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
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
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
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
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)
Dhruv
(Chartered Accountant)
(308 Points)
Replied 16 September 2010
Excellent point. And another reason why they should be classified into different heads.
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 |
 |
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) |
|
sorry for reporting a mistake in your comment my friend, its not cost +input vat
guys correctly read its as a suggestion : cost + output vat
as on sales vat tax will be only output vat and on purchases it will be input vat
k n v v s k sri kanth
( )
(564 Points)
Replied 16 September 2010
check these screen shots:
links: (chk both)
https://www.ziddu.com/download/11699005/sales.JPG.html
https://www.ziddu.com/download/11699019/sales1.JPG.html
https://www.ziddu.com/download/11699065/ProfitandLoss.JPG.html
Ankur Mahajan
(SENIOR ARTICLE)
(26 Points)
Replied 21 September 2010
Helo dear,
I agree wid the above opinions. In my words, Sales Promotion or Rebate & Discounts is the most appropriate head for this type of transaction.
CAclubindia
