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Difficulty: EasyValuation and Accounting Treatment of Unsold Consignment Stock

Emeka consigned 100100 crates of fruit juice costing ₦4,000\text{₦}4,000 per crate to Nkechi. Emeka paid carriage charges of ₦20,000\text{₦}20,000. Nkechi received the consignment and paid godown rent of ₦10,000\text{₦}10,000 and selling expenses of ₦15,000\text{₦}15,000. If 2020 crates remained unsold at the end of the period, what is the value of the unsold consignment stock?

  1. ₦84,000\text{₦}84,000Answer
  2. B
    ₦80,000\text{₦}80,000
  3. C
    ₦89,000\text{₦}89,000
  4. D
    ₦100,000\text{₦}100,000

Answer

₦84,000\text{₦}84,000
The valuation of unsold consignment stock is determined by taking the cost price of unsold units (20×₦4,000=₦80,00020 \times \text{₦}4,000 = \text{₦}80,000) and adding the proportionate share of direct non-recurring expenses paid by the consignor (20100×₦20,000=₦4,000\frac{20}{100} \times \text{₦}20,000 = \text{₦}4,000). Consignee expenses like godown rent and selling expenses are recurring costs and are excluded from stock valuation. Thus, the correct valuation is ₦84,000\text{₦}84,000.

Step-by-Step Solution

1
Calculate the basic cost of unsold stock
Unsold units = 2020 crates. Cost per crate = ₦4,000\text{₦}4,000. Basic cost = 20×₦4,000=₦80,00020 \times \text{₦}4,000 = \text{₦}80,000.
Unsold stock is initially measured at its original cost price.
2
Calculate proportionate direct (non-recurring) expenses incurred by the consignor
Consignor's carriage = ₦20,000\text{₦}20,000. Unsold proportion = 20100=15\frac{20}{100} = \frac{1}{5}. Proportionate carriage = 15×₦20,000=₦4,000\frac{1}{5} \times \text{₦}20,000 = \text{₦}4,000.
Direct non-recurring expenses incurred in bringing the goods to their present location and condition are added to stock valuation in proportion to the unsold quantity.
3
Determine the treatment of consignee's expenses
Godown rent (₦10,000\text{₦}10,000) and selling expenses (₦15,000\text{₦}15,000) are recurring/indirect expenses, so ₦0\text{₦}0 is added from consignee expenses.
Recurring expenses such as storage, insurance of godown, and selling expenses do not add value to unsold stock.
4
Sum basic cost and proportionate non-recurring expenses to get total stock valuation
Total valuation = ₦80,000+₦4,000=₦84,000\text{₦}80,000 + \text{₦}4,000 = \text{₦}84,000.
The final inventory value comprises cost price plus proportionate direct non-recurring expenses.

Key Concept

Valuation of unsold consignment stock includes the cost price of unsold goods plus a proportionate share of direct (non-recurring) expenses incurred by the consignor and consignee up to the point of reaching the warehouse.
Estimated Time:1m 0s
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Valuation and Accounting Treatment of Unsold Consignment Stock

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