Consignment

Basic Definitions:
Consignment- It is the dispatch of goods by a principal to his agent either within the same country or abroad, to be sold by the latter on behalf and at the risk of the former in consideration of a commission. Consignor- The Principal sending the goods Consignee- The agent to whom the goods are sent Invoice- A sales invoice is a document sent by a seller to a buyer which charges the buyer with the value of the goods. Pro-Forma invoice- It is sent by the consignor to the consignee along with the goods. It contains description of goods consigned i.e. the weight, the price, the quantity and other relevant details. This is meant as an evidence record of consignment and also as an indication of the price at or above which the consignor intends the goods to be sold. Account sales- When the whole of the consignment has been sold. The consignee renders to the consignor an Account Sales. It is not a ledger account, but a statement showing particulars of goods sold, the gross proceeds of sale, expenses incurred by and commissions due to the consignee and the net proceeds due to the consignor. Advance from consignee- The arrangement may be such that the consignee should make some advance payment against the goods entrusted on him for sale. The entire amount may be adjusted when part of the goods or the entire amount is sold provided the advance was not taken by the way of a security. Recurring expense- These are the expenses which are repeated. Once the good reaches the consignee all the expenses are recurring. Non-recurring expense- These are the onetime expenses. All costs of sending the goods from consignor to consignee are non-recurring. Abnormal loss-Some losses arise accidentally or out of negligence, e.g. fire, riot, food, theft etc. These loses are abnormal and do not occur often.
1

Normal loss- Some loses is unavoidable, inherent and due to natural causes, such as evaporation. Leakage, drying etc

In consignment there are three types of commissions: Ordinary Commission/Simple Commission The commission charged by the consignee on the gross sale proceeds is known as ordinary or simple commission. It is calculated at fixed percentage of total sales. Commission = Gross sales X Fixed rate percent of commission

Del-credere This type of commission is an additional commission for a endeavor of magnifying sales in the form of credit.It is calculated at a certain predetermined rate of gross sales.

Special/Extra/Over-riding Commission In normal practice, if a consignee sell the goods at the price higher than the normal selling price, he will entitled a commission for excess amount realized over the normal selling price. The commission provided on the excess amount realized over the normal selling price is known as special commission.

Distinguishing between sales and consignment Sales The property or ownership passes immediately to the buyer. Consignment The property in the goods does not pass to the consignee but remains with the consignor. It is only when the consignee has actually sold the goods that they cease to be the property of the consignor. The ownership of the goods passes to the ultimate buyer and in no way does it pass to the consignee.

The risk attaching to the goods passes along with the ownership to the buyer.

The risk attaching to the goods does not pass to the consignee who acts as a meager agent. If there is any damage or loss to the goods it is borne by the consignor provided the consignee has taken reasonable care of the goods and the damage or loss is not due to negligence.

The relationship between the buyer and the seller is that of debtor and creditor. The buyer cannot return the goods sold except for some special reasons, such as damage or wrong quality of goods. There is a formal Act that regulates Sales.

The relationship between consignor and consignee is that of principal and agent. A consignee can return the goods if they cannot be sold.

Consignments are bound to the laws of the contract.

The profit/loss is borne by the buyer. The expenses are borne by the buyer Payments are made by the buyer to the seller.

The profit/loss is borne by the consignor The expenses are borne by the consignor Payments are made by the consignee to the consignor.

Problems from M.M. Khan Illustration 46.

In the Books of A Journal Date Particular Consignment to Rajshahi a/c Goods sent on consignment a/c Consignment to Rajshahi a/c Bank a/c Bills Receivable a/c B a/c Bank a/c Discount a/c Bills Receivable a/c B a/c Consignment to Rajshahi a/c Consignment to Rajshahi a/c B a/c Consignment to Rajshahi a/c B a/c Bank a/c B a/c Stock on consignment a/c Consignment on Rajshahi a/c Goods sent on consignment a/c Purchase a/c 20000 20000 5875 5875 9575 9575 2500 2500 2925 2925 25000 25000 9850 150 10000 10000 10000 1500 1500 Ref Dr. (Tk.) 20000 20000 Cr.(Tk)

Note- The value of the closing stock is calculated by: Tk. Cost price of unsold goods (5000/20000)*1500 (5000/20000)*2000 5000 375 500 587

Ledgers

Dr. Cr. Particulars

Consignment to Rajshahi a/c

Tk. 20000 1500 2925 2500 3950 30875

Particulars B a/c Stock on consignment a/c

Tk. 25000 5875

Goods sent on consignment a/c Bank a/c B a/c B a/c Profit and loss a/c

30875

Dr. Cr. Particulars Consignment to Rajshahi a/c Tk.

B a/c

Particulars Bills Receivable a/c Consignment to Rajshahi a/c Consignment to Rajshahi a/c Bank a/c

Tk. 10000 2925 2500 9575 25000

5

25000

25000

Dr. Particulars Bills Receivable B a/c

Bank a/c Tk. 9850 9575 19425 Particulars Consignment to Rajshahi a/c Tk. 1500

Cr.

