Question

H. Ltd. forwarded on 1st December, 2017, 50 pressure cookers to Kale of Mumbai to be sold on behalf of H. Ltd. The cost of one pressure cooker was Ksh 1200 but the invoice price was Ksh 1600. H. Ltd. incurred Ksh 2000 on freight and insurance. Kale received the consignment on 14th December, 2017, and accepted a 3 months’ draft drawn upon him by H. Ltd. for Ksh 40,000. Kale paid Ksh 1050 as rent and Ksh 250 as insurance and by 31st March had disposed of 40 pressure cookers at Ksh 1640 each. Kale is entitled to a commission of 5% on sales, including a del credere commission of 1%. Kale sold 10 pressure cookers on credit and was not able to recover sale proceeds of one pressure cooker because of the insolvency of the debtor.

(i) Prepare all the ledger accounts in the books of H Ltd;
(ii) Pass journal entries for all the transactions relating to the consignment.

Answer 1

To prepare the ledger accounts, create accounts for different transactions and record the relevant information. Pass journal entries to record the transactions in the journal.

Step-by-step explanation:

To prepare the ledger accounts in the books of H Ltd, we would create the following accounts: Sales Account, Rent Account, Insurance Account, Debtors Account, Creditors Account and Commission Account. We would record the relevant transactions in each account, including the cost of the pressure cookers, freight and insurance expenses, draft drawn upon Kale, rent and insurance paid by Kale, sales made by Kale, commission earned by Kale, and the credit sales and bad debt.

To pass journal entries for the transactions relating to the consignment, we would record the cost of pressure cookers, freight and insurance expenses, draft drawn upon Kale, rent and insurance paid, sales made by Kale, commission earned, credit sales and bad debt in the journal.