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Consignment Accounting – Valuation of Unsold stock

November 25, 2013 by admin Leave a Comment

VALUATION OF UNSOLD STOCK

Where all the goods have not been sold, it becomes necessary to value the unsold goods.

Such goods are similar to closing stock in case of a Trading Account This stock should be valued at a price which will include:

(i) proportionate cost price and

(ii) proportionate direct expenses, i.e., proportionate expenses incurred both by the consignor and the consignee till the goods reach the godown of the consignee.

It should be noted that direct expenses will include all expenses incurred by the consignor while only such expenses of the consignee which are incurred by him till goods reach his godown. Examples of such expenses are: carriage charges, freight, octroi, import duty etc., paid by the consignee. Expenses like godown rent, selling expenses, insurance of the godown etc. paid by the consignee, should be excluded.

Moreover, the fundamental principle of accounting regarding valuation of stock should also be taken into consideration i.e., stock should be valued at cost or market price whichever is less. Cost price stands for cost + proportionate direct expenses.

Thtorlal Note. In case in an examination question, the details regarding expenses incurred by the consignee have not been given (e.g. the question states “expenses incurred by the consignee are Rs 2,000” or “the consignee paid Rs .2,000 as cartage, godown rent, insurance etc.”), the student are advised to consider only proportionate expenses incurred by the Consignor, while valuing the unsold stock).

Filed Under: Accounting Tagged With: Consignment Accounting, Valuation of Unsold stock

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