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

Bala consigned goods to Okon to be sold on commission. Okon sold goods worth ₦200,000 for cash and ₦300,000 on credit. Under the agreement, Okon is entitled to an ordinary commission of 5%5\% on total sales and a del-credere commission of 2%2\% on total sales. During the consignment period, a customer defaulted on credit sales, resulting in a bad debt of ₦15,000. Assuming Okon incurred no other expenses, what is the net amount payable by Okon to Bala?

  1. ₦465,000Answer
  2. B
    ₦450,000
  3. C
    ₦469,000
  4. D
    ₦475,000

Answer

The net amount payable by Okon to Bala is ₦465,000.
Total sales equal ₦500,000. Ordinary commission (5%5\%) is ₦25,000 and del-credere commission (2%2\%) is ₦10,000, bringing total commission to ₦35,000. Because the consignee receives a del-credere commission, credit losses (bad debts) are borne entirely by the consignee. Deducting the total commission of ₦35,000 from gross proceeds of ₦500,000 yields ₦465,000 payable to the consignor.

Step-by-Step Solution

1
Calculate Total Sales
Total Sales = ₦200,000 (Cash) + ₦300,000 (Credit) = ₦500,000
Commission percentages are applied to total sales as specified in the consignment agreement.
2
Calculate Ordinary and Del-Credere Commissions
Ordinary Commission = 5% of ₦500,000 = ₦25,000; Del-Credere Commission = 2% of ₦500,000 = ₦10,000; Total Commission = ₦35,000
Both commissions are computed based on total sales.
3
Determine Bad Debt Responsibility
Bad debt of ₦15,000 is absorbed by Okon (consignee).
The granting of a del-credere commission shifts the liability for credit losses from consignor to consignee.
4
Compute Net Amount Due to Consignor
Net Amount Due = ₦500,000 - ₦35,000 = ₦465,000
Consignee deducts only total commission from gross sales before remitting proceeds.

Key Concept

Del-Credere Commission and Bad Debt Treatment in Consignment Accounts
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Topics

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

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