17925 19425

Dr. Cr. Particulars Purchase a/c

Goods sent on consignment a/c

Tk. 20000

Particulars Consignment to Rajshahi a/c

Tk. 20000

Illustration 49 In the books of Bangladesh Oil Mills Limited Journal Date 1995 Jan 5 Particular Consignment to Dhaka a/c Goods sent on consignment a/c (15000*3.5) Jan 5 Consignment to Dhaka a/c Bank a/c Jan 5 Abnormal loss a/c Consignment to Dhaka a/c Jan 10 Bank a/c Profit and loss a/c Abnormal loss a/c Jan 15 Bills Receivable a/c G.M. Stores a/c 25000 25000
6

Ref

Dr. (Tk.) 52500

Cr.(Tk)

52500

4000 4000 1883 1883 1500 383 1883

Jan 30

G.M Stores a/c Consignment to Dhaka a/c

60000 60000 2800 2800 4500 4500 27700 27700 9103 9103 4303 4303 52500 52500

Jan 30

Consignment to Dhaka a/c G.M Stores a/c

Jan 30

Consignment to Dhaka a/c G.M. Stores a/c

Jan 30

Bank a/c G.M. Stores a/c

Jan 30

Stock on consignment a/c Consignment on Dhaka a/c

Jan 30

Consignment to Dhaka a/c Profit and loss a/c

Jan 30

Goods sent on consignment a/c Purchase a/c

Ledgers

Dr. Cr. Particulars Goods sent on consignment a/c Bank a/c G.M. Stores a/c G.M. Stores a/c Profit and loss a/c

Consignment to Dhaka a/c

Tk. 52500 4000 2800 4500 4303 69103

Particulars G.M. Stores a/c Stock on consignment a/c

Tk. 60000 9103

69103

Dr. Cr. Particulars Consignment to Rajshahi a/c Tk.

G.M. Stores a/c

Particulars Bills Receivable a/c Consignment to Dhaka a/c Consignment to Dhaka a/c Bank

Tk. 25000 2800 4500 27700 60000

60000

60000

Dr. Particulars Abnormal Loss a/c G.M. Stores

Bank a/c Tk. 1500 27700 29200 Particulars Consignment to Rajshahi a/c Tk. 4000

Cr.

25200 29200

Dr. Particulars Purchase a/c

Goods sent on consignment a/c Tk. 52500 Particulars Consignment to Dhaka a/c Tk.

Cr.

52500

Notes: 1. The Value of the closing stock can be ascertained byQuantity that reached Dhaka(15000-500) Quantity lost by normal leakage Quantity available for sale Quantity remaining after sale Total cost of 14400 lbs(56500-1883) Value of 2400 lbs 14500 lbs (100 lbs) 14400 lbs 2400 lbs Tk. 54617 (54617/14400)*2400 =Tk.9103

In the books of G.M. Stores Limited Journal

Date 1995 Jan 10 Jan 30 Particular BD Oil Mills Ltd a/c Bills Payable a/c Bank a/c BD Oil Mills Ltd a/c Jan 30 BD Oil Mills Ltd a/c Bank a/c Jan 15 BD Oil Mills Ltd a/c Commission a/c Jan 10 BD Oil Mills Ltd a/c Bank a/c 27700 27700 4500 4500 2800 2800 60000 60000 Ref Dr. (Tk.) 25000 25000 Cr.(Tk)

Ledger
Dr. Particulars Bills Payable a/c Bank a/c (expenses) CommissionOrdinary 5% Del Credere 2.5% Bank a/c 3000 1500 4500 27700 60000 60000 Dr. Particulars Bank a/c Bills Payable a/c Tk. 25000 Particulars BD oil Mills Ltd a/c Tk. 25000 Cr. BD Oil Mills Limited a/c Tk. 25000 2800 Particulars Consignment to Rajshahi a/c Tk. 60000 Cr.

Dr. Particulars Profit and loss a/c

Commission a/c Tk. 4500 Particulars BD oil Mills Ltd a/c Tk.

Cr.

4500

Dr. Particulars BD oil Mills Ltd a/c

Bank a/c Tk. 60000 Particulars Bd Oil Mills Ltd. a/c(expenses) Bills Payable a/c Bd oil Mills Ltd a/c 60000 Tk.

Cr.

2800 25000 27700 60000

10

Illustration 57
In the books of Chittagong Engineering Co. Limited Journal

Date 1995 Jan 5

Particular Consignment to Dacca a/c Goods sent on consignment a/c (250*1000)

Ref

Dr. (Tk.) 250000

Cr.(Tk)

250000

Jan 5

Consignment to Dhaka a/c Bank a/c (10000+2000)

12000 12000 26200 26200 2000 2000 100000 100000 264000 264000

Jan 5

Abnormal loss a/c (250*100) Consignment to Dacca a/c

Jan 15

Consignment to Dacca a/c The Commercial House a/c

Jan 10

Bills Receivable a/c The Commercial House a/c

Jan 30

The Commercial Bank a/c Consignment to Dacca a/c (800*330)

Jan 30

Consignment to Dacca a/c The Commercial House a/c

2500 2500 13200 13200

Jan 30

Consignment to Dacca a/c G.M. Stores a/c (5% of 264000)

Jan 30

Stock on consignment a/c Consignment on Dhaka a/c

26422 26422 36922 36922 250000 25000

11

Jan 30

Consignment to Dacca a/c Profit and loss a/c

Jan 30

Goods sent on consignment a/c Purchase a/c

Ledgers
Dr. Particulars Goods sent on consignment a/c Bank a/c The Commercial House-Dock Charges The Commercial House- Expenses Consignment to Dacca a/c Tk. 250000 12000 2000 2500 13200 3,16,622 Particulars Sales Stock on consignment a/c Abnormal Loss a/c Tk. 264000 26422 26200 Cr.

The Commercial House Commission 36922 Profit and loss a/c 3,16,622

Dr. Particulars Consignment to Dacca a/c Tk.

