Branch, Consignment, Joint Venture and Hire Purchase Accounting — Practice

Question 1

Who retains legal ownership of goods sent on consignment until they are actually sold to a third party?

Accepted Answer

The consignor.

Question 2

Under a hire purchase agreement, when does legal ownership of the asset pass to the buyer?

Accepted Answer

Only after the final instalment is paid.

Question 3

What is a Memorandum Joint Venture Account used for?

Accepted Answer

To compute the overall profit or loss of a joint venture recorded under the no-separate-books method, so it can be distributed to each co-venturer's own books in the agreed ratio.

Question 4

A dependent branch received goods worth Rs. 1,50,000 and Rs. 8,000 of head-office-borne expenses, remitted Rs. 1,30,000 cash, and reported closing stock of Rs. 20,000. Compute the branch profit or loss.

Accepted Answer

Debit side = 1,50,000 + 8,000 = 1,58,000. Credit side = 1,30,000 + 20,000 = 1,50,000. Loss of Rs. 8,000 (debits exceed credits).

Question 5

An asset with cash price Rs. 60,000 is bought on hire purchase at 12% interest on outstanding balance, first instalment Rs. 25,000. Compute the interest component of the first instalment and the principal repaid.

Accepted Answer

Interest = 12% x 60,000 = Rs. 7,200. Principal repaid = 25,000 - 7,200 = Rs. 17,800.

Question 6

Explain the purpose of del credere commission and who bears the risk of a customer's default when it is granted.

Accepted Answer

Del credere commission is additional commission paid to the consignee specifically in exchange for guaranteeing the buyer's payment. When granted, the consignee bears the risk of a customer's default, effectively acting as a guarantor of the sale proceeds, rather than that risk falling back on the consignor.

Question 7

A consignor sends goods costing Rs. 2,00,000, pays Rs. 10,000 freight. The consignee sells 75% for Rs. 2,10,000, incurs Rs. 5,000 expenses, and earns 4% ordinary commission plus 2% del credere commission on sales. Compute unsold stock value and consignor's profit.

Accepted Answer

Total cost + consignor's expenses = 2,00,000 + 10,000 = 2,10,000. Unsold stock (25%) = 25% x 2,10,000 = Rs. 52,500. Cost of goods sold (75%) = Rs. 1,57,500. Total commission = 6% x 2,10,000 = Rs. 12,600. Profit = Sales 2,10,000 - COGS 1,57,500 - Consignee expenses 5,000 - Commission 12,600 = Rs. 34,900.

Question 8

Explain, with reasoning, why a seller under an instalment sale agreement cannot simply repossess goods from a defaulting buyer the way a hire vendor can under hire purchase.

Accepted Answer

Under an instalment sale, legal ownership of the goods transfers to the buyer immediately at the point of sale, even though payment is spread across future instalments — the buyer becomes the legal owner from day one. Because the seller no longer owns the goods, defaulting on future instalments is a breach of a payment obligation (recoverable as a debt, potentially through legal action for the unpaid amount), not a basis for repossession. Under hire purchase, by contrast, the seller retains legal ownership throughout the instalment period, so default entitles the seller to exercise their ownership right and repossess the asset directly.

Practice — Branch, Consignment, Joint Venture and Hire Purchase Accounting

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