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Difficulty: MediumConsignee's Commission: Ordinary, Del-Credere, and Overriding Commission

Folake Enterprises consigned goods to Audu. During the trading period, Audu generated cash sales of ₦400,000 and credit sales of ₦600,000. A credit customer defaulted, resulting in bad debts of ₦30,000. Under the terms of the agreement, Audu receives an ordinary commission of 5% on total sales and a del-credere commission of 3% on credit sales. If Audu also incurred selling expenses of ₦20,000, what is the net amount payable by Audu to Folake Enterprises?

  1. ₦912,000Answer
  2. B
    ₦894,000
  3. C
    ₦900,000
  4. D
    ₦918,000

Answer

The net amount payable by Audu to Folake Enterprises is ₦912,000.
Total sales equal ₦1,000,000 (₦400,000 cash + ₦600,000 credit). The ordinary commission is 5% of ₦1,000,000 (₦50,000) and the del-credere commission is 3% of ₦600,000 (₦18,000), making total commission ₦68,000. Adding selling expenses of ₦20,000 gives total allowable deductions of ₦88,000 from gross proceeds. Because Audu earns a del-credere commission, he bears the ₦30,000 bad debt loss entirely. Thus, the net remittance to Folake Enterprises is ₦1,000,000 - ₦88,000 = ₦912,000.

Step-by-Step Solution

1
Calculate total sales generated by the consignee
Total Sales = ₦400,000 (Cash) + ₦600,000 (Credit) = ₦1,000,000
Both cash and credit sales form the gross sales revenue of the consignment.
2
Calculate ordinary commission and del-credere commission
Ordinary Commission = 5% of ₦1,000,000 = ₦50,000; Del-Credere Commission = 3% of ₦600,000 = ₦18,000; Total Commission = ₦68,000
Ordinary commission applies to total sales, while del-credere commission applies specifically to credit sales as stipulated.
3
Determine the treatment of bad debts and total deductions
Total Deductions = Commission (₦68,000) + Selling Expenses (₦20,000) = ₦88,000. Bad debts (₦30,000) are borne entirely by the consignee.
Receiving a del-credere commission shifts the risk of bad debts from the consignor to the consignee.
4
Calculate the net amount remitted/payable to the consignor
Net Amount Payable = ₦1,000,000 - ₦88,000 = ₦912,000
Deducting authorized consignee expenses and commissions from total gross sales yields the net proceeds owed to the consignor.

Key Concept

Consignee Commission Computation and Del-Credere Bad Debt Treatment
Estimated Time:1m 30s
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Topics

Consignee's Commission: Ordinary, Del-Credere, and Overriding Commission

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