Revision Notes –Consignment, Containers & Royalty Accounts

CONSIGNMENT ACCOUNTS

Del credere commission

• is an additional commission paid to cover the consignor against bad debts

Goods-in-transit :

• are often included as part of Consignment stock

Returns from consignee:

• should be adjusted by CREDIT to Consignment Account and DEBIT to Goods Sent on Consignment Account

Goods invoiced at higher prices than cost accounted by:

• Consignment Account ( at invoiced price) with the “load” adjusted in between an Adjustment Account on one hand and Goods Sent on Consignment Account and Consignment Stock Account on the other. The profit from Adjustment Account is then transferred to the Consignment Account.

CONTAINERS ACCOUNTS

Returnable containers:

Two (2) situations:

(a) Not charged to customers:

• The cost of containers treated as a manufacturing expense if the containers form an integral part of the manufactured goods sold.

• Should only be charged as distribution expense to the Profit & Loss Account if it is quite clear that the goods sold and the containers are two distinct items.

(b) Charge to Customer and making an allowance on their returns

• By charging customers and if the containers are expensive encourage the customers to return the containers within a stipulated time frame. If the containers are not returned at all, the suppliers do not suffer any loss as the cost has been charged

• In some cases, the credit to the customers is less than the amount charged. The difference is “ hire” profit which can be utilized to “recover” the depreciation of the containers.

ROYALTY ACCOUNTS

Actual royalty payable is either based on

(1) production or

(2) sale

When it is payable on production, the royalty is to be regarded as cost of production and should be debited to Production Account.

When it is based on sales, it should be regarded as a selling expense and debited to the Profit & loss account.