of exchange

Drawing, Accepting and Discharge of A Bill:

Illustration 1:

On March 10th, A sold goods to B and draws on B a Bill at three months for Rs 800, which B accepts immediately and returns it to A. The Bill is honoured on the due date. Pass entries in the books of both A and B.

Discounting the Bill:

Illustration 2:

A accepted a four months’ draft for Rs 1,000 drawn on him by B on 15th April. The Bill was discounted with the bankers on the next day at 12%. On maturity the Bill was met. Make journal entries in the books of A and B.

Endorsing the Bill:

On 1st June Ram drew a bill upon Krishna for Rs 500 at four months date. This was duly accepted and payable at Canada Bank. After the acceptance, the Bill was endorsed to Gopal. On the due date, the Bill was honoured. Pass the journal entries in the books of all parties.

Dishonouring the Bill:

(a) When Drawer is the Holder of the Bill:

Illustration 4:

Mr. Ravi draws a Bill for Rs 2,000 on Gopal on 15th September for three months. On maturity, Gopal failed to honour the Bill. Pass the necessary journal entries in the books of Ravi and Goipal, if he had retained the Bill with him till maturity. (Calicut)

(b) When Banker is the Holder of the Bill:

On 15th June, Niranjan sold goods to Prema, valued at Rs 2,000. He drew a Bill at 3 months for the amount and discounted the same with his bankers at Rs 1,960. On the due date, the Bill was dishonoured and Niranjan paid the bank the amount due plus the noting charges of Rs 10. Pass the journal entries in the books of the two parties. (B.Com Mysore)

(c) When Endorse is the Holder of the Bill:

On 1st January, A drew a Bill on B for Rs 1,000 payable after three months. B accepted the bill and returned it to A. After 10 days A endorsed the Bill to his Creditor C.

On the due date, the Bill was dishonoured and C paid Rs 5 as noting charges. Record the transactions in the journals of A, B and C.

(d) When the Bill is Sent for Collection:

Illustration 6:

On 1st January, A drew a bill on B for Rs 1,000, payable after three months. Immediately after its acceptance, A sent the Bill to his Bank for collection. On the due date, the Bill was dishonoured.

Record the transactions in the journals of A and B.

Renewal of the Bills:

Illustration 7:

On 1st May, Merchant & Company sold goods to A B & Co. for Rs 500 and drew upon him a Bill at three months for the amount. A B & Co. accepted the draft and returned to Merchant & Co. On the due date A B & Co. expressed their inability to meet the Bill and offered Rs 300 in cash and to accept a new bill for the balance plus interest at 12% p.a. for three months. Merchant & Co. agreed to the proposal. On maturity, the bill was duly met by A B & Co.

Pass entries in the books of the parties to record the above transactions. (B. Com., Karnataka, Madras)

Solution:

Effects of Dishonour of a Bill:

1. When a bill is dishonoured, it becomes valueless and the original position of debtor and creditor is restored between the drawee and the drawer.
2. Upon its dishonor, the holder of a bill has a right of action against the drawee or any previous endorser.
3. When an endorser makes the payment to the endorsee, he can sue any previous endorser or the drawer.
4. Upon dishonour, to avoid confusion and multiplicity of legal actions, generally the drawer takes up the bill and exercises his rights upon the drawee.
5. Expenses incurred for establishing the fact of dishonour of a bill (noting charges) are generally paid by the holder, but ultimately these are recoverable from the drawee.

Retiring a Bill under Rebate:

Illustration 8:

On 1st January, A sold goods to B for Rs 1,000 and drew upon him a Bill at three months for the amount. B accepted the Bill and returned it to A. On 4th March, B returned the Bill under rebate of 12% p a.

Record these transactions in the journals of A and B.

Illustration 9:

On 1st February, Ram received from Hari three acceptances for Rs 6,000, Rs 8,000 and Rs 10,000 for two months.The first Bill for Rs 6,000 was endorsed to Mohan; the second Bill for Rs 8,000 was held till due date; and the third Bill for Rs 10,000 was discounted for Rs 50.At maturity all the Bills were dishonored. Give journal entries in the books of Ram and the ledger accounts in the books of Hari, in respect of these transactions. (CA)

Journalise the following transaction in the books of Nilesh.

