Tag: Goods Sent

Invoice Price refers to the price at which goods are invoiced by the consignor to the consignee. It is often higher than the actual cost price of the goods and includes a certain percentage of profit added by the consignor. The invoice price is mentioned in the proforma invoice sent along with the goods. It helps maintain secrecy regarding the actual cost of goods and simplifies stock control. However, for accounting purposes, consignment profit or loss should be calculated on the basis of cost price and not invoice price. Therefore, any excess amount included as loading or unrealized profit must be adjusted while preparing consignment accounts. Invoice price is commonly used in consignment transactions for internal business convenience and control.

Objectives of Invoicing Above Cost Price:

1. Maintaining Secrecy of Cost Price

One of the main objectives of invoicing above cost price is to keep the actual cost of goods confidential. The consignee receives the goods at an invoice price that includes a profit margin, making it difficult to know the true cost price. This protects the consignor’s business information and prevents competitors or agents from understanding the actual profit structure. It is especially useful in businesses where goods are supplied to multiple agents or branches. The consignor can maintain control over pricing policies while ensuring that internal cost details remain private.

2. Easy Calculation of Profit

Invoicing goods above cost price helps simplify the calculation of profit on consignment transactions. Since goods are recorded at a predetermined invoice price, the difference between invoice price and cost price can be adjusted through loading. This allows the consignor to easily determine the actual profit earned after considering sales and expenses. The method reduces accounting complexity and provides a systematic way to calculate consignment results. Proper adjustment of loading ensures that the final profit shown in accounts is accurate and based on the actual cost of goods.

3. Control Over Consignee Activities

Invoicing above cost price helps the consignor maintain better control over the consignee’s activities. The consignee cannot easily determine the actual cost of goods and may not know the exact profit margin of the consignor. This prevents unnecessary bargaining and helps maintain uniform selling practices. It also allows the consignor to monitor sales performance and ensure that goods are sold at the desired price level. This method improves management control over distribution and selling operations.

4. Standardization of Selling Price

A major objective of invoicing above cost price is to maintain uniformity in selling prices. When goods are sent to different consignees at a fixed invoice price, the consignor can ensure that products are sold according to a planned pricing strategy. This avoids price differences between markets and maintains consistency in the value of goods. Standardized pricing helps protect brand image, prevents unfair competition, and supports better market management.

5. Protection of Profit Margin

Invoicing above cost price helps protect the expected profit margin of the consignor. By including profit in the invoice price, the consignor can monitor whether the consignee is selling goods at a suitable price. Any difference between invoice price and cost price is adjusted at the end of the accounting period. This ensures that the actual profit earned from the consignment is correctly calculated and prevents accidental loss of expected earnings.

Loading in Consignment Accounting

Loading refers to the excess amount added to the cost price of goods when goods are sent to the consignee at invoice price. It represents the profit included in the invoice price by the consignor. Since this profit is not actually earned until the goods are sold, it is treated as unrealized profit on unsold stock. Loading must be adjusted while preparing the Consignment Account to calculate the correct profit.

Calculation of Loading

Formula:

Loading = Invoice Price − Cost Price

Example:

Cost Price of Goods = ₹80,000

Invoice Price of Goods = ₹1,00,000

Loading = ₹1,00,000 − ₹80,000 = ₹20,000

Thus, ₹20,000 is the loading included in the invoice price.

Conversion of Invoice Price into Cost Price

Cost Price = Invoice Price × (100 / 100 + Loading %)

Example:

Invoice Price = ₹1,00,000

Loading = 25%

Cost Price = ₹1,00,000 × 100/125 = ₹80,000

Accounting Treatment of Loading:

Loading refers to the excess amount added to the cost price of goods when they are invoiced above cost price. The difference between invoice price and cost price is known as loading or unrealized profit. Since loading includes profit not yet earned, it must be adjusted while preparing consignment accounts.

Journal Entries in the Books of Consignor

Treatment of Loading

Valuation of Closing Stock:

Closing Stock in consignment accounting refers to the unsold goods remaining with the consignee at the end of an accounting period. Since ownership of these goods remains with the consignor, the closing stock is valued in the books of the consignor. The purpose of valuation is to calculate the correct profit or loss on consignment.

Basis of Valuation

Closing Stock is valued at: Cost of Unsold Goods + Proportionate Non Recurring Expenses

Non recurring expenses include:

• Freight
• Carriage
• Insurance during transit
• Loading and unloading charges
• Customs duty

Recurring expenses such as storage, advertising, and selling expenses are not included.

Adjustment for Loading

If goods are sent at invoice price, loading must be deducted from the value of closing stock.

Closing Stock at Cost = Invoice Price of Stock − Loading + Proportionate Expenses

Example:

Invoice Price of Unsold Stock = ₹50,000

Loading included = ₹10,000

Non recurring expenses = ₹5,000

Closing Stock = ₹50,000 − ₹10,000 + ₹5,000 = ₹45,000

Journal Entries

In the Books of Consignor

Stock Reserve Account (Adjustment of Loading)

When goods are invoiced above cost price, the unrealized profit included in closing stock is called loading. It must be removed by creating a stock reserve.

Loading Adjustment Entries

Summary