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Consignment Account - Invoice Price Problem - Financial Accounting - By Saheb Academy - YouTube
Channel: Saheb Academy
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hi guys in the last video of Consignment
Accounts we have seen the Introduction
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of Invoice Price now let us see the
accounting treatment when goods are sent
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at an invoice price so when the goods
are sent at an invoice price everything
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will be based on the invoice price.Goods
sent on consignment we take it on the
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debit side of the
consignment account so this will be
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recorded at an invoice price similarly
the closing stock which is credited on
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the credited in the consignment account
will also be valued at an invoice price
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so we know if the goods sent on
consignment is debited the goods
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returned by the consignee will be credited
and if the closing stock is credited and
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then next year opening stock will be
debited fine alright so all these four
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items needs to be adjusted by
eliminating the loading from these items
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now what is loading? loading is the
difference between the invoice price and
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the cost price let's say the cost price
of an item is 100 and the invoice price
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of an item is 150 so the difference
between these two the invoice price and
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the cost price would be the loading that
is 100 - 150 equal to 50 rupees fine so
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now let us understand this treatment
with the help of a small example how to
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remove the loading from these following
items but now I will focus only on these
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two items that is good sent on
consignment and closing stock these two
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the opening stock and the goods returned
we will do that in the later problems
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all right now let us solve this example
and understand the accounting treatment
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and how to prepare the consignment
account when the consignor sends goods
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to the consignee at the invoice price
so here in this example the consignor
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has sent ten cycles costing thousand
rupees but invoiced
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at 1200 so here one thing you need to
understand is that the cost of
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each cycle is one thousand
but the invoice price is 1200 fine
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now the Consignee has received all the
goods all the cycles and sold only 8
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8 cycles at the price 1,500 so now we will
prepare the consignment account and see
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how to make the consignment account so
first we will take To Goods Sent on
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To Goods Sent on Consignment
as usual but the only thing will be
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different here is that before we used to
debit here the cost price but now since
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the consignor has sent the goods to
consign at the invoice price so we'll
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take the invoice price that is 1,200 how
many cycles 10 cycles
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he sent 10 cycles right so 10 x 1200
is equal to 12,000 fine
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after that the consignee is sold 8 cycles
at the price 1,500 so the sales will come
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on the credit side as By Consignee which is 8 x 1500 is given
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in the question the quantity and the
price is given in the question so by
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consignee 18 x 1500 is equal to 12,000
all right after that now here you if you
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see we have debited the invoice price
not the cost price before we used to
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debit the cost price but since here we
have debited the invoice price there is
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cost and profit and profit in it
the cost is 10,000 which is 10 x 1000
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10 x 1000 =10,000 and the profit
which is the difference between the
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invoice price and the cost price 200 so
that 200 x 10 is 2,000
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10,000 + 2,000 equal to
12,000 so since there is profit
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in it the debit side has been increased
so if debit side has been increased then
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our expenditure of consignor increases
if expenditure of consignor increases
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then the profit will be decreased so the
profit will not be correct because we
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know that the debit side is the
expenditure side of the Consignment
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account so if expenditure increases the
profit decreases we cannot arrive at the
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correct profit if
we leave this profit as it is so we have
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to remove that profit we have to
eliminate that profit so to eliminate
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that profit we must credit here By Goods Sent on Consignment
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now why are we crediting it
because we are crediting it because here
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it is debited so remove that debit we
have to make an equal credit
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so here the 2,000 profit is
debited so to remove that you have to
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credit 2,000 profit this is also
called as the loading the removal of the
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loading the removal of the profit fine
alright next here only 8 cycles are sold
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sold
so there is 2 cycles left so there is
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a stock left so that stock must be
valued By Consignment Stock
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By Consignment Stock which is 2 into okay
now we will value the consignment stock
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at the invoice price because the goods
were sent an invoice price right so
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we'll value the consignment stock at the
invoice price 2 x 1200 which is equal
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to 2400 alright now before we used to
value the stock at the cost price but in
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this problem we have valued at an
invoice price so here also there is an
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element of profit [cost + profit] the
cost is 2 x 1000=2000
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2 x 200 the profit that is 400 so 2000 plus 400
is the valuation of stock here all right
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so we have to remove that profit to
arrive at the correct profit similarly
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as in the Good Sent on Consignment this
is the revenue side right revenue side
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of the Consignment Account if revenue is
more than the profit will be more but it
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will be overvalued profit not the true
and correct profit so to arrive at the
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correct and true profit we must
eliminate this profit so to eliminate
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this profit we have to debit here To
Stock Reserve
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that is 2 into what is the difference
between the cost price and the invoice
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price the cost was 1,000 and the
invoice price was 1,200
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so the difference is 200 right
1200-1000 so that is the profit right 2 x 200 is 400. why 2 because 2 cycles
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are left so 2 into 200 which is equal to
400 all right now we will balance the
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consignment account credit side is
bigger 12,000+2,000+2,400
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12,000+2,000+2,400 is equal
to 16,400 so here
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also we write that on the both the sides
16400 minus these two
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16,400 - 12,000 - 400 which is equal to 4,000
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now 4,000 will be the
profit on consignment profit and loss
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profit on consignment right this is the
true and correct profit all right
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