• (a) Naresh informs Nilesh that Snajay’s acceptance for `. 8,000 endorsed to Naresh has been dishonoured. Noting charges `. 200.
• (b) Sujit renews his acceptance to Nilesh for `. 4,800 by paying `.1,600 in cash and accepting a new bill for the balance plus interest for 3 months @12% p.a.
• (c) Prakash’s acceptance to Nilesh for `.24,000 retired one month before its due date at a discount of 12% p.a.
• (d) Bank informs Nilesh, the dishonour of Prashant’s acceptance for `. 8,000, discounted with Bank. Noting charges `.160.

Journal of Nilesh

Date	Particulars	LF	Debit (`.)	Credit (`.)
	Sanjay A/c…………………………..Dr. To Naresh A/c(Being endorsed bill dishonoured and noting charges paid)		8,200	8,200
	Sujit A/c………………………………Dr. To Bills Receivable A/c(Being Bills cancelled)		4,800	4,800
	Sujit A/c………………………………Dr. To Interest A/c(Being interest receivable)		96	96
	Cash A/c……………………………..Dr. To Sujit A/c(Being part payment received)		1,600	1,600
	Bills Receivable A/c………………..Dr. To Sujit A/c(Being new bill drawn and accepted due after 3 months)		3,296	3,296
	Cash A/c………………………………Dr.Discount A/c…………………………Dr. To Bills Receivable A/c(Being Bill Retired)		23,760240	24,000
	Prashant A/c…………………………Dr. To Bank A/c(Being discounted bill dishonorued and noting charges paid)		8,160	8,160

A bill of Exchange with Interest Charges included in the Face Amount

Account for a bill of exchange with interest charges included in the face amount

The Concept of Present Value in Accounting of a Log-term Bill of Exchange

 

TOPIC 2: JOINT VENTURES 

The Meaning of Joint Venture

Define a joint venture

An association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation; also called a joint adventure.

A joint venture is a contractual business undertaking between two or more parties. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. Individuals or companies choose to enter joint ventures in order to share strengths, minimize risks, and increase competitive advantages in the marketplace. Joint ventures can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses. In collaboration, for example, a high-technology firm may contract with a manufacturer to bring its idea for a product to market; the former provides the know-how, the latter the means.

Joint Venture Accounts in the Books of the Parties

Show the joint venture accounts in the books of the parties

Joint Venture Memorandum Account .

The is another method to record the transactions in the books of the various parties. Under this method the joint venture account is prepared on memorandum basis, just to find out the profit or loss but not as a part of financial books. The name of such account is memorandum joint venture account. I books only one account is opened styled as "joint venture with.....account".

Suppose A and B have entered into a joint venture. The A will open an account named, joint venture with B account. Similarly, B will open, in his books, joint venture with A account. This account is prepared in the following manner:-

1. Goods sent or expenses incurred on joint venture are debited to the account.
2. No account is taken of goods supplied or expenses incurred on joint venture by the other party.
3. If any cash or acceptance is received on account of joint venture or from other party, this account is credited.
4. The account is debited with own share of profit (ascertained by the memorandum joint venture account) the credit being given to profit and loss account. If there is a loss the profit and loss account is debited and this account is credited. The balance of this account will show either the amount owing to the other party or amount owned by the other party.

Example 1

Example:

Following example will make the concept more clear:

Memorandum Joint Venture Account

Debit Side			Credit Side
		$		$
To A (Cost of goods & Exp.)		5,400,	By B - sales	12,000
To B (Cost of goods & Exp.)		4,300
To B (Commission)		600
To Profit:
A 4/5	1,360
B 1/5	340
		1,700
		12,000		12,000

In the Books of A

Joint Venture With B Account

Debit Side		Credit Side
	$		$
To Cash (goods)	5,400,	By Cash	6,760
To Cash (Expenses)	4,300
To Profit and loss (4/5 of profit)	1,360
	6,760		6,760

In the Books of B

Joint Venture With A Account

Debit Side		Credit Side
	$		$
To Cash (goods)	4,000	By Cash	12,000
To Cash (Expenses)	300
To Commission	600
To Profit and loss (1/5 of profit)	340
To Cash	6,760
	12,000		12,000

Problem 1 - Journal Entries, Joint Venture Account Co-venture Accounts:

A and B were partners in a joint venture sharing profits and losses in the proportion of four-fifth and one-fifth respectively. A supplies goods to the value of $5,000 and inures expenses amounting to $400. B supplies goods to the value of $4,000 and his expenses amounting to $300. B sells goods on behalf of the joint venture and realizes $12,000. B is entitled to a commission of 5 percent on sales. B settles his accounts by bank draft.

