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

Chief Folari consigned 500500 cases of goods to Danjuma at ₦2,000\text{₦}2,000 per case and paid ₦50,000\text{₦}50,000 for freight and insurance. Danjuma sold 400400 cases for ₦1,120,000\text{₦}1,120,000 and incurred ₦50,000\text{₦}50,000 in total handling and selling expenses. Danjuma is entitled to a 5%5\% ordinary commission and a 2.5%2.5\% del-credere commission on total sales. Prior to settlement, Danjuma sent an advance of ₦300,000\text{₦}300,000 by bank draft. If credit customers defaulted resulting in bad debts of ₦15,000\text{₦}15,000, what is the net amount remittable by Danjuma to Chief Folari in final settlement of his account?

  1. ₦686,000Answer
  2. B
    ₦671,000
  3. C
    ₦714,000
  4. D
    ₦636,000

Answer

The net amount remittable by Danjuma to Chief Folari is ₦686,000.
In the consignor's books, the consignee's personal account is debited with the total sales revenue generated (₦1,120,000) and credited with allowable deductions: consignee expenses (₦50,000), ordinary commission of 5% (₦56,000), del-credere commission of 2.5% (₦28,000), and the advance payment received (₦300,000). Because a del-credere commission was granted, bad debts resulting from credit sales are absorbed entirely by the consignee and do not enter the consignor's ledger accounts. Subtracting total credits (₦434,000) from total debits (₦1,120,000) yields a net remittable balance of ₦686,000.

Step-by-Step Solution

1
Determine total debit entries in Danjuma's Personal Account in Chief Folari's ledger
Debit = Total Sales Proceeds realized = ₦1,120,000
The consignee is debited for the gross sales value realized from consigned goods.
2
Calculate ordinary commission and del-credere commission
Ordinary Commission = 5% of ₦1,120,000 = ₦56,000; Del-Credere Commission = 2.5% of ₦1,120,000 = ₦28,000
Both commissions are computed as a percentage of gross sales realized.
3
Determine credit entries and impact of bad debts
Credit items = Consignee Expenses (₦50,000) + Ordinary Commission (₦56,000) + Del-Credere Commission (₦28,000) + Advance Payment (₦300,000) = ₦434,000. Bad debts (₦15,000) are ignored in the consignor's books because del-credere commission was granted.
The consignee is credited for expenses incurred, commissions earned, and advance payments made. Since del-credere commission is paid, credit loss is borne by the consignee.
4
Calculate the final ledger account balance (net remittable amount)
Balance = Total Debits - Total Credits = ₦1,120,000 - ₦434,000 = ₦686,000
Subtracting credit deductions from sales proceeds gives the final balance due from the consignee.

Key Concept

Accounting for Consignee Ledger Account under Del-Credere Commission structure
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Topics

Preparation of Consignment and Consignee Accounts in Consignor's Books

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