How unsold goods are valued in consignment?

Usually, at the time of closing of the books some of the goods remain unsold. For correct accounting it is necessary that such unsold stock should be valued properly. The general principal of valuing stock on the basis of cost of market price, whichever is lower applies in this cost also. However, the meaning of cost should be properly considered. In addition to the purchase price, those expenses which are necessary to put the goods in their present place and condition must also be taken into account. Usually all expenses till the goods are placed in the consignee’s Godown are treated as part of cost. Instances of such expenses are freight, insurance in transit, customs duty, Octoria duty, Cartage, etc to the godown of the consignee. Expenses incurred after the goods reach the consignee’s godown, such as rent and insurance for the godown, interest, etc, do not add to the value of goods. Such expenses, therefore, are not considered while valuing stock. For example, the purchase cost of goods is Rs. 20,000 and expenses incurred are Rs. 4,000 on freight, Rs. 5,000 on customs duty and Rs. 2,000 on godown insurance and rent. If ¼ of the goods remain unsold, the value of the stock will be Rs. 7,250 i.e. ¼ of (Rs. 20,000+4,000+5,000), (The expenses incurred by consignee i.e. Godown insurance and rent) should be ignored for valuing unsold stock. The journal entry for unsold stock is:

Stock on Consignment A/c……Dr

To Consignment Account

Consignment Shop | St. Christopher's Church

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