Commercial House a/c Particulars Tk.

Cr.

2,64,000 Bank Consignment to Dacca a/cDock charges 2000 Expenses 2500

100000 25000

4500 13200 1,46,300 2,64,000

Consignment to Dacca a/cCommission Balance c/d

2,64,000

Dr. Particulars Consignment to Dacca a/c

Profit and loss a/c Tk. 36922 Particulars Balance c/d Tk.

Cr.

36922

12

Notes: 1. The Value of the closing stock can be ascertained by100 bicycles at Tk. 250 each Add 100/1000 of Freight and insurance Add 100/1000 of Dock Charges

Tk. 25000 Tk, 1200 Tk. 222 Tk. 26422

2.

The value of goods destroyed has been determined by1000 bicycles at Tk 250 each Add Freight and Insurance Tk. 250000 Tk. 12000 Tk.262000 Value of 100 bicycles (100/1000)*262000 Tk. 26200

Problem 1:
Solution: Books of Sen & Co.
Journal

Rs. Consignment to Mysore A/c Dr. To Goods sent on Consignment A/c (Goods sent on consignment to Mustak of Mysore as per Pro-forma Invoice No) Consignment to Mysore A/c Dr. To Bank /c ( Freight, insurance and charges paid on the consignment send to Mysore ) Bills Receivable A/c To Mustak A/c (Bill accepted by Mustak at 90 days) Dr. 25,000

Rs. 25,000

1,500 1,500

20,000 20,000

13

Bank A/c Discount on bills A/c To Bills Receivable A/c (Bill received from Mustak discounted) Consignment to Mysore A/c To Discount on bills A/c ( Discount transferred)

Dr. Dr.

19,800 200 20,000

Dr.

200 200 35,000 35,000

Mustak A/c Dr. To Consignment to Mysore A/c (Sale proceeds of goods as per account sales dated) Consignment to Mysore A/c To Mustak A/c ( Expenses incurred by Mustak as per Account sales) Consignment to Mysore A/c To Mustak A/c (Commission due @ 2% on Rs. 35,000) Bank A/c: 35,000-20,000-700-700 To Mustak A/c (Balance due from Mustak received) Consignment to Mysore A/c To Profit and Loss A/c (Profit on consignment transferred) Dr.

700 700

Dr.

700 700

Dr.

13,600 13,600

Dr.

6,900 6,900

Goods sent on Consignment A/c Dr. To Purchases A/c (Balance of goods sent on consignment a/c transferred)

25,000 25,000

14

LEDGER Dr. Consignment to Mysore account

Rs. To Goods sent on consignment Bank- expenses Discount on Bills Mustak: Expenses Commission Profit and Loss A/c- profit on consignment 35,000 35,000 700 700 6,900 25,000 1,500 200 By Mustak- sale proceeds

Cr.
Rs. 35,000

Dr.

Goods sent on Consignment Account

Rs.

Cr.
Rs.

To Purchase A/c-transfer

25,000 25,000

By Consignment to Mysore 25,000 25,000

Dr.

Mustak (Consignee) Account

Rs.

Cr.
Rs.

To Consignment to Mysore - sale proceeds

35,000

By Bills Receivable Consignment to Mysore: Expenses Commission

20,000

700 700 13,600 35,000

Consignment 35,000

Bank- draft received

15

Books of Mustak
Journal

Rs. Sen & Co. A/c Dr. To Bills payable A/c (Acceptance of the bill drawn by Sen & Co.) Bank A/c To Sen & Co. /c ( Sale proceeds of consignment goods ) Sen & Co. A/c Dr. To Bank A/c (Expenses incurred on consignment) Sen & Co. A/c Dr. To Commission A/c (Commission due @ 2% on sale proceeds ) Sen & Co. A/c Dr. To Bank A/c (Balance due to Sen and Co. remitted) Dr. 20,000

Rs. 20,000

35,000 35,000

700 700 700 700

13,600 13,600

LEDGER

Dr Cr.

Sen & Co. (Consignor) Account

Rs. Rs. By Bank- sale proceeds 35,000

To Bills Payable Bank- expenses Commission Bank- draft sent

20,000 700 700 13,600 35,000

35,000

16

Problem 2:
Solution: Books of A
Journal

1991 Jan 1 Consignment A/c Dr. To Goods sent on Consignment A/c (Goods sent on consignment to B as per Pro-forma Invoice No) Consignment A/c Dr. To Bank A/c ( Freight charges paid on the consignment send to B ) Bills Receivable A/c To B A/c (Bill accepted by B) Jan 31 Dr.

Rs. 50,000

Rs. 50,000

5,000 5,000

50,000 50,000

Bank A/c Discount on bills A/c To Bills Receivable A/c (Bill received from B discounted) Consignment A/c To Discount on bills A/c ( Discount transferred)

Dr. Dr.

47,5 00 2,500 50,000

Dr.

