Items which involve Loading

Loading is usually involved in all such items which are recorded at the invoice: price in the Consignment Account. These items are:

1.Opening Stock

2.Goods Sent on Consignment

3.Goods Returned by the Consignee

4.Closing Stock.

You have to compute the loading in respect of all the above items and make necessary adjustments in books of the consignor.

Adjustment of Loading

You know the profit is the difference, between selling price and cost price. In Consignment Account prepared earlier, the goods sent on consignment and the other related items were shown at cost. Hence you had no problem in computing the profit. But, when the goods sent on consignment and other related items are shown in the Consignment Account at invoice price, it becomes necessary to adjust the loading in the Consignment Account so as to bring down the invoice price to the level of cost. If such adjustment is not done, the profit figure will be incorrect. There is also a possibility that the Consignment Account shows loss because the difference between the selling price and the invoice price is generally small which cannot cover all expenses.

Look at figure below and see the difference between the actual profit and the profit without adjustment. The profit thus calculated will be the difference between sales and invoice price.

From Figure above it is clear that if no adjustment is made the profit will be Rs. 2000 whereas the actual profit is Rs. 5000 Therefore, in order to calculate the actual profit earned on any consignment all the items shown at invoice price are to be brought down to the level of cost by adjusting the amount of loading on each of them.