Consignment

1
Consignment

• A Manufacturer or a wholesaler often find it
  convenient to sell goods through agent who sells
  goods on behalf of the consignor or principal ,
  the person to whom the goods are sent called as
  consignee or agent and the goods so sent is
  called as consignment.
• Thus consignment may be defined as a shipment of
  goods by a trader to an agent for sale on
  commission on the sole risk and account of the
  former.

2
Consignment

• The goods sent by the consignor to consignee is
  sold on behalf of the consignor. therefore, the
  consignor would like to know the profit earned or
  loss suffered from each different consignment.
• The person who sells the good called as consignor
  or principal.
• The person to whom goods are sent called as
  consignee or agent.
• The goods so sent called as consignment.

3
Features of Consignment

• Consignor sends the goods to the consignee or
  agent for the purposes of sale at a profit.
• Relationship between consignor and consignee is
  that of principal and agent.
• The consignor does not sell the goods to the
  consignee. He can ask for the sale proceeds from
  the consignee only when goods are sold and not
  otherwise.
• The consignee is entitled to be reimbursed for
  all the reasonable expenses incurred for
  receiving and selling the goods. He is also
  reimbursed for the agreed amount of commission.
• The consignee is not responsible for any loss or
  destruction of the goods belonging to the
  consignor provided he has taken reasonable care
  in protecting the goods.
• If there are any goods which remain unsold on any
  date, they belong to the consignor.
• Any profit or loss on goods sold on consignment
  basis belongs to the consignor only.

4
Characteristics of Consignment

• 1.Ownership
• Ownership is not transferred to the
  consignee, it remains with the consignor.
• 2.Relationship
• Relationship between consignor and consignee
  is that of principal and agent
•  3.Risk of Damages
• Consignee holds the goods at the risk of the
  consignor, so any damage to the goods is a loss
  to the consignor

5
Characteristics of Consignment

• 4.Return of Goods
• The consignee may return the goods to the
  consignor if not sold
•  5.Expenses After Delivery
• Expenses after delivery are borne by the
  buyer  
• 6.Entitled to reimbursed
• consignee is entitled to reimburse for all the
  expenses incurred in selling of goods and also
  get reimbursed for the commission agreed between
  the parties..

6
Consignment

• Consignment Account
• Consignment account is by nature a profit
  and loss account. One separate account is devoted
  to each different consignment with the heading
  "Consignment to.........account". All expenses
  specially related to the consignment must be
  debited to the concerned consignment account
  whether incurred by the consignor or by the
  consignee and all revenues and closing stock
  should be credited to this account. The
  difference between the two sides of this account
  will show the result of the particular
  consignment.
• Consignee Account
• In cases where it is customary for the
  consignee to send some money as an advance
  against the consignment the payment is merely and
  advance (by way of security) and not a part of
  payment. Hence the advance received from the
  consignee should be posted to the credit side of
  the consignee's personal account. In case part of
  the stock is still lying unsold the proportionate
  amount of advance should be carried down as
  credit balance in consignee's personal account.

7
Consignment

• Consignment stock account
• When all the goods sent on consignment have
  not been sold by the consignee at the time of
  preparing final accounts by the consignor the
  unsold stock is brought into books by means of
  the following journal entry
• Consignment stock account Dr.
•           Consignment account Cr.
• The consignment stock account is an asset and
  will be shown in the balance sheet. Next year it
  will be transferred to the debit side of the
  consignment account. The principle of valuing
  stock "cost price or market price whichever is
  lower" applies to consignment also.. Generally
  all expenses incurred till the goods reach
  consignee's godown etc are treated as part of the
  cost whether incurred by the consignee or
  consignor. Expenses incurred in storage and
  selling the goods after the goods reach
  consignee's godown are not to be considered in
  the cost of the unsold stock (closing stock).

8
Consignment

• Sometime a part of the goods sent on
  consignment is damaged or lost. A loss may be a
  normal loss or abnormal loss.
• Normal Loss
• Loss of quantity of goods in the normal course of
  business is inevitable or unavoidable, such as
  loss because of loading and unloading of goods,
  leakage, evaporation or shrinkage is known as
  normal loss.
• The treatment of normal loss is to charge it to
  consignment account.Value of stock is inflated to
  cover the normal loss. In other words such loss
  is absorbed by the remaining units.