2,500 2,500 80,000 80,000

Mar 31

B A/c Dr. To Consignment A/c (Sale proceeds of 300 bales as per Account Sales dated) Consignment A/c Dr. To B A/c ( Expenses incurred by B as per Account Sales) Consignment A/c Dr. To B A/c (Commission due @ 10% on Rs. 80,000)

5,000 5,000

8,000 8,000

17

Bank A/c: 80,000-50,000-5,000-8,000 Dr. To B A/c (Account received from B) May 31 B A/c Dr. To Consignment A/c (Sale proceeds of 200 bales as per Account Sales dated) Consignment A/c Dr. To B A/c ( Expenses incurred by B as per Account Sales) Consignment A/c Dr. To B A/c (Commission due to B as per account sales) Bank A/c Dr. To B A/c (Amount received from B in full settlement) B A/c Dr. To Bank A/c (Bill accepted by B dishonoured and incidental charges paid by bank Rs. 20) Consignment A/c Dr. To Profit and Loss A/c (Profit on consignment transferred) Goods sent on Consignment A/c Dr. To Purchases A/c (Balance of goods sent on consignment a/c transferred)

17,000 17,000 30,000 30,000

4,000 4,000

6,000 6,000

20,000 20,000

June 30

50,200 50,200

29,500 29,500

50,000 50,000

18

Problem 10:
Solution:
Workings:

Value of unsold stock:

Cost of 1,000 Kg. @ Rs. 10 per kg Add: Expenses prior to loss: Freight Insurance

Rs. 10,000 Rs. 500 Rs. 300

800

10,800 Less: Amount applicable to 200 kg. lost in transit (200/100010,800) 8,640 Add: Expenses after the loss1: Unloading Expenses 200 Cost of 800 kg. 8,840 Value of unsold stock: 100Rs.8,840= Rs.1,105 800
Loss in transit:

2,160

Loss (200/100010,800) Less: Amount recoverable from Insurance Co. Loss to be charged to Profit and Loss A/c

2,160 1,500 660

Journal
Rs. Loss in transit A/c To Consignment A/c (Value of goods lost in transit) Dr. 2,160 2,160 Rs.

19

Insurance claim A/c Dr. To Loss in transit A/c ( Claim accepted by insurance company for loss in transit ) Profit and loss A/c Dr. To Loss in transit A/c (Balance of abnormal loss not covered by insurance transferred to Profit and Loss A/c) Consignment stock A/c Dr. To Consignment A/c ( Value of 100 kg. unsold consignment stock at cost)

1,500 1,500

660 660

1,105 1,105

Problem 14:
Solution: Books of Bijoy
Dr.
1-4-92

Consignment to Bombay account

Rs. 31-5-92 By Amar A/c - sale proceeds 70 bags @ Rs.350 15 bags @ Rs.110 24,500 1,650 Rs.

Cr.
35,000

To Goods sent on consignment A/c 30,000 Bank- freights and insurance 31-5-92 To Amar A/cGodown rent Clearing charges Carriage Outwards 700 1,000 300 500

26,150 Bank- insurance claim Profit & Loss A/c -loss on damaged bags Consignment stock A/c 1,000 2,075

Commission @ 10%

2,450

4,725

Loss on Consignment 4, 450 34,950 transferred to P/L A/c 1,000 34,950

20

Dr.
31-5-92 To Consignment to Bombay A/c - sale proceeds

Amar (Consignee) Account

Rs. 10-4-92 By Bills Receivable A/c 26,150 31-5-92 By Consignment to Bombay A/c: Godown rent Clearing charges Carriage Outwards

Cr.
Rs. 20,000

700 1,000 300

Commission @ 10%
Consignment 26,150 Bank- balance received

2,450

4,450 1,700 26,150

Working Notes:

Valuation of goods damaged in transit and unsold stock:

Cost of 100 Kg. @ Rs. 300 Add: Expenses: Freight and Insurance Clearing Charges

Rs. 30,000 Rs. 500 Rs. 1,000

1,500

31,500 Value of 15 bags damaged in transit: 15 Rs. 31,500= Rs.4,725 100 Value of 15 bags unsold stock: 15 Rs. 31,500= Rs.4,725 100
Loss on damged bags:

Loss (as ascertained in above) 4,725 Less: Sale Proceeds 1650 Amount recovered from Insurance Co. 1,000 2,650 Loss to be charged to Profit and Loss A/c 2,075
21

Joint Venture Accounts

Difference between joint venture and consignment Consignment the relation between consignor and consignee by means of commission Joint Venture a short term venture where profit and loss is divided Types Relation Capital Control Profit & Loss Consignment Consignor is the owner Consignor gives the money Consignor has the control Profit and loss is only for consignor Duration Objective Running business To make profit and will eventually reach profit Area This is a very big business Joint Venture Everyone is the owner Everyone gives the money Everyone has the control Profit 7 loss is divided among everyone Short term business Changes are small and profit sometimes is not met This a small business

Differences between Joint Venture and Partnership Type Name Objective Joint Venture No name required To make profit but sometimes not met Time Size Entity Liabilities Place Relation Limited time Small No entity Limited liability Has no definite place Co venturer, Venturer Partnership Must have a name To make profit and eventually they reach profit Unlimited time large Partners have entity Unlimited liability Must have a definite place Partners

22

Basu and Das Problem 1 solution:

In the books of the JV of Rajeev and Pradeep. JV Account Dr. Description Rajeev A/C- purchase of goods Joint Bank A/C-- purchase of goods Pradeep A/C-expenses JB A/C expenses Profit on revenue: Rajeev (4/7) Predeep (3/7) Rs. 10000 15000 2000 4000 Description JB A/C - Sales Rs 45000 Cr.

8000 6000 14000

45000

45000

Joint Bank Account

Dr. Description Rajeev A/C Pradeep A/C JV A/C - sales Rs. 10000 13000 45000 Description JV A/C- purchase of goods JV A/C- expenses Rajeev A/C Pradeep A/C Rs 15000 4000 28000 21000 Cr.

68000

68000

Venturers Accounts
Dr. Description Rajeev Rs. Pradeep Rs. Description Rajeev Rs. Cr. Pradeep Rs.

