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Gold

durga prasad bahety (CA FINAL) (120 Points)

27 September 2013

Hi Caclubindians, A company purchased a 10 trucks and the seller gives a gold coin at free of cost. How it is to recognised in to the buyers books? Whether it is an asset or income and what would be the value?Please help me.....

Regards,

DPB

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10 Replies

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 29 September 2013

In your case Fair Market value of Gold is included in purchase cost of Truck. Deduct fair market value of gold from purchase cost of truck and capitalize both as Fixed Assets.

Capitalization of Gold: Fair Market Value on the date of purchase

Trucks ( Vehicle): Total purchase cost less fair market value of gold.

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Shivani (Learner) (1881 Points)
Replied 02 October 2013

samrendra sir

what will be the entry for Gold Coin

Thanks

CA chalapathi Rao jv (profession.) (27 Points)
Replied 02 October 2013

Credit to purchase and debit to supplier a/c

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 02 October 2013

Hi Shivani,

Entry will be like this

Truks A/c Dr. xxxxx [Purchase Cost less Fair Value of Gold Coin]

Gold Coin A/c Dr. xxxxx [Fair Value of Gold Coin]

To Truck Company xxxxx [Purchase Cost]

(being truck purchased from truck company and free gold coin received with purchase of Truck)

Shivani (Learner) (1881 Points)
Replied 03 October 2013

Dear Samrendra sir

my next question to u is regarding sales tax

Will sales tax be charged on gold coin?

Is gold coin a sale at all at first place? or is gold coin is a consideration other than cash?

What will be the entries in books of seller and buyer if we take sales tax into account?

Thanks

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Shivani (Learner) (1881 Points)
Replied 04 October 2013

How will the seller prepare invoice ?

Will he show gold coin in invoice?

Seller must be having trucks as the commodity in his registration certificate, so can he show gold coin in his invoice in which he doesn't deal?

I feel from seller point of view it is sale of goods as far as trucks is concerned which he will show in invoice and charge sales tax.

for gold coin I feel it is sale of fixed asset.

Please someone guide regarding the entries in books of buyer and seller for truck and gold coin.

regards

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 04 October 2013

Dear Shivani, For Invoicing purpose gold coin reflects as free item. Purchase cost of gold coin is treqted as business promotion expense for seller.... Entry what we are discussing above is in the books of purchaser......

Shivani (Learner) (1881 Points)
Replied 05 October 2013

Samrendra Sir

Please consider following points

1. From Seller Point of View

A) Gold Coin Dr (gold coin being expense and not asset since the purpose of buying was to distribute it as gift later) (with purchase price of gold coin at the time of buying)

To Cash/Bank

(when seller bought the gold coin)

B) Buyer debit (Sale Price - MP of gold at the time of sale)

To Sales

To Output VAT or CST as the case may be

(at the time of sale)

C) Promotion expenses (selling price of gold at the time of sale)

To ????????????????

D) Can seller show gold coin in invoice? He doesn't deal in gold coins.

E) Is gold coin some sort of discount? We know that for sales tax purposes , we deduct discounts and apply sales tax at the value arrived at after deducting cash/trade discounts.

F) Is there anything to do with the gold coin purchase price and the price of gold coin at the time of distributing it to buyer. I mean fluctuations in price like we do in foreign exchange! !

2. Buyer's Point of View

A) Truck Dr. [(Purchase cost - MP of gold coin at the time of purchase) + Sales tax] (fixed asset)

To Seller

B) Gold Coin Dr. (MP of gold coin at the time of purchase) (fixed asset)

To Seller

Please advise.

Thank you so much for your continued guidance.

Regards

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 05 October 2013

Dear Shivani,

I think we don't have issue on buyer prospect.

ON SELLER PROSPECT

Seller have business of selling Trucks but not gold. Here in this case distribution of gold coins are business promotion expense. Entry will be like this

Receivable A/c Dr. xxxxx [Agreed price with buyer including taxes]

To Sales xxxxx [Agreed price with buyer excluding taxes]

To Sales Tax/ VAT xxxxx

(being 10 trucks are sold to XYZ)

Business Promotion A/c Dr. xxxxx [Purchase cost of Gold Coin less VAT input credit if any]

To Gold Coin xxxxx [Purchase cost of Gold Coin less VAT input credit if any]

In regards to disclosure of Gold Coin in Invoice Gold Coin will reflected as zero value in Invoice. So that it can be proved that free products are also delivered to buyer.

You can see free accessories mentioned in Invoice of Computer or Laptop purchase not because of tax purpose but to mention what accessories has delivered along with original product.

No Sales Tax or VAT is applicable for distribution free of cost as taxes and VAT is charged on Price mentioned on Truck.

Although Invoice reflects Gold Coin as zero value still Recording at fair value was suggested because for buyer prospect both Gold Coin and Truck are purchased. Almost same concept is followed for recognition of Credit Card Rewards points.