Ours is a Diamond Polishing company & we pay reassortment charges before selling or exporting the C & P Diamonds. Actually the goods are already assorted & are ready for export or sale in the market. Some consignees want us to reaasort the same before exporting. Such charges are debited as Reassortment charges in our accounts & T.D.S. @ 11.33% is deducted. My question is can we include this kind of expense in our Cost of Goods Sold. Please help
We import diamonds from Africa, these diamonds are processed & polished in surat, they are defined into different styles. These are then called as cut & polished diamonds. We sell these diamonds to foreign or local customers. I can't tell you the time gap of incurring the expenses given in the above para. If the diamonds are not sold they are lying in stock. When they are sold we book revenue.
06 December 2009
The question is good to understand accounting concepts.
As per Generally Accepted Accounting Principles, Cost of Goods Sold means -
all expenses incurred to make them saleable.
The re-assortment of diamonds is required by some of your customers although goods are in saleable position.
It is like a packing of different qualities of diamonds into different packets as specially desired by the customer.
Hence; in my opinion; the re-assortment charges will not be included in cost of goods sold. These will be included in selling expenses.
Although first assortment charges incurred is included in cost of goods sold because till you assort the goods; you are not in a position to fix a price of different packets.
The re-assortment charges are to be incurred on specific direction of the customer which otherwise was saleable to other customer. So it is like a specialized packing only.
CAclubindia
