Commission on Sale of Normal/Abnormal Loss Stocks

SN 20

Sale of Loss Stocks

Because the loss stocks are different from the good stock that is sold normally, selling it would require different kind of efforts.

The consignee himself may sell the loss stock or may take the help of outside agents, who specialise in sale of such stock. The commission the consignee is entitled to may be at a rate that is different from the rate for regular sale, as the efforts required vary.

Where the sale is made through outside agents, they may have to be paid commission or brokerage. There are two possibilities.

  • net realisation as sale proceeds

    Where the agent or broker deducts his commission and passes on the net sale proceeds, then the commission or brokerage would amount to an expenditure directly relatable to sale.

    Only the net sale proceeds would be recorded in the books of accounts as realisation from sale.

  • commission as an expense

    Where the total sale proceeds are received and the agent or broker is paid commission later on from them, then commission amounts to additional expenditure relating to loss stock.

    The sale proceeds would be recorded in full and the expenditure recorded additionally.

Transaction

Example

Commission/Brokerage on sale

  • of normal loss (in transit) stock, paid by the consignor 75
  • of abnormal loss (in transit) stock to the consignee 150
  • of abnormal loss (in storage) stock, due to a broker, paid by the consignee 120

These are commissions that are paid after receiving the sale proceeds.

Consignor's Books

Dr/Cr - Transaction analysis

  • Debit - __ Loss a/c

    Nominal
    ↓
    Debit
    {all expenses & losses}

    On account of the commission, the notional loss represented by the loss account increases

    Or

    Real
    ↓
    Debit
    {what comes in}

    On account of the commission, the value of the notional asset represented by the loss account increases

    Note

    • Debit - Distinct Loss a/c

      To derive greater information relating to losses

    • Debit - Combined Loss a/c

      To derive lesser information relating to losses

  • Credit -

    The account to be credited is dependent on to whom commission is payable and who is paying it.

    • Consignee

      Personal
      ↓
      Credit
      {the benefit giver}

      The commission is payable to the consignee when it is charged by the consignee for his efforts in selling the loss stock.

      The commission is reimbursable to the consignee when it is paid by him.

      In both the cases, the consignee would be the benefit giver. In the first case by providing the service and in the second case by paying for the service on behalf of the consignor.

    • Where the commission is payable to outsiders and paid for by the consignor, the account to be credited is further dependent on the mode of payment.

      • Cash

        Real
        ↓
        Credit
        {what goes out}

        Cash goes out as payment.

      • Bank

        Personal
        ↓
        Credit
        {the benefit giver}

        Amount goes out from the bank, making Bank the benefit giver.

      • Outstanding Expenses/Commission

        Personal
        ↓
        Credit
        {the benefit giver}

        The person to whom the commission is due, would be the benefit giver.

        He may be represented by the Outstanding Commission a/c or Outstanding Expenses a/c.

Journal

  1. commission on sale of normal loss (in transit) stock

    Normal Loss a/c
    To Cash a/c
    		Dr
    		 75
    75
    [For the cash paid towards commission on sale of normal loss (in transit) stock]

    • Opting to derive greater information

      Normal Loss in Transit a/c
      To Cash a/c
      		Dr
      		 75
      75

  2. commission on sale of abnormal loss (in transit) stock due to the consignee

    Loss in Transit a/c
    To Consignee a/c
    		Dr
    		 150
    150
    [For the commission on sale of abnormal loss (in transit) stock due to the consignee]

    • Opting to derive greater information

      Abnormal Loss in Transit a/c
      To Consignee a/c
      		Dr
      		 150
      150

    • Opting to derive lesser information

      Abnormal Loss a/c
      To Consignee a/c
      		Dr
      		 150
      150

  3. commission on sale of abnormal loss (in storage) stock paid by consignee

    Loss in Storage a/c
    To Consignee a/c
    		Dr
    		 120
    120
    [For the commission on sale of abnormal loss (in storage) stock paid by the consignee]

    • Opting to derive greater information

      Abnormal Loss in Storage a/c
      To Consignee a/c
      		Dr
      		 120
      120

    • Opting to derive lesser information

      Abnormal Loss a/c
      To Consignee a/c
      		Dr
      		 120
      120

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

  • Normally

    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash a/c
    75

    Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    150

    Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    120

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Loss in Transit a/c
    By Loss in Storage a/c
    150
    120

  • Opting to derive greater information

    Normal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash a/c
    75

    Abnormal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    150

    Abnormal Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    120

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Abnormal Loss in Transit a/c
    By Abnormal Loss in Storage a/c
    150
    120

  • Opting to derive lesser information

    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Cash a/c
    75

    Abnormal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    To Consignee a/c
    150
    120

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Abnormal Loss a/c
    By Abnormal Loss a/c
    150
    120

Consignees Books

Dr/Cr - Transaction analysis

Commission due to the consignee would be like the commission on sales receivable and commission paid to others would be like expenses paid on behalf of and to be reimbursed by the consignor.

  • Debit - Consignor a/c

    Amount to be received from the consignor, as commission for the services provided or as reimbursement for the expense paid on his behalf would place the consignor in the position of the benefit receiver.

  • Credit -

    The account to be credited is dependent on whether the commission is receivable as a remuneration for the service provided or as a reimbursement.

    • Other Commissions a/c

      Nominal
      ↓
      Credit
      {all incomes & gains}

      Commission receivable for the services provided in selling the loss stock would represent income.

      Note

      • To derive greater information, a separate account for each type of commission is maintained.

        Credit - Distinct Commission a/c
        • Commission on sale of loss stock a/c

      • To derive lesser information, a single commission account for all types of commissions is maintained.

        Credit - Commission a/c

    • Where the commission is receivable as a reimbursement, the account to be credited is further dependent whether the payment has been made or not and the mode of payment.

      • Cash

        Real
        ↓
        Credit
        {what goes out}

        Cash goes out as payment.

      • Bank

        Personal
        ↓
        Credit
        {the benefit giver}

        Amount goes out from the bank, making Bank the benefit giver.

      • Outstanding Expenses/Commission

        Personal
        ↓
        Credit
        {the benefit giver}

        The person to whom the commission is due, would be the benefit giver.

        He may be represented by the Outstanding Commission a/c or Outstanding Expenses a/c.

Journal

  1. commission on sale of abnormal loss (in transit) stock due

    Consignor a/c
    To Other Commissions a/c
    		Dr
    		 150
    150
    [For the commission on sale of abnormal loss (in transit) stock due]

    • Opting to derive greater information

      Consignor a/c
      To Commission on sale of loss stock a/c
      		Dr
      		 150
      150

    • Opting to derive lesser information

      Consignor a/c
      To Commission a/c
      		Dr
      		 150
      150

  2. commission on sale of abnormal loss (in storage) stock paid by consignee

    Consignor a/c
    To Cash a/c
    		Dr
    		 120
    120
    [For the commission on sale of abnormal loss (in storage) stock paid by the consignee]

Ledger

One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.

  • Normally

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Other Commissions a/c
    To Cash a/c
    150
    120

    Other Commissions a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    150

  • Opting to derive greater information

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Commission on sale
    of Loss stock a/c
    To Cash a/c

    150
    120

    Commission on sale of Loss stock a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    150

  • Opting to derive lesser information

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Commission a/c
    To Cash a/c
    150
    120

    Commission a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    150
Author : The Edifier
SN 22