Sale of Normal/Abnormal Loss Stocks

... From Page 18

   
 

How Should they be Treated?

The Normal and Abnormal Loss Stocks have been treated as temporary Assets and have been transferred to their respective accounts. Now, selling the normal or abnormal loss stocks amounts to disposing off these assets.

Who receives the Sale Proceeds?

The normal or abnormal loss stocks may be sold either by the consignor or the consignee. The sale realisation may have been received by them in cash or through a cheque or may be still receivable by them.

23. June 26th: For the sale of normal loss (in transit ) stock by the consignor Rs. 1,050.
24. June 26th: For the sale of abnormal loss (in transit ) stock by the consignee Rs. 2,000.
25. June 26th: For the sale of normal loss (in storage ) stock by the consignee Rs. 350.
26. June 26th: For the sale of abnormal loss (in storage ) stock by the consignor Rs. 2,200.

Consignor's Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit »

    • 23, 26:

      Since the Sale Realisation is received by the consignor it should be dedited to the
      • Cash a/c

        If the proceeds are received in cash
        [Cash a/c – Real a/c – Debit what comes in.]
      • Bank a/c

        If the proceeds are received by cheque
        [Bank a/c – Personal a/c – Debit the benefit receiver.]
      • Sale Proceeds Receivable a/c (Or) Buyer a/c

        If the proceeds are still to be received
        [Sale Proceeds Receivable a/c (Or) Buyer a/c– Personal a/c – Debit the benefit receiver.]

        Note:

        Any nominal account prefixed/suffixed by the terms outstanding, prepaid, still receivable, still payable etc., is a personal account and not a nominal account
    • 24, 25: M/s Maruthi Traders a/c

      Since the consignee receives the sale proceeds, "Consignee a/c" is debited. This would be so whether the consignee has received the sale proceeds in cash or by a cheque or the sale proceeds might be still receivable by the consignee.
      [Consignee a/c – Personal a/c – Debit the benefit receiver.]
  • Credit »

    • 23, 26: Normal Loss a/c

      Since the asset by name "Normal Loss" is being sold, it is going out, "Normal Loss a/c" is to be credited.
      [Normal Loss a/c – Real a/c – Credit what goes out .... ]
    • 24, 25: Abnormal Loss a/c

      Since the asset by name "Abnormal Loss" is being sold, it is going out, "Abnormal Loss a/c" is to be credited.
      [Abnormal Loss a/c – Real a/c – Credit what goes out .... ]

The effect of the transactions can be summarised as
23 :(i) Cash/Bank/Sale Proceeds Outstanding (Or) Buyer a/c and (ii) Normal Loss a/c
24 :(i) Cash/Bank/Sale Proceeds Outstanding (Or) Buyer a/c and (ii) Normal Loss a/c
25 :(i) Consignee a/c and (ii) Abnormal Loss a/c
26 :(i) Consignee a/c and (ii) Abnormal Loss a/c

 
DrNormal Loss a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)




30/06/05


30/06/05
 

By Cash a/c (23)
(Or) Bank a/c
(Or) Out. SP a/c
By M T a/c (25)
 





 

1,050


350
 

Note:

Generally, there will be only one normal loss account to record all normal losses. However if the organisation in need of greater information is maintaining separate normal loss accounts for each instance of the loss, the sale proceeds should be credited to the relevant account.

 
DrAbnormal Loss a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)




30/06/05
30/06/05


 

By M T a/c (24)
By Cash a/c (26)
(Or) Bank a/c
(Or) Out. SP a/c
 





 

2,200
2,000


 

 
DrM/s Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
 

To Ab. Loss a/c (24)
To Nor. Loss a/c (25)
 



 

2,000
350
 




 
Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 30th Dr


1,050
1,050
June 30th Dr
2,000
2,000
June 30th Dr
350
350
June 30th Dr


2,200
2,200

Consignees Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

The ownership of the goods is with the consignor. The consignee is no way connected to the ownership of the goods. The consignee therefore will not record any gain or loss in the value of goods in his books of accounts.

However since the consignee has received some amounts on behalf of the consignor he will have to record the transactions involving the consignee.

  • Credit »

    • 24, 25: M/s Innova Steels a/c

      The sale proceeds being received on behalf of the consignor, the consignor stands in the position of the benefit giver. Therefore the consignor account is to be "Credited"
      [Consignor a/c – Personal a/c – Credit the benefit giver.]
  • Debit »

    • 24, 25:

      Since the expenditure is incurred by the consignee it should be credited to the
      • Cash a/c

        If the Sale proceeds have been received in cash
        [Cash a/c – Real a/c – Debit what comes in.]
      • Bank a/c

        If the Sale proceeds have been received by a cheque
        [Bank a/c – Personal a/c – Debit the benefit receiver.]
      • Consignment Debtors a/c

        If the sale proceeds are still to be received.
        [Consignment Debtors a/c – Personal a/c – Debit the benefit receiver.]

        Note:

        This would not be treated as income receivable by the Consignee, since this amount is not his income. Therefore, it would also be treated as debts receivable on account of consignment.

The effect of the transactions can be summarised as
24 :(i) Cash/Bank/Consignment Debtors a/c and (ii) Consignor a/c
25 :(i) Cash/Bank/Consignment Debtors a/c and (ii) Consignor a/c

 
DrM/s Innova Steels a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05


30/06/05


 

To Cash a/c (24)
(Or) Bank a/c
(Or) Con. Dr a/c
To Cash a/c (25)
(Or) Bank a/c
(Or) Con. Dr a/c
 







 

2,000


350


 




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