Valuation of Consignment Stock 🧮

At the end of the year, some goods may remain unsold with the Consignee. We must value them to find the correct Profit.

Formula: Value = Cost of Goods + Proportionate Non-Recurring Expenses.

What are Non-Recurring Expenses? 🛑

These are expenses incurred to bring the goods to the Consignee's Godown. Once they reach the godown, expenses stop adding to value.

• Add (Non-Recurring/Direct):
  • Freight & Carriage (Consignor).
  • Insurance in Transit (Consignor).
  • Unloading Charges (Consignee).
  • Import Duty / Octroi (Consignee).
• Ignore (Recurring/Indirect):
  • Godown Rent.
  • Insurance of Godown.
  • Salesman Salary.
  • Advertisement.

Example 🍎

• Sent: 1000 units @ ₹100.
• Consignor Exp: ₹5,000 (Freight).
• Consignee Exp: ₹2,000 (Unloading) + ₹3,000 (Rent).
• Unsold: 200 units.

Valuation:

1. Cost: 200 × 100 = ₹20,000.
2. Add Prop. Exp:
   • Total Direct Exp = 5,000 (Consignor) + 2,000 (Unloading) = ₹7,000.
   • For 200 units = 7,000 × (200/1000) = ₹1,400.
3. Total Value = 20,000 + 1,400 = ₹21,400.

(Note: Rent of ₹3,000 is ignored).

Quiz Time! 🎯

💡 Final Wisdom: "Think of the goods as a traveler. The ticket price (Freight) adds to his value until he reaches the hotel (Godown). Hotel bills (Rent) don't add to his value." 🏨

Next up: Normal Loss - Evaporation and Leakage! 💧