Adeola dispatched 400 bags of rice costing \text{₦}25,000 per bag to Musa on consignment. … — JAMB UTME

Adeola dispatched $400$ bags of rice costing $\text{₦}25,000$ per bag to Musa on consignment. Adeola paid freight of $\text{₦}500,000$ and transit insurance of $\text{₦}300,000$ . Upon receiving the goods, Musa paid clearing charges of $\text{₦}200,000$ , godown rent of $\text{₦}150,000$ , and sales promotion expenses of $\text{₦}100,000$ . At the end of the trading period, Musa had sold $300$ bags of rice.

Calculate the total value of the unsold consignment stock in Naira ( $\text{₦}$ ).

Answer: 2750000 ₦

Answer

The total value of the unsold consignment stock is ₦2,750,000.

The total value of unsold consignment stock is calculated as the basic cost of the unsold 100 bags (₦2,500,000), plus 25% of the consignor's total freight and insurance expenses (₦200,000), plus 25% of the consignee's direct non-recurring clearing charges (₦50,000). This yields ₦2,750,000. Recurring expenses like godown rent and sales promotion are excluded.

Step-by-Step Solution

Determine the quantity of unsold stock and the proportion remaining.

Unsold bags =

400 - 300 = 100

bags. Proportion unsold =

\frac{100}{400} = \frac{1}{4}

25\%

Stock valuation is performed on the remaining inventory at the close of the period.

Calculate the basic cost price of the unsold stock.

Basic cost =

100 \text{ bags} \times \text{₦}25,000 = \text{₦}2,500,000

Unsold inventory is initially measured at its original purchase cost.

Calculate the proportionate share of the consignor's non-recurring expenses.

Consignor expenses share =

\frac{1}{4} \times (\text{₦}500,000 + \text{₦}300,000) = \text{₦}200,000

All freight and insurance costs incurred by the consignor to ship goods are direct non-recurring expenses and must be capitalized into inventory value.

Identify and add the proportionate share of consignee's direct non-recurring expenses.

Consignee non-recurring share =

\frac{1}{4} \times \text{₦}200,000 = \text{₦}50,000

Clearing charges are direct non-recurring costs required to bring goods into the consignee's possession. Godown rent (₦150,000) and sales promotion (₦100,000) are recurring selling costs and are excluded.

Sum the basic cost and all proportionate direct non-recurring expenses.

Total valuation =

\text{₦}2,500,000 + \text{₦}200,000 + \text{₦}50,000 = \text{₦}2,750,000

Unsold stock is valued at cost plus proportionate non-recurring expenses incurred in bringing the goods to their present location.

Key Concept

Valuation and Accounting Treatment of Unsold Consignment Stock

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