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Difficulty: EasyNature, Features, and Terminology of Consignment Transactions

In a consignment arrangement, what is the legal relationship between the consignor who dispatches the goods and the consignee who receives them?

  1. Principal and agentAnswer
  2. B
    Buyer and seller
  3. C
    Debtor and creditor
  4. D
    Partner and partner

Answer

The relationship between the consignor and consignee is that of principal and agent.
In consignment accounting, the consignor is the principal who retains ownership and risk, while the consignee is the agent employed to sell the goods for a commission.

Step-by-Step Solution

1
Identify the nature of a consignment transaction.
In a consignment transaction, the consignor dispatches goods to the consignee for the purpose of sale without transferring ownership.
Ownership and primary risks remain with the sender until the goods are sold to a third party.
2
Determine the legal relationship between the two parties.
Because the consignor acts as the owner and the consignee acts on their behalf for a commission, their legal relationship is principal and agent.
This distinguishes consignment from credit sales or partnership arrangements.

Key Concept

Principal-Agent Relationship in Consignment
Estimated Time:45s
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Topics

Nature, Features, and Terminology of Consignment Transactions

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