23

JB A/C

28000

21000

JB A/C JV A/C purchase of goods JV A/C expenses paid JV A/C share of profit

10000

13000

10000

2000

8000

6000

28000

21000

28000

21000

Notes: Contribution of Rajeev = Rs. (10000+10000) or Rs. 20000 and that of Pradeep = Rs. (13000+2000) or Rs. 15000. Therefore, profit sharing ratio is 4:3.

24

Basu and Das Problem 5 solution:

In the books of the JV of Black and White. JV Account Dr. Description JB A/C- purchase of wheat:80*60 Black A/C- expenses on purchase of wheat White A/C- expenses on sale of wheat White A/C commission on sale of wheat JB A/C- purchase of sugar White A/C- expenses on purchase of sugar Black A/C expenses on sale of sugar Black A/C- commission of sale on sugar Profit on venture: Black(3/5) 87 White(2/5) 58 145 Rs. 4800 Description JB A/C sales proceeds of wheat: 60*75 JB A/C- sale proceeds of sugar Closing Stock A/C: Wheat 20 tons 20/80 (4800+300) Sugar 2 tons 2/10 (2100+100) Rs 4500 Cr.

300

1900

200

1275 440

225 100

100

150

95

8115

8115

25

Joint Bank Account

Dr. Description Black A/C White A/C JV A/C- sale proceeds of wheat JV A/C- sale proceeds of sugar Rs. 3000 5000 4500 1900 Description JV A/C- purchase of wheat JV A/C- purchase of sugar Rs 4800 2100 Cr.

Balance b/d

7500

Balance c/d

7500

14400

14400

Venturers Accounts
Dr. Description Balance c/d Black Rs. 3632 White Rs. 5583 Description JB A/C JV A/C- expenses on purchase JV A/C- expenses on sale 95 JV A/C- commission on sale 87 JV A/C- share of profit 58 225 Black Rs. 3000 300 150 Cr. White Rs. 5000 100 200

3632

5583

3632

5583

26

Balance Sheet as at 31.12.93

Liabilities Venturers Accounts: Black 3632 White 5583

Rs.

Assets Balance at joint bank Closing stock: Wheat Sugar

Rs 7500

9215

1275 440 1715

9215

9215

Final Accounts and Balance Sheet of Non-trading Concerns

Difference between Receipt and Payment Account and Income and Expenditure Account: Following are the points of difference between and receipt and payment account and income and expenditure account. Receipts and Payments Account 1 It is a summarized statement of all cash transactions during an accounting year. Only cash transactions are recorded here. The portion of income or expenditure which has been received or paid in cash this year, is recorded here Transactions involving cash receipts are recorded on Debit side and those involving cash payments are recorded on Credit side. Transactionsboth capital and revenue-are recorded here. Its balance can never be credit. Its balance is carried over to Receipts & Payments Account of the next year. This account shows opening balance except in the first year. 1 Income and Expenditure Account It is the account of revenue income and revenue expenditure of an accounting year. It is not confined to, cash transactions only, i.e. non-cash transactions are also included in it. The whole amount of income or expenditurewhether received or paid in cash or notis recorded in it. All expenditures are recorded on Debit side and all incomes on Credit side.

5 6 7 8

5 6 7 8

Only revenue transactions are recorded here. Its balance may be either debit or credit. Its balance is transferred to Capital Fund. It has no opening balance.

27

The closing balance of this account represent in the first year.

10 This account records transactions relating to past, present and future, years. Hence, no adjustment is made for pre-received or accrued incomes and pre-paid or outstanding expenses. In a word, it is prepared on cash basis. 11 It is, in fact, an abridged Cash Book.

10

11

12 It is outside the Double Entry system. 13 It is not accompanied by Balance Sheet. 14 Its preparation is not compulsory.

12 13 14

Its closing balance represents either surplus or deficit. Credit balance indicates surplus, while debit balance indicates deficit. Transactions relating to the current year only are recorded in it. Hence, adjustments are invariably made for prereceived or accrued incomes and prepaid or outstanding expenses. In a word, it is prepared on Accrual basis. It is, infect, similar to Profit & Loss ' Account of a profit-seeking business concern. It is within the Double Entry system. It is accompanied by Balance Sheet It is compulsory. It must be prepared in order to ascertain the true result of a concern.

Problem 2: SOLUTION: Workings1. Accumulated Fund as on 1-1-91 Balance Sheet as at 1-1-91 Liabilities Accumulated Fund (Balancing Figure) Subscriptions in advance Rs. Assets Club Ground 38880 Furniture 500 Sports Equipment Investments (500x100/5) Subscriptions in arrear Cash 39300 Rs. 7000 2000 15500 10000 1000 3800 39300

2. Subscriptions for 1991: Received as per Receipts and Payments A/c Add: Collected in 1990 Arrear on 31-12-1991 18500 500 300 19300

28

3. Depreciation on Sports Equipment: On Rs. 15500 for 1 year @20% On Rs. 10500 for 4 months 3100 667 3767

Burdwan Cricket Club Income and Expenditure Account for the year ended on 31st December, 1991 Dr. To Salaries and wages Printing and Stationery Rs. 3000 By Subscriptions 300 Interest on Government Securities 500 6500 100 3767 3867 Excess of income over expenditure-transferred to Accumulated Fund Cr. Rs. 19300 500

Electricity Charges Tournament Expenses Depreciation on Furniture on Sports Equipment

