For knowing the correct profit on consignment, it is desirable to value the closing stock or unsold stock correctly. The following points shoulder kept in mind while valuing closing stock or unsold stock:-
Proportionate value of unsold goods:-
The stock which is lying with consignee must be valued at cost price or Market Price whichever less is.
Proportionate expenses incurred by consignor:-
It must add the proportionate expenses which are incurred by consignor for sending the goods to consignee, in the value of unsold goods lying with consignee. Such are forwarding expenses, freight, customs, insurance in transit etc.
Expenses incurred by consignee:-
The expenses which are incurred by consignee are of two types:-
- Direct expenses or non-recurring expenses: – The expense which are incurred only once on the consignment and which increase the cost of goods are called Direct Expenses. Generally these expenses are incurred for carrying the goods from Railway station or Transport Company to the godown of consignee. These expenses are as, namely, clearing charges, Dock charges, Import Duty, Excise duty, Octroi, Carriage upto godown, unloading expenses at consignee’s godown.
- Indirect expenses or recurring expenses: – These are the expenses which are not to be added in valuation of unsold goods with consignee. Such expenses are incurred after goods reached to consignee’s godown. Such expenses are as, namely, Rent of Godown, Insurance of Godown, and Telephone expenses at Godown, Commission, Brokerage and selling and distribution expenses.