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Difficulty: HardPreparation of Consignment and Consignee Accounts in Consignor's Books

Emeka Enterprises consigned 400400 cases of goods costing ₦10,000\text{₦}10,000 per case to Zainab Stores and paid ₦200,000\text{₦}200,000 for freight and transit insurance. Zainab Stores paid landing charges of ₦100,000\text{₦}100,000 and sales promotion expenses of ₦50,000\text{₦}50,000. Zainab Stores sold 300300 cases at ₦15,000\text{₦}15,000 per case, earning an ordinary commission of 5%5\% and a del-credere commission of 2.5%2.5\% on gross sales. Credit customers defaulted on payments totaling ₦60,000\text{₦}60,000. What is the net amount remitted by Zainab Stores to Emeka Enterprises in full settlement?

  1. ₦4,012,500\text{₦}4,012,500Answer
  2. B
    ₦3,952,500\text{₦}3,952,500
  3. C
    ₦3,812,500\text{₦}3,812,500
  4. D
    ₦4,065,000\text{₦}4,065,000

Answer

₦4,012,500\text{₦}4,012,500
In the consignor's ledger, the Consignee Personal Account is debited with gross sales revenue (₦4,500,000\text{₦}4,500,000) and credited with expenses incurred by the consignee (₦150,000\text{₦}150,000) as well as total earned commission (7.5%7.5\% of ₦4,500,000=₦337,500\text{₦}4,500,000 = \text{₦}337,500). Because del-credere commission is paid, bad debts (₦60,000\text{₦}60,000) are borne entirely by the consignee and do not enter the consignor's books. Thus, the net balance payable to Emeka Enterprises is ₦4,500,000−₦150,000−₦337,500=₦4,012,500\text{₦}4,500,000 - \text{₦}150,000 - \text{₦}337,500 = \text{₦}4,012,500.

Step-by-Step Solution

1
Calculate total gross sales made by the consignee
Gross Sales=300 cases×₦15,000=₦4,500,000\text{Gross Sales} = 300 \text{ cases} \times \text{₦}15,000 = \text{₦}4,500,000
Zainab Stores' account in the consignor's books is debited with the total sales proceeds received or receivable.
2
Calculate total commission payable to the consignee
Total Commission Rate=5%+2.5%=7.5%\text{Total Commission Rate} = 5\% + 2.5\% = 7.5\%. Total Commission=7.5%×₦4,500,000=₦337,500\text{Total Commission} = 7.5\% \times \text{₦}4,500,000 = \text{₦}337,500
Both ordinary and del-credere commissions are credited to the consignee's personal account.
3
Sum expenses incurred directly by the consignee
Consignee Expenses=₦100,000 (landing)+₦50,000 (promotion)=₦150,000\text{Consignee Expenses} = \text{₦}100,000 \text{ (landing)} + \text{₦}50,000 \text{ (promotion)} = \text{₦}150,000
Expenses paid by the consignee on behalf of the consignment are credited to the consignee's account.
4
Determine accounting treatment for bad debts under del-credere commission
Bad debts of ₦60,000\text{₦}60,000 are absorbed entirely by Zainab Stores and NOT credited to Zainab's account in Emeka's books.
When del-credere commission is paid, the consignee assumes full liability for credit losses.
5
Calculate net balance due from consignee for settlement
Net Remittance=₦4,500,000−₦150,000−₦337,500=₦4,012,500\text{Net Remittance} = \text{₦}4,500,000 - \text{₦}150,000 - \text{₦}337,500 = \text{₦}4,012,500
Balancing the consignee's personal account yields the draft amount sent to the consignor.

Key Concept

Consignee Personal Account Settlement and Del-Credere Commission
Estimated Time:2m 30s
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Topics

Preparation of Consignment and Consignee Accounts in Consignor's Books

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