5633 19800

19800

Balance Sheet on 31st December, 1991 Liabilities Accumulated Fund: Balance on 1-1-91 Add: Excess of Income over Expenditure Entrance fees Subscription in Advance Rs. 38800 5633 2500 46933 Investments 1200 Equipments Addition During the year 15500 10000 25000
29

Assets Club Ground Furniture Less: Depreciation

Rs. 7000 2000 100 1900 10000

Less: Depreciation Subscription in Arrear Cash 48133

3767 21733 300 7200 48133

Problem 3: Solution: Workings1. Accumulated Fund as on 1-1-91 Balance Sheet as at 1-1-91 Liabilities Outstanding expenses Accumulated Fund (Balancing Figure) Rs. Assets 700 Furniture Books 74300 Investments Cash 75000 2. Depreciation on Books: On Rs. 45000 for 1 year @10% On Rs. 6000 for 6 months @10% Youngmens Library Income and Expenditure Account for the year ended on 31st December, 1991 Dr. Rs. To Salaries and wages Add: Outstanding Rent Add: Outstanding 6800 1200 8000 8250 750 9000 Postage & Stationery Electric Charges Depreciation 1250 730 Lecture Hall Hire Charges Miscellaneous Receipts Interest on Investments Admission Fees (40% off Rs. 3500) By Subscriptions Less: Advance 19500 600 18900 2500 350 600 Cr. Rs. 4500 300 4800 Rs. 5500 45000 20000 4500 75000

1400
30

On Furniture

330

Excess of expenditure over income- transferred to Accumulated Fund

360

On Books

4800 5130 24110 Balance Sheet on 31st December, 1991 24110

Liabilities Accumulated Fund: As per last Balance Sheet Add: Admission Fees (60% of Rs. 3500) Life Subscription

Rs. 7430 0 5633 2100 2000 7840 0 360 7804 0

Assets Furniture Less: Depreciation

5500 330

Rs. 7000

5170 Books Additions during the year 4500 0 6000 5100 0 4800 46200 Investments (at cost) Additions during year 2000 0 3500 23500 5270 80590

Less: Excess of Expenditure over income

Less: Depreciation

Advance subscriptions Outstanding Expenses: Salary & Wages Rent

1200 750 1950 8059 0

Cash

31

Partnership Admission
Valuation of Goodwill 1.Average Profit Method : (average profit) x ( no of years ) 2. Super Profit Method : Average Profit Remuneration Interest on capital Treatment of goodwill a) Premium method : i ) Cash Goodwill ii ) Goodwill Old Partners Capital A/c iii ) Old Partners Capital A/c Cash b) Revaluation Method Goodwill Old Partners Capital A/c Dr Cr Dr Cr Dr Cr Dr Cr

Problem No. 10 : Journal Date Accounts Ref Debit Tk 26,000 20,000 6,000 Credit Tk

2003 Cash January,1 Anwars Capital Premium for Goodwill (Cash brought by Anwar as his Capital & Premium for Goodwill).

32

Premium for Goodwill Zamans Capital Minhajs Capital (Premium to Goodwill credited in ratio2:1) Revaluation Machinery Motor Van Provision for Stock Provision for Doubtful Debts (Value of assets decreased) Land and Building Revaluation (Value of Land and Building appreciated) Zamans Capital Minhajs Capital Revaluation (Loss on revaluation debited to old partners capital A/C s) Reserve Fund A/C Zamans Capital Minhajs Capital (Reserve Fund transferred to old partners Capital Accounts)

6,000 4,000 2,000

10,300 3,000 1,700 5,000 600 10,000 10,000 200 100 300

9,000 6,000 3,000

Capitals Dr. Accounts Revalutaion Zaman Tk 200 Minhaj Tk 100 Anwar Tk Accounts Balance b/d Cash Premium for Goodwill Reserve Fund Zaman Tk 40,000 Minhaj Tk 30,000 20,000 4,000 6,000 2,000 4,000 Cr. Anwar Tk

Balance c/d

49,800 50,000

35,900 36,000

20,000 20,000

50,000

36,000

20,000

33

Balance Sheet of Zaman, Minhaj and Anwar As on January,1, 2003 Assets Cash (4,000+6,000+20,000) Accounts Receivable 12,000 Less: Provision for Debts 600 Stock 20,000 Less: Provision 5,000 Motor Van 17,000 Less: Decreased Value 1,700 Machinery 30,000 Less: Decreased Value 3,000 Land and Buildings Problem No. 11 : Journal Date 2003 January 1 Accounts Cash Ss Capital (Cash brought by S as his capital) Goodwill As Capital Hs Capital (Goodwill raised in the books of the firm) General Reserve As Capital Hs Capital (General reserve transmitted) Revaluation Stock Furniture Reserve for Doubtful Debts (Values of assets decreased and a Reserve for Doubtful Debts created) Ref Debit Tk 15,000 15,000 24,000 18,000 6,000 4,000 3,000 1,000 2,950 2,000 200 750 Credit Tk Tk. 30,000 Liabilities Accounts Payable Notes Payable Capital Accounts: Zaman 49,800 Minhaj 35,900 Anwar 20,000 Tk. 15,000 10,000

11,400 15,000 15,300 27,000 31,000 1,29,700

1,29,700

34

Land and Building Accounts Payable Revaluation (The value of Land and Building increased and Accounts payable decreased) Revaluation As Capital Hs Capital (Profit on revaluation credited to old partners capital accounts) Capitals Dr. Accounts Balance c/d A Tk 62,663 H Tk 20,887 S Tk 15,000 Accounts Balance b/d Goodwill General Reserve Cash Revaluation

