CONSIGNMEN

T SALE

GROUP
Objectives:
-Definition and Nature of Consignment
- Apply the principles of PFRS 15 in recognizing revenue from a
consignment arrangement

-
Consignment
A consignment sale is an arrangement whereby the owner of the goods
transfers the possession of the same to a third party, the agent, so the
latter may sell it to customers
Consignment Arrangement

Consignor
Consignee
(Manufacturer)
(Seller)
●A Consignment is a specialized method of marketing
certain types of products.
●Related Parties
 Consignor: Manufacturer or wholesaler who is the
owner of inventories.
 Consignee: Dealer (seller) who is to act as an agent for
the consignor in selling the merchandise.
 Both consignor and consignee are interested in selling;
Consignor – to make a profit or develop a market;
Consignee – to make a commission on the sales.
Advantages of Consignments
Consignor Consignee
Market expansion, especially  No need to tie up capital
for: in
(1) new and unproven
products and inventory.
(2) low profit margin products.  Low risk from obsolete
 Control selling price in
stock and price
market.
 Select specialize consignee fluctuation.
in each area.
CONSIGNOR POV
COST OF CONSIGNED EXPENSE RECEIVABLE
GOODS

-Freight and other incidental -Repair cost for damages during -Commission paid advance
cost that the consignor incurs in shipment and storage and other to the consignee
transferring consigned goods to maintenance cost
the consignee - Commission of the consignee

CONSIGNEE POV
RECEIVABLE IF EXPENSE IF NOT INCOME
REIMBURSABLE REIMBURSABLE

-Freight and other incidental -Freight and other incidental -Commission and markup
cost cost
When consigned goods are sold to the customers

- The consignor recognizes revenue at gross amount of

consideration, i.e., sale price agreed to the consignee
- The consignee recognizes revenue at the commission or
fee to which it is entitled.
TYPES OF COMMISSION
● Ordinary Commission: The consideration
payable to the consignee, by the consignor for
the sales made, when the consignee is not
responsible for bad debt which may arise. It is
calculated as a percentage of gross sales.
● Del-Credere Commission: It is the extra
commission which is payable to the consignee
when he takes the responsibility for collecting
money from the customers to whom goods are
sold on credit. Further, if the customers refuse
to pay the amount, the consignee bears the
loss of bad debts. It is calculated on total sales
and not on credit sales unless otherwise
specified.
● Overriding Commission: It is a special
commission payable to the consignee when
he sells the goods on the excess of sales price
over the invoice price.
PRINCIPAL VS
AGENT
CONSIDERATION

PRINCIPAL- controls goods or services before the goods or service is

transferred to the customer. May personally satisfy a performance
obligation or it may engage another party to satisfy some or all of a
performance obligation on its behalf. When the performance obligation
is satisfied, the principal recognizes revenue at the gross amount of the
consideration.
PRINCIPAL VS
AGENT
CONSIDERATION

AGENT- arrange the provision of goods or services by another party.

When the performance obligation is satisfied, the agent recognizes
revenue at the commission or fee to which it is entitled.
The following are indicator that an
entity is an agent:
a. Another party is primarily responsible for fulfilling the contract;
b. The entity does not have an inventory risk before or after the goods
have been ordered by a customer, during shipping or on return;
c. The entity does not have discretion in establishing prices for the
other party’s goods or services and, therefore, the benefit that an
entity can receive from those goods or services is limited;
d. The entity’s consideration is in the form of a commission; and
e. The entity’s is not exposed to credit risk for the amount receivables
from a customer in exchange for the other party’s goods or services.
ILLUSTRATION:
Chopee Co. operates a website that enables customers to purchase
goods from a range of suppliers who
deliver the goods directly to the customers. When a good is purchased
via the website, Chopee is
entitled to a 10% commission based on the sales price. Chopee’s
website facilitates payment between
the supplier and the customer at the price set by the supplier. Chopee
has no further obligation to the
customer after arranging a sale.
ILLUSTRATION:
X Co. installs CCTV (closed circuit television) for customers. X Co. does not maintain
inventory of CCTVs.Instead, when a customer contracts X Co., X Co. purchases the
CCTV from supplier and installs it at the customer’s premises. X Co. chooses the
supplier; however, the CCTV purchased must meet the customer specifications,
otherwise the customer can reject it. X Co. negotiates the contract price with the
customer. Therefore, X Co.’s profit is based on the difference between the contract
price and the purchase price of the CCTV less the labor and other materials and
overheads relating to the installation. Half of the contract price is due upon signing of
contract and the balance is due after installation is complete. In case of factory
defects, the customer can seek remedy from the supplier under the supplier’s
warranty. However, X Co. is responsible for any faults relating to the configuration and
installation of the CCTV.
Problem 1
● DEF Co. enters into a consignment arrangement with GHI Inc. Under the arrangement,
DEF Co. transfers goods to GHI Inc. undertakes to sell on behalf of DEF Co. IN exchange,
GHI Inc. is entitled to a 20% commission based on sales

