Accounting for Special Transactions
Domain 2 covers transactions whose accounting differs from ordinary sale and purchase: bills of exchange, consignment and joint venture. The exam tests who recognises the asset, liability, revenue and profit, and how unsold or unsettled amounts are valued.
Bills of exchange
Drawer, drawee and payee; acceptance; discounting, endorsement and retirement; dishonour and noting charges. The drawer carries bills receivable; the drawee carries bills payable. Discount is a finance charge. An endorsed bill remains a contingent liability until maturity.
Consignment
The consignor retains ownership; the consignee sells for commission. Unsold stock is valued at cost plus proportionate consignment expenses. The consignment account is nominal, and profit is transferred to the general profit and loss account.
Joint venture
A temporary partnership without a separate legal entity. Parties may keep separate books or use a memorandum joint venture account; profit is shared in the agreed ratio.
Worked example: 100 units costing Rs. 200 each are consigned; consignor expenses are Rs. 1,000; 80 units sell for Rs. 300 each (Rs. 24,000); commission is 5% of sales (Rs. 1,200). Closing stock = 20 × 200 + (20/100 × 1,000) = Rs. 4,200. Profit = sales 24,000 − cost of 80 units 16,000 − expenses relating to sales 800 − commission 1,200 = Rs. 6,000.
Traps: treating consignment as an outright sale and recognising the full invoice value as revenue; charging all consignor expenses to goods sold; forgetting del credere commission; recording a joint venture only in one party's books without a memorandum account; ignoring the contingent liability on an endorsed bill.