10,000 500 10,500

7,550 5,663 1,887

Cr. A Tk 36,000 18,000 3,000 5,663 62,665 H Tk 12,000 6,000 1,000 15,000 1,887 20,887 15,000 S Tk

62,665

20,887

15,000

Balance Sheet of Zaman, Minhaj and Anwar As on January,1, 2003 Assets Cash (15,000+15,000) Bills Receivable Accounts Receivable 15,000 Less: Provision for D/Debts 750 Stock 20,000 Less: Provision 2,000 Furniture 2,000 Less: Decrease in value 200 Land and Building (26,000+10,000) Goodwill Tk. 30,000 4,000 14,250 18,000 1,800 36,000 24,000 1,28,050 Liabilities Accounts Payable 500) Capitals: A 62,663 H 20,887 S 15,000 (30,000Tk. 29,500

98,550

1,28,050

35

Problem No. 96: Journal

Date 1975, January 1

Accounts Revaluation A/C To Fixtures A/C To Provision against Stock To Provision for Doubtful Debts (Being in the fall in the value of various assets on revaluation on Zs admission) Revaluation A/C To Provision for Contingent Liability (Being the expected liability in respect of claim for damages against the firm) Land and Buildings To Revaluation A/C (Being in the increase in the value of Land and Buildings recorded on Zs admission) Sundry Creditors To Revaluation A/C (Being the item of Tk. 525 not likely to be claimed) Revaluation A/C To Xs Capital A/C To Ys Capital A/C (Being the profit on revaluation of assets and liabilities transferred to X and Y in the ratio of 3:1) Goodwill A/C To Xs Capital A/C To Ys Capital A/C (Being the amount of goodwill received from Z transferred to X and Y in ratio of 3:1)

Ref.

Debit Tk. 3,025

Credit Tk.

100 2,000 925

1,000 1,000

4,900 4,900

525 525

1,400 1,050 350

6,000 4,500 1,500

36

Capitals Dr. Accounts To Cash To memo Rev. A/C---Profit on Rev To Balance c/d X Tk. 2,250 840 34,460 35,550 Y Tk. 750 280 15,820 16,850 280 9,720 10,000 Z Tk. Accounts By balance b/d By Cash By Goodwill By Memorandum Rev A/C-Profit X Tk. 30,00 4,500 1,050 35,550 Y Tk. 15,000 10,000 1,500 350 16,850 10,000 Cr. Z Tk.

Balance Sheet of X, Y and Z As on January,1, 1975 Assets Cash in Bank Bills Receivable Sundry Debtors Stock Fixtures Land and Buildings Tk. 34,000 3,500 15,000 20,000 1,000 24,500 98,000 Liabilities Sundry Creditors Capital AccountsX 32,400 Y 15,820 Z 9,720 Tk. 40,000

58,000 98,000

37

Partnership Accounts Dissolution of Firms

Problem 1 (Basu and Das): Solution Breeza & Storm Journal Date Jun 30 Particulars Bank a/c Cash a/c Realization a/c Land and building a/c Motor Vehicle a/c Stock a/c Debtors a/c Provision to bad debt a/c Realization a/c Bank a/c Realization a/c Breezes Capital a/c Realization a/c Creditors a/c Bank a/c Realization a/c Realization a/c Bank a/c Realization a/c Breezes Capital a/c: 3/5*19850 Storms Capital a/c: 2/5*19850 Breezes Capital a/c Stroms Capital a/c Bank a/c Ref. Debit (Tk.) 3650 234300 30000 18300 72800 113200 2450 2450 207750 207750 43500 43500 97500 95800 1700 1250 1250 19850 11910 7940 53410 70940 124350 Credit (Tk.) 3650

38

Realization Account Debit Particulars Sundry Assets (transfer): Land and Building Motor Vehicle Stock Debtors Bank Expenses of Realization Profit on Realization: Breeze (3/5) 11910 Storm (2/5) 7940 Tk 30000 18300 72800 113200 1250 Credit Particulars Provision for bad Debts (transfer) Bank: Motor Vehicle 16950 Stock 77600 Debtors 113200 Tk. 2450

207750 43500

19850 Capital A/c: Breeze Land and 255400 Building taken over Sundry Creditors Discount

1700 255400

Bank Account Debit Particulars Balance b/f Cash a/c Realization a/c Credit Tk. Particulars 10000 Realization a/c Expenses of realization 3650 Sundry Creditors Breezes Capital a/c 207750 Stroms Capital a/c 221400 Tk. 1250 95800 53410 70940 221400

Sundry Creditors Account Debit Particulars Bank Realization A/C Tk 95800 1700 Balance b/f 97500 Credit Particulars Tk. 97500 97500

39

Capital Account Debit Particulars Breeze Realization a/c Land and Building 43500 Bank 53410 96910 Illustration 127 (MM Khan) Solution: Date Particulars Dec 31 Realization a/c Stock in trade a/c Sundry Debtors a/c Fixtures and fittings a/c Machinery and Plant a/c Investments a/c Sundry Creditors a/c Mrs. X loan a/c Provision for bad debt a/c Realization a/c Reserve Fund a/c Xs Capital a/c Ys Capital a/c Xs Capital a/c Ys Capital a/c Profit and Loss a/c Bank a/c Realization a/c Xs Capital a/c Realization a/c Realization a/c Bank a/c Realization a/c Bank a/c Realization a/c Xs Capital a/c Xs Capital a/c Ys Capital a/c Realization a/c Ys Loan A/c Bank a/c Xs Capital a/c Ys Capital a/c Bank a/c Ref. Debit (Tk.) 68000 Credit (Tk.) 6000 20000 4000 28000 10000 40000 10000 1000 51000 7000 4200 2800 6000 4000 10000 53000 53000 8000 8000 1100 1100 38000 38000 10000 10000 3540 2360 5900 15000 15000 6660 4440 11000 Storm Particulars Balance b/f Realization a/c 70940 Profit 70940 Credit Breeze 85000 11910 96910 Storm 63000 7940 70940

