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Kofi consigned 500500 units of solar lanterns costing ₦12,000\text{₦}12,000 per unit to Aminu. Kofi paid freight of ₦300,000\text{₦}300,000 and loading charges of ₦100,000\text{₦}100,000. Aminu paid clearing charges of ₦200,000\text{₦}200,000, warehouse rent of ₦150,000\text{₦}150,000, and sales commission of ₦100,000\text{₦}100,000. At the end of the trading period, Aminu reported that 400400 units were sold. What is the value of the unsold consignment stock?

  1. A
    ₦1,200,000\text{₦}1,200,000
  2. B
    ₦1,280,000\text{₦}1,280,000
  3. ₦1,320,000\text{₦}1,320,000Answer
  4. D
    ₦1,370,000\text{₦}1,370,000

Answer

The value of the unsold consignment stock is ₦1,320,000\text{₦}1,320,000.
Unsold consignment stock must be valued at cost plus a proportionate share of all direct non-recurring expenses incurred by both consignor and consignee up to the point of receiving the goods at the destination. The basic cost for 100100 units is ₦1,200,000\text{₦}1,200,000. The proportionate consignor expenses (Freight and Loading) equal 15×₦400,000=₦80,000\frac{1}{5} \times \text{₦}400,000 = \text{₦}80,000. The proportionate consignee direct expense (Clearing charges) equals 15×₦200,000=₦40,000\frac{1}{5} \times \text{₦}200,000 = \text{₦}40,000. Adding these together gives ₦1,320,000\text{₦}1,320,000.

Step-by-Step Solution

1
Determine the quantity of unsold stock and the basic cost.
Unsold quantity = 500−400=100500 - 400 = 100 units (20%20\% or 15\frac{1}{5} of total). Basic cost = 100×₦12,000=₦1,200,000100 \times \text{₦}12,000 = \text{₦}1,200,000.
Unsold stock is calculated based on the fraction of remaining goods.
2
Identify and sum the consignor's direct non-recurring expenses.
Total consignor expenses = ₦300,000 (Freight)+₦100,000 (Loading)=₦400,000\text{₦}300,000 \text{ (Freight)} + \text{₦}100,000 \text{ (Loading)} = \text{₦}400,000. Proportionate share = 100500×₦400,000=₦80,000\frac{100}{500} \times \text{₦}400,000 = \text{₦}80,000.
All reasonable expenses paid by the consignor to send the goods are non-recurring and added proportionately.
3
Identify and add the consignee's direct (non-recurring) expenses.
Direct consignee expense = ₦200,000 (Clearing charges)\text{₦}200,000 \text{ (Clearing charges)}. Indirect expenses (warehouse rent and sales commission) are excluded. Proportionate share = 100500×₦200,000=₦40,000\frac{100}{500} \times \text{₦}200,000 = \text{₦}40,000.
Only non-recurring costs incurred by the consignee to take delivery (e.g., clearing, dock dues) are added to stock valuation.
4
Compute total value of unsold consignment stock.
Total stock value = ₦1,200,000+₦80,000+₦40,000=₦1,320,000\text{₦}1,200,000 + \text{₦}80,000 + \text{₦}40,000 = \text{₦}1,320,000.
Combining basic cost and all proportionate direct non-recurring expenses gives the proper inventory valuation.

Key Concept

Valuation of Unsold Consignment Stock
Estimated Time:2m 0s
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Valuation and Accounting Treatment of Unsold Consignment Stock

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