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Difficulty: EasyConsignee's Commission: Ordinary, Del-Credere, and Overriding Commission

Under a consignment agreement, if the consignor pays a del-credere commission to the consignee, who bears the loss arising from bad debts on credit sales?

  1. The consigneeAnswer
  2. B
    The consignor
  3. C
    The credit customer's bank
  4. D
    Both the consignor and consignee equally

Answer

The consignee bears the financial loss arising from bad debts when a del-credere commission is received.
Del-credere commission is specifically paid by the consignor to compensate the consignee for taking on credit risk. Therefore, when del-credere commission is paid, the consignee must absorb any bad debt losses.

Step-by-Step Solution

1
Identify the purpose of a del-credere commission in consignment accounts.
Del-credere commission is an extra allowance paid to a consignee for taking on the risk of bad debts on credit sales.
By accepting this commission, the consignee guarantees payment of credit sales to the consignor.
2
Determine who absorbs the loss when credit customers default.
Because the consignee has received del-credere commission, any bad debt loss is debited to the consignee's own account rather than charged to the consignor.
The risk of non-payment shifts entirely from the consignor to the consignee.

Key Concept

Del-Credere Commission and Bad Debt Risk Allocation
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Topics

Consignee's Commission: Ordinary, Del-Credere, and Overriding Commission

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