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

Alhassan & Co. consigned 500500 units of goods valued at ₦1,500\text{₦}1,500 each to Chukwu & Sons. Alhassan & Co. paid ₦50,000\text{₦}50,000 for carriage and insurance. Chukwu & Sons sold 400400 units at ₦2,200\text{₦}2,200 per unit, paying clearing charges of ₦25,000\text{₦}25,000 and selling expenses of ₦15,000\text{₦}15,000. Chukwu & Sons 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 customers defaulted on a payment of ₦18,000\text{₦}18,000.

What is the net amount due from Chukwu & Sons to be shown in the Consignee's Personal Account in Alhassan & Co.'s books?

  1. ��774,000\text{��}774,000Answer
  2. B
    ₦756,000\text{₦}756,000
  3. C
    ₦724,000\text{₦}724,000
  4. D
    ₦706,000\text{₦}706,000

Answer

₦774,000\text{₦}774,000
The correct answer is ₦774,000\text{₦}774,000. The Consignee's Personal Account in the Consignor's books is debited with total gross sales (₦880,000\text{₦}880,000) and credited with expenses incurred by the consignee (₦40,000\text{₦}40,000) as well as total commission (₦66,000\text{₦}66,000). The resulting debit balance of ₦774,000\text{₦}774,000 represents the net remittance due. Because a del-credere commission is paid, bad debts are absorbed by the consignee and do not appear in the consignor's books.

Step-by-Step Solution

1
Calculate total sales proceeds received by the consignee
Total Sales = 400 units×₦2,200=₦880,000400 \text{ units} \times \text{₦}2,200 = \text{₦}880,000
The consignee's account is debited with the total sales value generated on behalf of the consignor.
2
Calculate total commission payable to the consignee
Total Commission rate = 5% (ordinary)+2.5% (del-credere)=7.5%5\% \text{ (ordinary)} + 2.5\% \text{ (del-credere)} = 7.5\%. Total Commission = 7.5%×₦880,000=₦66,0007.5\% \times \text{₦}880,000 = \text{₦}66,000
Commission is calculated on total gross sales.
3
Sum total deductions allowed to the consignee
Total Deductions = Consignee Expenses (₦25,000+₦15,000\text{₦}25,000 + \text{₦}15,000) + Total Commission (₦66,000\text{₦}66,000) = \text{₦}106,000$
Consignee expenses and earned commission are credited to the consignee's account.
4
Determine net amount due from consignee and evaluate bad debt treatment
Net Amount Due = ₦880,000−₦106,000=₦774,000\text{₦}880,000 - \text{₦}106,000 = \text{₦}774,000
Since del-credere commission is paid, bad debts of ₦18,000\text{₦}18,000 are borne entirely by Chukwu & Sons and are ignored in Alhassan & Co.'s books.

Key Concept

Accounting for Consignee's Personal Account and 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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