9
Consignment

• Abnormal Loss
• This type of loss is an avoidable loss because
  it does not arise due to the nature of the goods.
  Such loss may arise due to hard luck of consignor
  (i.e. destruction of goods by fire, an accident
  or theft).. This type of loss does not effect the
  value of goods and if part of the consignment has
  been lost in such a manner, one should debit the
  value of the goods lost to abnormal loss
  account/profit and loss account. and credit the
  consignment account so that one may judge the
  profitability of the consignment properly.
• On the preparation of the final accounts of the
  business (trading and profit and loss account),
  this loss is finally shown on the debit side of
  the profit and loss account being a loss of the
  business as a whole

10
Non-profit organization

• Non-profit making organization are those, which
  do not buy/manufacture and sell goods and whose
  primary object is not to earn profit. Their
  object is to do good to the society through
  welfare activities.
• From the book-keeping point of view the aim of
  such organizations is the pursuit of some
  interest other than financial benefit, so these
  may be termed as Non-Profit making Organizations.
  Although these organizations are not meant for
  profit earning, yet organizations of this sort
  must have funds to promote their activities, and
  these funds must be honestly accounted for.

11
Receipt and Payment account

• A receipt and payment account is a cash book
  summarized for a given period analyzed and
  classified under suitable headings, including the
  opening and closing balances".

12
Characteristics of Receipt and Payment Account

• All cash receipts during the whole year are
  recorded on its left hand (i.e., debit) side.
  While all the cash payments during the whole year
  written on its right hand (i.e., credit) side,
  arranged in a classified form.
• Cash receipts and cash payments of both capital
  and revenue nature are recorded here.
• Only cash transactions are recorded in this
  account.
• It generally shows a debit balance. In case of
  bank overdraft balance, however, its net balance
  may be credit. Again, it may also show nil
  balance but such occasion is rare.
• Its closing balance indicates closing cash in
  hand and closing cash at bank. .
• It is prepared on the last day of the accounting
  year

13
Non-profit organization

• All transactions relating to non-profit-seeking
  concerns like Club, Library etc. are recorded in
  the books of account strictly according to
  double-book keeping system. At the year-end
  result is determined through Final Accounts.
  Final Accounts consist of two stages
• Income and Expenditure Account
• Balance Sheet

14
Income and Expenditure Account.

• The account through which surplus or deficit of a
  non profit organization is ascertained, is
  called Income and Expenditure Account.
• All the information necessary for preparation of
  this account will be available from ledger
  accounts. Its left-hand (i.e. Debit) side records
  all revenue expenditure, while the right-hand
  (i.e. Credit) side records all revenues relating
  to the current year. The balance of the account,
  if credit, indicates surplus, i.e. excess of
  income over expenditure. Conversely, the balance
  of the account, if debit, indicates deficit, i.e.
  excess of expenditure over income.

15
Hire purchase

• Hire purchase is an agreement between two
  parties in which one party purchase any asset
  from other party. Because he has no money to pay,
  so he pays per month hire charges. Vendor has the
  possession of asset. When buyer pays total price
  of assets in the form of hire charges, then asset
  is transferred to its purchaser. Vendor may  also
  transfer asset before last payment of installment
  on his own risk. If buyer will become defaulter,
  vendor has right to get his asset from hire
  purchaser.

16
Hire purchase

• a) Cash price is that price which will be paid
  if any asset is purchased on cash
  without installment.b) Hire price cash price
  interest for risk of giving asset on
  instalment.c) Down payment Payment at the
  beginning of deal of hire purchase.There are
  four methods of accounting for hire purchase

17
Characteristics of Hire-purchase system

• Hire-purchase is a credit purchase.
• The price under hire-purchase system is paid in
  instalments.
• The goods are delivered in the possession of the
  purchaser at the time of commencement of the
  agreement.
• Hire vendor continues to be the owner of the
  goods till the payment of last instalment.
• The hire-purchaser has a right to use the goods
  as a bailer.
• The hire-purchaser has a right to terminate the
  agreement at any time in the capacity of a hirer.
  