● The following transactions occurred in relation to the consignment

May 1 GHI Inc. accepts delivery of consigned goods with total
sales value of P500,000. The cost of the goods to DEF is
P350,000
May 3 GHI Inc. sells consigned goods costing P70,000 for
P100,000. DEF Co, is not notified of the sale
May 7 GHI Inc. makes the weekly remittance of sale, net of
commission to DEF Co.

● Required: Prepare the journal entries in each of the books of DEF Co. and GHI Inc.
Problem 2: Principal vs Agent
TravelCo negotiates with major airlines to obtain access to airline tickets at
reduced rates and sells the tickets to end consumers through its website.
TravelCo contracts with airlines to buy a specific number of tickets at agreed-
upon rates and must pay for those tickets regardless of whether it is able to
resell them. End consumers visiting TravelCo’s website search TravelCo’s
available tickets. TravelCo has discretion in establishing the prices for the tickets
it sells to the end consumers.
TravelCo is responsible for delivering the ticket to the end consumer. TravelCo will
also assist the end consumer in resolving complaints with the service provided by
the airlines. The airline is responsible for fulfilling all other obligations associated
with the ticket, including the air travel and related services (that is, the flight),
and remedies for service dissatisfaction.

Is TravelCo the principal or an agent for the sale of an airline ticket to an end
Problem 3: Principal vs Agent
WebCo operates a website that sells books. WebCo enters into a
contract with Bookstore to sell Bookstore’s books online. WebCo’s
website clearly identifies Bookstore as the seller of the books and
facilitates payments between Bookstore and the end consumer. The
sales price is established by Bookstore, and WebCo earns a fee equal
to 5% of the sales price. Bookstore ships the books directly to the end
consumer, and WebCo cannot redirect ordered books to other
customers. The end consumer returns the books to WebCo if they are
dissatisfied; however, WebCo has the right to return books to
Bookstore for a full refund if they are returned by the end consumer.

Is WebCo the principal or an agent for the sale of books to the end
Problem 4:

1. How much is the net profit of the consignor?

2. How much is the net remittance of the
consignee?
Problem 5
On December 1 2022, Anna Manufacturing Company supplies
1,000 products to local distributors on consignment. Each
product cost 100. Expenses incurred for Shipping includes
freight 1,500 and Carriage 1,000. commission is at 10% of sales
proceeds. On December 15 2022 500 product were sold.

How much is the consignors net profit in the consignment?

Publisher Co. delivers 1,000 books to Bookstore Co. under a consignment
arrangement. The cost per book is P300. Publisher Co. pays freight of Php22 per book.
Bookstore Co. is entitled to a 20% commission based on the Publisher’s suggested
retail price. However, Bookstore Co. marks up the Publisher’s suggested retail price
anyway for another 15%. Six (6) months after the end of the semester, Bookstore Co.
remits Php 245,700 to the Publisher for the sale of Php 700 books, after deduction of
Php69,300 for the following:
● 2% withholding tax based on the publisher suggested retail price.
● Bookstore’s commission.

Requirements:

a. Compute for the amount to be presented in the Publisher’s statement of profit and
loss?