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

Tunde consigned goods valued at ₦600,000\text{₦}600,000 to Okon and paid ₦30,000\text{₦}30,000 for carriage and insurance. Okon sold 80%80\% of the consignment for ₦560,000\text{₦}560,000 and incurred ₦20,000\text{₦}20,000 in selling expenses. Okon is entitled to an ordinary commission of 5%5\% and a del-credere commission of 2.5%2.5\% on total sales. During the period, credit sales of ₦15,000\text{₦}15,000 proved irrecoverable as a bad debt. What is the net amount due from Okon to Tunde upon final settlement of the account?

  1. ₦498,000\text{₦}498,000Answer
  2. B
    ₦483,000\text{₦}483,000
  3. C
    ₦512,000\text{₦}512,000
  4. D
    ₦468,000\text{₦}468,000

Answer

The net amount due from Okon to Tunde upon final settlement is ₦498,000\text{₦}498,000.
In the consignor's ledger, the Consignee Personal Account (Okon's Account) is debited with the total sales proceeds of ₦560,000\text{₦}560,000. It is credited with the expenses incurred by the consignee (₦20,000\text{₦}20,000) and total commission (7.5%7.5\% of ₦560,000=₦42,000\text{₦}560,000 = \text{₦}42,000). Because del-credere commission is paid, credit losses (bad debts of ₦15,000\text{₦}15,000) are absorbed by the consignee and do not enter the consignor's ledger. Therefore, the net balance payable to Tunde is ₦560,000−₦20,000−₦42,000=₦498,000\text{₦}560,000 - \text{₦}20,000 - \text{₦}42,000 = \text{₦}498,000.

Step-by-Step Solution

1
Calculate total commission earned by the consignee
Total Commission Rate = 5%+2.5%=7.5%5\% + 2.5\% = 7.5\%. Total Commission Amount = 7.5%×₦560,000=��42,0007.5\% \times \text{₦}560,000 = \text{��}42,000.
Del-credere commission is added to ordinary commission to determine total compensation due to the consignee.
2
Determine the treatment of bad debts
Bad debts of ₦15,000\text{₦}15,000 are borne entirely by Okon and are not credited to Okon's account in Tunde's books.
When a consignee receives del-credere commission, they guarantee payment and bear all credit losses.
3
Calculate net balance payable by Okon in Consignee Personal Account
Net Settlement = ₦560,000−₦20,000−₦42,000=₦498,000\text{₦}560,000 - \text{₦}20,000 - \text{₦}42,000 = \text{₦}498,000.
Okon's account is debited with sales proceeds collected and credited with approved expenses and commission.

Key Concept

Preparation of Consignee Personal Account in Consignor's Books and Accounting Treatment of Del-Credere Commission
Estimated Time:1m 30s
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Topics

Preparation of Consignment and Consignee Accounts in Consignor's Books

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