• The hire-purchaser becomes the owner of the goods
  after the payment of all instalments as per the
  agreement.
• If there is a default in the payment of any
  instalment, the hire vendor will take away the
  goods from the possession of the purchaser
  without refunding him any amount.

18
Hire purchase-Recording of journal entries

• 1st Method Cash Price Method Under cash price
  method, we are deal hire purchase transactions
  just like normal transactions. When transactions
  or event happen, we record them.
• 2nd Method  Interest Suspense MethodIn this
  method, we open interest suspense account. All
  the interest which is not paid on hire purchase
  asset will go to  interest suspense account. When
  interest will become due, interest account will
  be debit and interest suspense account will
  credit
• 3rd Method  Trading MethodIn this
  method, the hire purchase trading account is
  prepared in the book of vendor of the asset
• 4th Method Stock and Debtor MethodIn
  this method, hire purchase stock, hire purchase
  debtor and hire purchase adjustment account are
  maintained

19
Hire purchase

• Posting in Ledger Accounts After passing journal
  entries under any of the methods discussed above,
  the following ledger accounts are opened in the
  ledger and the postings are made accordingly.
• (i) Asset A/c. (e.g. Trucks A/c, Machinery
  A/c. etc.)(ii) Vendor's A/c.(iii) Interest
  A/c.(iv) Depreciation A/c.

20
DEFINITION OF TAXATION

•  Taxation is the inherent power of the sovereign,
  exercised through the legislature, to impose
  burden upon the subjects (Individual, firm or
  corporation) and objects (goods and services)
  within its jurisdiction, for the purpose of
  raising revenues to carry out the legitimate
  objects of the government.
• TAXES
• Enforced proportional contributions from
  properties and persons levied by the State by
  virtue of its sovereignty for the support of the
  government in order to fulfil public needs.
• Direct Taxes( Income tax) and Indirect Taxes(Sale
  tax)

21

• BASIS OF TAXATION
• GOVERNMENTAL NECESSITY The existence of the
  government depends upon its capacity to perform
  its two basic functions
• A. to serve the people
• B. to protect the people

22
PURPOSE OF TAXATION

• PRIMARY-To raise revenue in order to support the
  government
• SECONDARY-
• a. Used to reduce social inequality
• b. Utilized to implement the police power of the
  State
• c. Used to protect our local industries against
  unfair competition
• d. Utilized by the government to encourage the
  growth of local industries

23
Business Taxes

• Both individuals and businesses must pay taxes
  on income.
• The income of sole proprietorships and
  partnerships is taxed as the income of the
  individual owners, whereas corporate income is
  subject to corporate taxes.
• Both individuals and businesses can earn two
  types of incomeordinary income and capital gains
  income.
• Under current law, tax treatment of ordinary
  income and capital gains income change frequently
  due frequently changing tax laws.

24
Business Taxes Ordinary Income

• Ordinary income is earned through the sale of a
  firms goods or services and is taxed at the
  rates given by tax authorities..

25
Business Taxation Capital Gains

• A capital gain results when a firm sells an asset
  such as a stock held as an investment for more
  than its initial purchase price.
• The difference between the sales price and the
  purchase price is called a capital gain.
• For corporations, capital gains are added to
  ordinary income and taxed like ordinary income at
  the firms marginal tax rate.

26
Knowledge of Taxation

• Taxation and Finance Function
• A sound knowledge in taxation, both direct
  and indirect, is expected of a finance manager,
  as all financial decisions are likely to have tax
  implications. A finance manager should be able to
  assess the tax benefits before committing funds.
• Taxation and Treasury Function
• Treasury has become an important function and
  discipline, not only in banks, but in every
  organization. It deals with optimal management of
  cash flows, judiciously investing surplus cash,
  anticipating and meeting emerging cash
  requirements it helps in judicial asset liability
  management for taxation purposes. It also
  includes, managing the price and exchange rate
  risk through derivative instruments.
• So, a finance person should posess knowledge of
  maintaining proper taxes