Required: Give journal entries and necessary ledger accounts in the books of both the parties.

Solution:

Books of A

Journal Entries

joint venture account	5,000
To Cash account		5,000
(Goods sent to B)
joint venture account	400
To Cash account		400
(Expenses incurred on goods sent to B)
joint venture account	4,000
To B		4,000
(Goods supplied by B)
Joint venture account	300
To To B		300
(Expenses incurred by B on joint venture)
B	12,000
To Joint venture account		12,000
(Sales proceeds received by B)
Joint venture account	600
To B		600
(Commission due to B on sales at the rate of 5%)
Joint venture account	1,700
To B		340
To Profit and loss account		1360
(Profit $1,700 divided as 1/5 to B and 4/5 to self)
Cash account	6,760
To B		6,760
(The draft received from B in settlement)

Joint Venture Account

Debit Side		Credit Side
To Cash - Goods	5,000	By B - Sales	12,000
To Cash - Expenses	400
To B - Goods	4,000
To B - Expenses	300
To B - Commission	600
To B - Share of profit	340
To Profit and loss account	1,360
	12,000		12,000

B Account

Debit Side		Credit Side
To Joint venture account	12,000	By Joint venture - Goods	4,000
		By Joint venture - Expenses	300
		By Joint venture - Commission	600
		By Joint venture - Profit	340
		By Cash	6,760
	12,000		12,000

Books of B Journal Entries

joint venture account	4,000
To Cash account		4,000
(The value of goods supplied)
joint venture account	300
To Cash account		300
(Expenses incurred on joint venture)
joint venture account	5,000
To A		5,000
(Goods supplied by A)
Joint venture account	400
To A		400
(Expenses incurred by B on joint venture)
Cash account	12,000
To Joint venture account		12,000
(Sales proceeds received in cash)
Joint venture account	600
To Commission account		600
(Commission due on sales at the rate of 5%)
Joint venture account	1,700
To A		340
To Profit and loss account		1360
(Profit $1,700 divided as 1/5 to B and 4/5 to A)
A	6,760
To Cash account		6,760
(The draft sent to A in settlement)

Joint Venture Account

Debit Side		Credit Side
To Cash - Goods	4,000	By Cash account - Sales	12,000
To Cash - Expenses	300	0	0
To A - Goods	5,000
To A - Expenses	400
To Commission	600
To A - Share of profit	1,360
To Profit and loss account	340
	12,000		12,000

A Account

Debit Side		Credit Side
To Cash account	6,760	By Joint venture account	5,000
		By Joint venture - Expense	400
		By Joint venture - profit	1,360
	6,760		6,760

Problem 2 - Joint Venture Account and Co-venturer Accounts:

Salim & Sons bought goods of the value of $7,500 and consigned them to Tahir and Co. to be sold to them on a joint venture, profit being divided in 2/3 : 1/3. They also paid $550 for freight, insurance and cartage and drew on Tahir and Co. for $3,000 on account. The bill was discounted by Salim & Sons for $2,900. Tahir and Co. paid $300 for dock dues, storage, rent etc. The sales realised $12,500 and the sales expenses $250 were defrayed by Tahir and Co. The later forwarded a sight draft for the balance due to Salim & Sons after charging their sales commission at 5 percent on the gross proceeds.

Required: Write up the accounts in the books of both the parties. No interest need to be brought into account.

Solution:

Salim & Sons Books

Joint Venture Account

Debit Side			Credit Side
		$		$
To cash - cost of goods		7,500	By Tahir & Co.-sales proceeds	12,500
To cash - expenses		550
To Discount on bill		100
To Tahir and Co.
Dock, dues & storage	300
Sales expenses	250
Commission	625
		1,175
To Profit and loss - 2/3 share		2,116.67
To Tahir & Co. - share of profit		1,058.33
		12,500		12,500

Tahir & Co.

