Examkin

Question

Difficulty: MediumNature, Features, and Terminology of Consignment Transactions

Under a standard consignment arrangement, dispatching goods from the consignor to the consignee transfers physical possession of the merchandise to the consignee, while legal ownership and title to the unsold goods remain with the consignor.

Answer: Answer

Answer

The statement is True. In a consignment transaction, the consignor (principal) retains legal title to all unsold goods, transferring only physical possession to the consignee (agent).
The correct evaluation is True because a consignment is fundamentally a principal-agent agreement. The consignor retains ownership of the merchandise, while the consignee merely acts as an intermediary receiving physical custody to effect sales.

Step-by-Step Solution

1
Analyze the nature of the principal-agent relationship in consignment transactions.
The consignor is the principal and owner of the goods, whereas the consignee acts as an agent receiving goods for sale on commission.
Establishing the legal relationship identifies who retains legal title.
2
Distinguish between physical possession and legal ownership during dispatch.
Physical possession passes to the consignee upon delivery, but legal title remains with the consignor until a sale occurs.
Consignment is a bailment of goods, not an outright purchase or sale.
3
Evaluate the statement against accounting principles of consignment.
The statement accurately reflects that legal title stays with the consignor while possession transfers to the consignee.
Unsold goods are included in the consignor's closing inventory for accounting purposes.

Key Concept

Principal-Agent Relationship and Ownership Retention in Consignment
Rate this question

Topics

Nature, Features, and Terminology of Consignment Transactions

More questions from this topic