Question

A) Asha Company completed its inventory count. It arrived at a total inventory value of
$200,000. You have been given the information listed below. Discuss how this information affects the reported cost of inventory.
i. Asha included in the inventory goods held on consignment for Falls Co., costing $35,000.
ii. The company did not include in the count purchased goods of $20,000, which were in transit (terms: FOB shipping point).
iii. The company did not include in the count inventory that had been sold with a cost of $18,000, which was in transit (terms: FOB shipping point).
b) Explain the concept of consignment goods and their ownership.

Answer 1

i.

The inventory goods are held by company on consignment and so company will have to exclude them from its inventory as they do not belomg to the company.

The amount of $35,000 would be deducted from inventory.

ii.

The goods which are in transit and based on FOB shipping point would be included in the inventory as goods are purchased.

The amount of $20,000 would be added to inventory.

iii.

The goods which are sold by company and are in transit are based on FOB shipping point and should be excluded from inventory.

The amount of $18,000 would be deducted from inventory.

Thus, the correct amount of inventory would be $167,000 ($200,000-35,000+20,000-18,000)

b.

Consignment goods are where company sells goods to the customer indirectly that is there is an intermediary involved in selling the goods on behalf of company.

Consignment sales include two parties the consignor and consignee, consignor is the company on whose behalf goods are sold and cosignee is the person who sells the goods.

Consignee charges commission or fees from consignor for sale of goods.

In case of consignment the ownership of goods remains with the company that is consignor and therefore is included in the inventory of consignor and not consignee.