Joint Venture Account

Debit Side			Credit Side
		$		$
To Salim & Co. - cost of goods		7,500	By Cash - sales proceeds	12,500
To Salim & Co. - expenses		550
To Salim & Co. - Discount on bill		100
To Cash.
Dock, dues & storage	300
Sales expenses	250
		1,175
Commission		625
To Profit and loss - 1/3 share		1,058.33
To Salim & Co. - share of profit		2,116.67
		12,500		12,500

Salim & Sons

Debit Side		Credit Side
	$		$
To Bills payable a/c	3,000	By Joint venture account	7,500
To Cash - sight draft	7,266.67	By Joint venture account	550
		By Discount account	100
		By Joint venture account - 2/3	2,116.67
	10,266.67		10,266.67

The Profit or Otherwise of the Joint Venture

Determine the profit or otherwise of the joint venture

Advantages of Joint Ventures are speed, access, sharing of resources and the leveraging of underutilized resources, high profits, back end income, low or no risk opportunities and massive leverage.

Disadvantages of Joint Ventures are the possibility of being ripped off or disappointed by unscrupulous and unprofessional JV partners, and hurting your reputation and/or customers and associates by associating with the wrong people, even unknowingly.

 

TOPIC 3:  CONSIGNMENT

The Account in the Consignors and Consignee’s Books

Show the account in the consignors and consignee’s books

Consignment Overview

Consignment occurs when goods are sent by their owner (the consignor) to an agent (the consignee), who undertakes to sell the goods. The consignor continues to own the goods until they are sold, so the goods appear asinventoryin the accounting records of the consignor, not the consignee.

Consignment Accounting - Initial Transfer of Goods

When the consignor sends goods to the consignee, there is no need to create an accounting entry related to the physical movement of goods. It is usually sufficient to record the change in location within the inventory record keeping system of the consignor. In addition, the consignor should consider the following maintenance activities:

• Periodically send a statement to the consignee, stating the inventory that should be on the consignee's premises. The consignee can use this statement to conduct a periodic reconciliation of the actual amount on hand to the consignor's records.
• Request from the consignee a statement of on-hand inventory at the end of each accounting period when the consignor is conducting a physical inventory count. The consignor incorporates this information into its inventory records to arrive at a fully valued ending inventory balance.
• It may also be useful to occasionally conduct an audit of the inventory reported by the consignee.

From the consignee's perspective, there is no need to record the consigned inventory, since it is owned by the consignor. It may be useful to keep a separate record of all consigned inventory, for reconciliation and insurance purposes.

Consignment Accounting - Sale of Goods by Consignee

When the consignee eventually sells the consigned goods, it pays the consignor a pre-arranged sale amount. The consignor records this prearranged amount with a debit to cash and a credit to sales. It also purges the related amount of inventory from its records with a debit to cost of goods sold and a credit to inventory. A profit or loss on the sale transaction will arise from these two entries.

Depending upon the arrangement with the consignee, the consignor may pay a commission to the consignee for making the sale. If so, this is a debit to commission expense and a credit to accounts payable.

From the consignee's perspective, a sale transaction triggers a payment to the consignor for the consigned goods that were sold. There will also be a sale transaction to record the sale of goods to the third party, which is a debit to cash or accounts receivable and a credit to sales.

Consignment is a term used to refer to an arrangement whereby goods are sent by their owner (consignor) to an agent (consignee) who holds and sells the goods on behalf of the owner for a commission. It is important to understand that the agent never owns the goods.

Distinction/Difference Between Consignment and Sale:

The following are the main points of the difference between consignment and sale.

Transfer of Legal Ownership of the Goods:

In case of sale, the legal ownership of the goods sold is transferred to the purchaser of goods. Whereas in case of a consignment of goods , the legal ownership of the goods is not transferred to the consignment but the ownership of the goods remains vested in the consignor till the goods consigned are sold by the consignee.

Relationship Between Consignor and Consignee:

In case of a sale of goods, the relationship between the seller and the purchaser of the goods is that of a creditor and a debtor whereas in case of a consignment the relationship between the consignor and the consignee is that of a principal and agent. Because the consignee is to sell goods on behalf of the consignor.

Expenses Incurred:

In consignment, expenses incurred by the consignee in connection with the goods consigned to him are usually borne by the consignor whereas in case of a sale, expenses incurred after sale of goods are born by the purchaser.

