On 1st January, 2015, Singh of Amritsar, a manufacturer of sports goods, sent a consignment of 100 cricket bats to Bose of Calcutta to be sold on a consignment basis at a commission of 20%. The commission is to cover the consignee’s expenses but not the freight charges of the goods to Calcutta. The cost of each bat is ~ 100 but is invoiced to Bose at ~ 150 each. A case containing 10 cricket bats was lost, against which the consignor lodged a claim and collected from the insurance company ~ 800.
The consignee paid ~ 540 as freight charges and spent a further sum of ~ 400 as sales expenses. Consignor’s expenses amounted to ~ 500. The consignee accepted a bill of exchange drawn by Singh for 3 months (beginning with the date of despatch) for ~ 10,000 which bill was discounted at 6% p.a. with the bankers. Bose sold 75 bats at ~ 200 each and on 30th June 2015 remitted the balance due from him.
After making up the accounts on 30th June 2015, the parties decide to convert their relationship to that of a joint venture on the terms that the cost of a bat would be taken at ~ 150. Singh is to get an interest of 8% p.a. on his investment and Bose to get a commission of 10% on sales. The co-venturers are to share profit and losses equally.
Prepare the necessary accounts in the books of Singh and indicate the adjustment journal entry required on conversion of the terms of despatch. The workings should form a part of your answer.