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

Babatunde Ventures consigned 200200 cases of goods costing ₦5,000\text{₦}5,000 per case to Kemi & Sons. Babatunde Ventures paid ₦50,000\text{₦}50,000 for freight and transit insurance. Kemi & Sons sold 150150 cases for ₦8,000\text{₦}8,000 per case, incurring selling expenses of ₦30,000\text{₦}30,000. Kemi & Sons are entitled to an ordinary commission of 5%5\% and a del-credere commission of 2.5%2.5\% on total sales. During the period, a credit customer defaulted, resulting in a bad debt of ₦20,000\text{₦}20,000. What is the net amount due to Babatunde Ventures from Kemi & Sons?

  1. ₦1,080,000\text{₦}1,080,000Answer
  2. B
    ₦1,060,000\text{₦}1,060,000
  3. C
    ₦1,090,000\text{₦}1,090,000
  4. D
    ₦1,030,000\text{₦}1,030,000

Answer

The net amount due from Kemi & Sons to Babatunde Ventures is ₦1,080,000\text{₦}1,080,000.
In the consignor's books, the Consignee Personal Account is debited with the total sales proceeds of ₦1,200,000\text{₦}1,200,000 (150×₦8,000150 \times \text{₦}8,000) and credited with allowable deductions, which include the consignee's expenses of ₦30,000\text{₦}30,000 and total commission of ₦90,000\text{₦}90,000 (7.5%7.5\% of ₦1,200,000\text{₦}1,200,000). Since the consignee earns a del-credere commission, any bad debt is borne by the consignee and is not credited to their account in the consignor's ledger. Subtracting total deductions of ₦120,000\text{₦}120,000 from ₦1,200,000\text{₦}1,200,000 leaves a net balance of ₦1,080,000\text{₦}1,080,000 due from the consignee.

Step-by-Step Solution

1
Calculate total sales proceeds collected by the consignee
Total Sales = 150 cases×₦8,000=₦1,200,000150 \text{ cases} \times \text{₦}8,000 = \text{₦}1,200,000
The consignee's personal account in the consignor's ledger is debited with the total gross sales.
2
Calculate total commission payable to the consignee
Ordinary Commission = 5%×₦1,200,000=₦60,0005\% \times \text{₦}1,200,000 = \text{₦}60,000; Del-Credere Commission = 2.5%×₦1,200,000=₦30,0002.5\% \times \text{₦}1,200,000 = \text{₦}30,000; Total Commission = ₦90,000\text{₦}90,000
Both ordinary and del-credere commissions are credited to the consignee's account as allowable deductions from sales proceeds.
3
Determine the treatment of bad debts and calculate net balance
Net Amount Due = Total Sales (₦1,200,000\text{₦}1,200,000) - Expenses (₦30,000\text{₦}30,000) - Total Commission (₦90,000\text{₦}90,000) = ₦1,080,000\text{₦}1,080,000
Because del-credere commission is paid, credit losses (bad debts of ₦20,000\text{₦}20,000) are borne entirely by the consignee and do not affect the consignor's ledger balance.

Key Concept

Preparation of Consignee Account and Accounting Treatment of Del-Credere Commission
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Topics

Preparation of Consignment and Consignee Accounts in Consignor's Books

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