Risk Attached to the Goods:

In case of consignment, risk attached to the goods sold lies with the consignor till the goods consigned are sold by the consignee. But in case of a sale, risk attached to the goods sold is transferred to the buyer of goods.

Return of Goods:

In case of consignment, return of goods is possible if the goods are not sold by the consignee. But in case of sale, return of goods is not possible as goods once sold are not returnable.

Requirement of Account Sale:

In case of consignment, account sale is required to be submitted periodically by the consignee to the consignor. But in case of sales no account sale is required to be submitted by the purchaser to the seller.

Problem 1 (Journal Entries and Ledger Accounts):

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.	0	Cr.	0
0	$	0	$
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

Problem 2 - (Abnormal Loss):

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.

Solution

Consignment to Karachi Account

	$		$
To Goods sent on consignment	1,50,000	By sales (800 × 220)	1,76,000
To Bank - freight and insurance	11,500	By Profit and loss account - Ab. Loss*	16,150
To Bashir - duty	14,400	By Stock on consignment**	17,750
To Bashir - expenses	2,000
To Bashir - commission	8,800
To Profit and loss account	23,200
	2,09,900		2,09,900

Bashir

	$			$
To Consignment account	1,76,000	By Bank		50,000
		By Consignment account
		Duty	14,400
		Expenses	2,000
			16,400
		By Consignment account-commission		8,800
		By Balance c/d		1,00,800
	1,76,000			1,76,000

Working Note:

(1)	*Calculation of abnormal loss:
	100 motors at $150 each	$15,000
	Add 100/1000 of freight and insurance (11,500 × 100/1000)	1,150
	Abnormal loss	16,150
(2)	**Calculation of Closing Stock:
	100 motors at $150 each	$15,000
	Add 100/1000 of freight and insurance (11,500 × 100/1000)	1,150
	100/900 of duty	1,600
	Closing stock or unsold stock	17,750

Problem 3 (Invoicing Goods Higher Than Cost):

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:

Solution:

Journal

Consignment to city B	16,000
To Goods sent on consignment account		16,000
(100 machines at $160 each sent on consignment)
Consignment to city B	400
To Cash account		400
(Expenses incurred on consignment)
Bills receivable account	8,000
To Malik		8,000
(Malik's acceptance received)
Malik	14,000
To Consignment to city B account		14,000
(80 machine's sold Malik at $175 each)
Consignment to city B account	750
To Malik		750
(Expenses incurred)
Consignment to city B account	1,050
To Malik		1,050
(Commission at 6% plus 1-1/2 on sales)
Consignment to city B account	600
To Stock reserve account		600
(Difference in closing stock adjusted)
Stock on consignment account	3,400
To Consignment to city B account		3,400
(Value of 20 machines in the hands of Malik)
Goods sent on consignment account	3,000
To Consignment to city B account		3,000
(The difference in the invoice value and cost, $30 per machine adjusted)
Goods sent on consignment account	13,000
To Trading account		13,000
(Transfer of goods sent on consignment to trading account)
Consignment to city B account	1,600
To Profit and loss account		1,600
(Transfer of profit on consignment)

Consignment to City B Account

		$		$
To Goods sent on consignment		16,000	By Malik - Sales proceed	14,000
To Cash - Expenses		400	By Stock on consignment	3,400
To Malik - Expenses:			By Goods sent on consignment	3,000
Freight	600
Rent	50
Insurance	100
		750
To Malik - Commission		1,050
To Consignment stock reserve		600
To Profit and loss account		1,600
		20,400		20,400

Malik

	$		$
To Consignment to city B account	14,000	By Bills receivable account	8,000
		By Consignment to city B account
		Expenses	750
		Commission	1,050
		By Balance c/d	4,200
	14,000		14,000

The Transfer of the Consignee’s and Consignee’s Accounts to the Profit and Loss Account

Show the transfer of the consignee’s and consignee’s accounts to the profit and Loss Account

Profit and Loss Account

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

Preparation of the Accounts Sales

Prepare the Accounts sales

Activity 1

Prepare the Accounts sales

The Consignment Inward Account in the Book of the Consignee

Show the consignment Inward Account in the book of the Consignee

Activity 2

Show the consignment Inward Account in the book of the Consignee