Accounting for Special Transactions
Special transactions test agency and financing arrangements that look like sales but are not: consignment, joint ventures, bills of exchange, hire purchase and instalment sales. The exam rewards correct ownership, risk and revenue timing.
Core rules
- In consignment, the consignor retains ownership; the consignee is an agent. A sale is recognised only when the consignee sells to a third party. The consignee earns commission and remits proceeds.
- Closing consignment stock includes cost plus expenses needed to bring the goods to their present location and condition; selling and distribution costs are expensed.
- A joint venture is not a separate legal entity unless structured so. Profit is shared in the agreed ratio; a memorandum joint venture account or separate books may be used.
- For bills of exchange, identify drawer, drawee/acceptor and payee. Discounting transfers risk subject to recourse; endorsement transfers rights; dishonour triggers noting charges and recovery.
- Hire purchase transfers ownership on the final instalment. Record the asset at cash price and separate finance charges; instalment sale often transfers ownership immediately.
Worked example
Goods costing ₹50,000 are consigned; consignor pays freight ₹2,000. Three-fourths are sold for ₹60,000; consignee commission is 5% of sales and consignee expenses ₹1,500. Cost of goods sold = 3/4 × ₹52,000 = ₹39,000. Closing stock = 1/4 × ₹52,000 = ₹13,000. Profit = 60,000 - 39,000 - 3,000 - 1,500 = ₹16,500.
Traps
Do not record consignment goods as the consignee's purchases or the consignor's sale at dispatch. Do not add consignee selling expenses to unsold stock. On dishonour, noting charges are recovered from the acceptor, not borne by the drawer. Do not treat the full hire-purchase instalment as asset cost.