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Please fast help! What wud be the accounting treatment for..

Rahul (Ludhiana) (67 Points)

16 September 2010

What would be the accounting treatment for goods to be sold as free along with other goods........

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Dhruv (Chartered Accountant) (308 Points)
Replied 16 September 2010

Good when sold for free are usually categorized as advertisement expenses. Since goods sold for free implies goods are sent out at cost in a way the entry should be :

Advertisement Expenses A/C Dr.

To Goods Sold For Free A/C Cr (At cost )

Subsequently at the end of the year

Goods Sold for Free A/C Dr

To Trading A/C Cr.

Profit And Loss A/C Dr.

To Advertisement Expenses A/C Cr

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sudhakar ca cwa (service) (1518 Points)
Replied 16 September 2010

just debit to S&D expenditure

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k n v v s k sri kanth ( ) (564 Points)
Replied 16 September 2010

you mean a good along with other good which was being sold is a free then it should be entered as free quantity column in Inventory mode and in a normal accounting mode i think it cannot be shown instead it can be written in the narration part.

To be more precised, you need to actually bill the quantity sold and the free quantity should be entered in free quantity given column or else you need to reduce in stock with a stock transfer of materials entry in narration write ref. to bill no. and date which can be used for further reference.

Thnx & Regards

Sri Kanth

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k n v v s k sri kanth ( ) (564 Points)
Replied 16 September 2010

else make a Schemes & Discount A/c in Direct expenses group and debit to it and entry would be like this one:

sundry debtor a/c dr. (actual sold stock value)

schemes & discount a/c dr. (free goods value)

To sales a/c

Narration: Being X Qty. sold @ Rs.xyz/- and free goods of Y Qty. issued vide Bill No.123123.

thats it....!!!

Thnx & Regards

Sri Kanth

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k n v v s k sri kanth ( ) (564 Points)
Replied 16 September 2010

sorry friend one more suggestion is that you can even do this entry:

sundry debtors a/c dr. (actual qty value sold)

sales promotion expenses a/c dr. ( free qty. value)

To sales a/c (entire stock value incl. sold value + free qty value)

Narration: Being X Qty. sold @ Rs.xyz/- and free goods of Y Qty. issued vide Bill No.123123.

Thnx & Regards

Sri Kanth

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Dhruv (Chartered Accountant) (308 Points)
Replied 16 September 2010

The problem with classifying it as sales and including it as a part of sales is that at the end of the period you cannot distinguish between what value of goods has been sold for free and what value constitutes actual sales with profit markup.

It would be better to credit the amount of goods sold for free to a separate account and show it in the trading account. Essentially the adjustment amounts to same as suggested by Mr. Sri Kanth.

Dinesh Kumar Agarwal (Article clerk) (117 Points)
Replied 16 September 2010

i agree with views stated by other friends and sales promotion exps.head most appropriate head for the same i think.

but tax element not discussed by any one.

If input vat credit taken on goods which distributed as free of cost than such tax element should be reversed as follows.

Sales promotion A/c Dr. (cost+input vat)

To Sales A/c or goods sold for free A/c (cost)

To input Vat A/c (goods)

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Dhruv (Chartered Accountant) (308 Points)
Replied 16 September 2010

Excellent point. And another reason why they should be classified into different heads.

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Rahul (Ludhiana) (67 Points)
Replied 16 September 2010

thankx for the suggestion friends......

what we are thinking is ...to follow AS -2 as cost or NRV whichever is lower...

as the item is inventory because it is being sold in the ordinary course of business...

so...

friends this is what we have come upon...with discussion of my manager...in PWC

Santosh (Student ( Final Year - New )) (348 Points)
Replied 16 September 2010

Originally posted by : k n v v s k sri kanth
	else make a Schemes & Discount A/c in Direct expenses group and debit to it and entry would be like this one: sundry debtor a/c dr. (actual sold stock value) schemes & discount a/c dr. (free goods value) To sales a/c Narration: Being X Qty. sold @ Rs.xyz/- and free goods of Y Qty. issued vide Bill No.123123. thats it....!!! Thnx & Regards Sri Kanth

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Dinesh Kumar Agarwal (Article clerk) (117 Points)
Replied 16 September 2010

What u r saying is cost or nrv but friend this should be followed for valuation of inventory specially on balance sheet date

k n v v s k sri kanth ( ) (564 Points)
Replied 16 September 2010

Originally posted by : Dinesh Kumar Agarwal
	i agree with views stated by other friends and sales promotion exps.head most appropriate head for the same i think. but tax element not discussed by any one. If input vat credit taken on goods which distributed as free of cost than such tax element should be reversed as follows. Sales promotion A/c Dr. (cost+input vat) To Sales A/c or goods sold for free A/c (cost) To input Vat A/c (goods)