40

Bank Account Debit Particulars Tk Credit Particulars Realization a/c Realization a/c Ys Loan a/c 13000 Xs Capital a/c 53000 Ys Capital a/c 66000 Tk. 1100 38800 15000 6660 4440 66000

Balance b/d Realization a/c

Realization Account Debit Particulars Sundry Assets Stock 6000 Debtors 20000 Furniture 4000 Machinery 28000 Investments 10000 Bank A/c Bank a/c Xs capital account Mrs. Xs loan Tk Credit Particulars Tk.

Sundries Sundry Creditors 40000 Provision for bad debts 1000 Mrs. Xs Loan 68000 10000 1100 38800 Bank A/c 10000 Xs Capital a/c Loss 117900 X (3/5) 3540 Y (2/5) 2360

51000 53000 8000

5900 117900

41

Xs Capital Account Debit Particulars Profit & Loss a/c Realization A/c Realization A/c Bank A/c Credit Tk Particulars 6000 8000 Balance b/d 3540 Reserve Fund 6660 Realization a/c 24200 Tk. 10000 4200 10000 24200

Ys Capital Account Debit Particulars Profit & Loss Realization A/c (Loss) Bank A/C Tk 4000 2360 Balance B/d 4440 Reserve Fund 10800 Credit Particulars Tk. 8000 2800 10800

42

Retirement: Illustration 106 M. M. Khan

Journal
Date 1975 Sep-30 " Particulars Unexpired Insurance Revaluation A/C Revaluation A/C Provisions for Bad and Doubtful Debts Outstanding Repairs Land and Buildings Revaluation A/C Revaluation A/C A's Capital B's Capital C's Capital A's Capital C's Capital B's Capital A's Capital C's Capital Cash B's Capital B's Loan A/C Dr. (TK) 1500 Cr. (TK) 1500 4300 300 4000

"

10000 10000 7200 3600 2400 1200 5400 1800 7200 1200 400 1600 39600 39600

"

"

"

"

43

Revaluation A/C
Dr. Particulars Provision for Bad debts and doubtful debts Outstanding Repairs Profit/Loss Tk. Particulars 300 Unexpired Insurance Land and Building 4000 7200 11500 Tk. 1500 10000 Cr.

11500

Capital A/C
Dr. Particulars Adjustment of goodwill Cash B's Loan A/C Balance c/d Cr. A 5400 1200 39600 42000 48600 39600 B C Particulars 1800 Balance b/d Revaluation A/C 400 Adjustment of goodwill 14000 16200 A 45000 3600 B 30000 2400 7200 C 15000 1200

48600

39600

16200

Balance Sheet
Liabilities Sundry Creditors Outstanding Expenses B's Loan A/C Capital A/C A C Tk Assets 13800 Cash 4000 Sundry Debtors 39600 less: Provision 42000 14000 Stock in Trade Prepaid Insurance 56000 Plant and Machinery Land and Buildings 113400 Tk 9400 10000 500 9500 16000 1500 17000 60000 113400

44

Retirement: Illustration 107 M. M. Khan

Journal
Date 1975 Dec-31 Particulars Reserve Fund Moon's Capital Star's Capital Sun's Capital Goodwill A/C Moon's Capital Star's Capital Sun's Capital Revaluation A/C Plant Motor Vans Provisions for Doubtful Debts Provisions against workmen's compensation Stock Factory Buildings Revaluation Revaluation A/C Moon's Capital Star's Capital Sun's Capital Star's Capital Star's Loan A/C Dr. (TK) 12000 Cr. (TK) 6000 4000 2000 18000 9000 6000 3000 8300 3500 1200 1950 1650 5000 4500 9500 1200 600 400 200 40400 40400

"

"

"

"

"

45

Revaluation A/C
Dr. Particulars Plant Motor Vans Provision for Doubtful Debts Provision against workmen's Compensation Profit on Revaluation Moon 600 Star 400 Sun 200 Tk. 3500 Stock 1200 Factory Buildings 1950 1650 Particulars Cr. Tk. 5000 4500

1200 9500

9500

Capital A/C
Dr. Particulars Star's Loan A/C Balance c/d Moon Star 40400 55600 Sun Particulars Moon 40000 6000 9000 600 55600 Star 30000 4000 6000 400 40400 Cr. Sun 25000 2000 3000 200 30200

55600 40400

Balance b/d 30200 Reserve Fund Goodwill A/C Revaluation A/C 30200

Balance Sheet - As at 31-12-1975

Liabilities Sundry Creditors Bills Payable Provision against workmen's compensation Star's Loan A/C Capital A/C Moon 55600 Sun 30200 Tk Assets 19000 Cash 5000 Debtors 1650 less: Provision against doubtful debts 40000 Stock Motor Vans Less: Written Off 85800 Plant And Machinery Less: Written off Factory Buildings Goodwill 151450 35000 3500 31500 49500 18000 151850 46 30000 8000 1200 6800 Tk 2500 16000 2450 13550

47