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Accounting for material bought under exchange scheme

Shoyi K John (Service) (17 Points)

27 July 2007

Dear Fellows,

A company is in consumer durable sales and they offer their customer an option to buy materials under exchange scheme, like bring your old TV and get a new TV. The discussion point is how to account for this old TV.

One option is accounting for purchases, the other option is creating a credit note or the third option is giving a discount to the customer.

Except in accounting for purchases, stock accounting is not possible.

Invite your suggestions and advises on this

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2 Replies

Ravishankar (C.A) (454 Points)
Replied 27 July 2007

This can also be treated as Scrap Purchases or Materials for Reconditioning & Resale. The treatment is same for both. The resale value of the above item is to be treated as Scrap Sale or Reconditioned Item Sale. VAT will be applicable in both cases subject to any exemptions if any.

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Srivathsan Rangarajan (Chartered Accountant) (66 Points)
Replied 04 August 2007

On of the basic principles of accounting is that any transaction has to be recorded at its intrinsic value.Thus in the instant case the sale of productes has to be recored at the full value and so also the getting of products in exchange. The latter will be accounted as purchase of items for resale the corresponding credit being given to the debtors account by issue of credit notes. Also the inventory register needs to be updated. There is no question of discount at all.