Consignment Sales

*The physical inventory is transferred to another party called consignee

*The entity/consignor retaints the title of the inventory until the consignee sold it to the consumers
*Consignee earns commission on the product he solds and periodically remits the cash collected to the consignor
Net of commission and other reimbursable expenses.

PFRS 15
Principal = Consignor Agent = Consignee

There is consignment if:

1) The product is controlled by the entity (Consignor / Principal) until specified event occurs

2) The entity is able to require the return of the product or transfer the product to third party

3) The Agent / Consignee does not have an unconditional obligation to pay for the product.
(although it might require a deposit)

Indicator that an entity is an agent

1) Another party is primarily responsible for fulfilling the contract.

2) The entity does not have inventory risk before and after the goods have been ordered.

3) The entity does not have discretion in establishing price for the other party's goods,
therefore, the benefit that the entity can receive for goods is limited.

Direct Cost
*Capitalizable Expenses.
*It will be only expense once sold.
*It will never part of your OPEX.

Capitalizable Expenses
1) Freight cost paid by the consignor to transfer the goods to consignee
2) Insurance cost and handling charges paid by the consignor to transfer the goods to consignee
3) Packing expense related to consigned goods
4) Freight out paid by consignee upon transfer of goods from consignor to consignee
5) Cartage cost paid upon receipt of shipment from consignor to consignee

Expenses
1) Commission of Consignee
2) Advertising Expense
3) Freight paid by the consignee to transfer the goods to final customer
4) Maintenance cost and repair for damages during shipment and storage, and reconditioning cost on delivered unit
5) Delivery and installation cost
6) Excessive freight on consignment
7) Freight on consigned goods relating to returned units

Direct Cost
*Capitalizable >COS Sold

>Ending Invetory Unsold

Ex. 7 units
10 units with cost P100 per unit, >COS 7 units + 1 unit
Direct cost of P500 Direct Cost
7 units were sold and P500
a unit was returned
>Ending Inventory 2 units
2 units
to the consumers
cash collected to the consignor

third party

to consignee
onditioning cost on delivered units

P100 700
units + 1 unit 8/10 400 Direct Cost
1,100

2/10 100 Direct Cost

P100 200
300
Formula to compute Net Inome

Sales
COS
1) Units sold X Cost per unit

OR

Manufacturing cost X Units sold xx

Total units manufactured

2) Transaction cost X Units sold + Returned merchandise xx

Total consigned goods

Gross Profit

Expenses

Net Income

Formula to compute inventory out of consignment

Cost of unsold merchandise (Cost per unit X Unsold inventory)

Deferred Transaction Cost
Transaction cost X Unsold inventory
Total consigned goods

Total cost of ending inventory out of consignment

Formula to compute cash remittance

Sales
Reimbursable expenses
1) Freight collect paid by the consignee (goods from consignor to consignee)
2) Freight out paid by the consignee (goods from consignee to buyer)
3) Freight paid by the consignee for the returned goods (goods from consignee to consignor)
4) Local advertising paid by the consignee
Commission (Sales X % of commission)

Advances

Net Remittance
xx

(xx)

xx

(xx)

xx

xx

xx

xx

xx

(xx)
(xx)
(xx)
(xx)
(xx)

(xx)

xx
Sales (P3,000 X 20 boxes)
COS
1) Units sold X Cost per unit

OR

200,000 X 20 40,000
100

2) 3,000 X 20 2,000
30

Gross Profit

Expenses (60,000 x 5%)

Net Income
 Sales
Reimbursable expenses
1) Freight collect paid by the consignee (goods from consignor to consignee)
2) Freight out paid by the consignee (goods from consignee to buyer)
3) Freight paid by the consignee for the returned goods (goods from consignee to consignor)
4) Local advertising paid by the consignee

Commission (Sales X % of commission)

Advances

Net Remittance

60,000

(42,000)

18,000

(3,000)

15,000
 60,000

(3,000)
-
consignee to consignor) -
-

(3,000)

54,000
Cost of unsold merchandise (15,000 x 3 units)
Deferred Transaction Cost
10,000 X 3
10

Total cost of ending inventory out of consignment

Sales (15,000 x 1.4 x 6 units)

Reimbursable expenses

Commission (126,000 x 15%)

Advances

Net Remittance

S 140%
COS 100%
GP 40%
 Sales
COS
1) 6 X 15,000

OR

Manufacturing cost X Units sold

Total units manufactured

2) 10,000 X 6+1
10

Gross Profit

Expenses

Net Income

45,000

3,000

48,000

126,000

(1,000)
(6,000)
(1,500)

(18,900)

98,600
 126,000

90,000

7,000 (97,000)

29,000

(27,400)

1,600
Cost of unsold merchandise (10,000 x 30 units)
Deferred Transaction Cost
5,000 X 30
50

Total cost of ending inventory out of consignment

30,000 10% 300,000

15,000
20 Units Sold
50 Units Shipped
30 Units Unsold

Sales (15,000 x 20 units)

Reimbursable expenses
1) Freight collect paid by the consignee (goods from consignor to consignee)
2) Freight out paid by the consignee (goods from consignee to buyer) (200 x 20 units)
3) Freight paid by the consignee for the returned goods (goods from consignee to consignor)
4) Local advertising paid by the consignee

Commission (Sales X % of commission)

Advances (10,000 x 20 units x 50%)

Net Remittance
 Sales
COS
1) 20 X 10,000

OR

Manufacturing cost X Units sold 200,000

Total units manufactured

2) 5,000 X 20 2,000
50

Gross Profit

Expenses

Net Income
300,000

3,000

303,000

300,000

-
(4,000)
-
(1,500)

(30,000)
(100,000)

164,500
300,000

(202,000)

98,000

(35,500)

62,500